UK power free from subsidy schemes’ influence – DECC

24 December 2013 12:01 Source:ICIS

The co-existence of two renewable electricity support schemes in the UK “will not materially affect” wholesale power prices, a government-commissioned report published in December has suggested.

In the UK existing renewable power generation of 5MW capacity and above is subsidised under by the renewables obligation (RO) model. But In 2017 the RO will close to new capacity, to be replaced by a contract for difference (CfD) model. The CfD is the cornerstone of DECC’s market reform programme, and the centrepiece of the energy act, which became law just days ago.

“The exact division between these two forms of support is hard to model, and so DECC accepts this as a reasonable assumption that will not materially affect support costs, the LCF [levy control framework] and the wholesale prices before 2020,” the report said.

Earlier this year, the UK’s Department of Energy and Climate Change (DECC) commissioned an independent panel of technical experts to look into delivery of electricity market reform ( see sister publication ECEM 23 December 2013 ).

The panel’s report, published this month, cited evidence from DECC’s own “dynamic dispatch model [DDM]” – an in-house mechanism used by the department to analyse policy impacts in future scenarios – which indicated the department is not anticipating a “material” impact on the wholesale market.

The CfD model, which DECC assumes will become the regime of choice for new renewables capacity commissioning from around 2016 onwards, will see clean power volumes sold into the wholesale market as usual, with a top-up fee or a claw-back system ensuring a pre-defined income stream for generators, known as a strike price.

Generators will still be able to benefit from market movements however because the strike price will settle against a reference price, giving the opportunity to sell at a premium to this reference price. Jamie Stewart

By Jamie Stewart