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European approval of UK’s CfD subsidies may set-back launch - DECC

21 Jun 2013 12:57:15 | edem

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The EU could delay access to the new contracts for difference (CfD) subsidy mechanism for clean energy in the UK beyond the April 2014 target launch date, ICIS has learned.

The CfDs will let companies sell low-carbon generation on the wholesale market at a set strike price, as part of the UK's forthcoming electricity market reform.

However, the European Commission has to approve the CfD model before it can come into force, as it constitutes state aid (see EDEM 11 April 2013).

The Department of Energy & Climate Change (DECC) has said this approval could take about 18 months, and the process has not yet begun.

This adds to the uncertainty surrounding the CfD structure, which industry sources say are undermining investor confidence.

"We are in discussion with the Commission about the state aid implications of the electricity market reform," said a DECC spokesman.

DECC has not yet notified the Commission that it wants to give state aid through the CfDs. Once this has happened, the standard time for a Commission decision is 18 months, so December next year.

Jonathan Brearley, DECC's director of the electricity market reform, told ICIS he was unsure of the approval timelines.

"You can never tell how long a state-aid process is going to last; that's in the hands of the Commission, not us. For renewables technology the process previously has not been too onerous to stop us being able to implement on time," said Brearley, who is also DECC's outgoing director of energy strategy and futures.

"It is my current understanding that the process will take less than that [18 months to two years] for renewables [excluding nuclear generation]."

Brearley added that aid to renewables such as onshore and offshore wind are likely to be approved faster than nuclear and carbon capture and storage (CCS) technology.

"I've heard varying reports on how long the CfD for nuclear would take to be reviewed by the Commission - from between one-and-a-half to five years," a lawyer specialised in energy said.

Years of delay may not impact new nuclear plants, such as EDF's 3.2GW Hinkley Point C project, however, since they take about a decade to build (see EDEM 19 March 2013).

"As long as EDF has the confidence that the CfD will be approved by the Commission, a delay of several years would not matter much since Hinkley Point C will not start generating energy until 2024," UBS utilities analyst Stephen Hunt told ICIS. "This is a pressing issue for low carbon generators other than nuclear."

Some information, including the proposed strike for different forms of energy generation, is due to be published on 18 July. Katie McQue

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