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UK CfD funding at risk of shortfall from 2017 – PWC

27 Mar 2013 19:11:32 | edem

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The fund allocated by the UK government to subsidise low-carbon energy generation may dry up by 2017, leaving many projects without support, according to a study by PricewaterhouseCoopers.

"Is £7.6bn enough to fund the roll-out of the renewables needed to hit the 2020 target? Even in an optimistic scenario it is likely that there will be a shortfall," said report author Ronan O'Regan. "The majority of developers will not be able to access contracts for difference."

The Department of Energy & Climate Change is introducing long-term feed-in tariffs with contracts for difference (FiT CfDs), under which generators will be guaranteed a fixed price for electricity sold from low-carbon generation assets (see EDEM 18 March 2013).

A levy control framework of £7.6bn has been put forward by the government for CfDs for between 2015 and 2020. PWC estimates that at least £8.0bn (€9.4bn) is needed to support projects in 2020. If wholesale power prices decline over the coming years, however, support upwards of £8.5bn would be required.

"In this scenario, a shortfall in LCF funding for CfD projects emerges from 2017 and remains a constant feature of the market through to 2025, the end of the period modelled," stated the study.

A consequence of limited funds and the structure of the CfD scheme also have the potential to marginalise onshore wind technology.

Technologies will be divided into different funding pots from which they will access a portion of the £7.6bn. A general pot will consist of onshore and offshore wind, and there will be special pots for biomass and solar, and for nuclear.

Projects in the general pot will only be able to request a CfD once they have achieved certain milestones such as secured planning consent and a grid connection offer. Those in the special pot may not be subject to such scrutiny, and may gain priority over the general pot in years when a shortfall is anticipated.

"If the special pots get preference then wind will compete for the remaining money," said O'Regan. "Offshore wind has a much longer lead time than onshore wind onshore has a lead time of two years and offshore has a lead time of four years. Offshore projects will have to access CfDs much sooner than onshore; so there is the potential for onshore to get crowded out."

The report also raises concern over the lack of clarity on the level of funding that will be made available after 2020.

"Sending clear signals that there will be a market after 2020 for renewables will hopefully reduce strike prices," O'Regan added. "It is absolutely fundamental to give the perception of confidence to the decarbonisation target for 2030. It would be our preference for this to happen before 2016." Katie McQue

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