UK privileges less established renewables in CfD funding

24 July 2014 16:17 Source:ICIS

Less-established renewable energy technologies are set to get triple the amount of government subsidies in the UK than more established counterparts. This could boost offshore wind and wave projects, while biomass conversion initiatives will miss out on additional funding.

Lobby groups fear the latest proposals will damage renewable energy sector investment and make it more costly and difficult for the UK to hit its renewable energy goals.

Under the Contracts for Difference (CfD) mechanism, renewable energy projects can annually compete for just over £200m (€253m) in subsidies via auctions, according to statements released by the country’s Department of Energy and Climate Change (DECC) on Thursday.

A total of £155m will be allocated to projects labelled “less established”, such as offshore wind, wave and tidal stream. More established technologies, such as larger onshore wind and solar initiatives, will have to compete for a pot totalling £50m.

The CfD kicks in this October. Under the terms of CfDs, low-carbon energy generators are guaranteed a certain financial return for power generation, the so-called strike price. This is to ensure that they can make a profit independent of wholesale market prices. The government will pay generators the difference between the market price and the strike price to provide long-term certainty and reduce investment risk.

Rationale and reaction

DECC on Thursday also released consultation papers shedding light on the rationale for its funding framework.

For example, biomass conversion projects are in a separate group as including them in the “more established” group would disadvantage them against those that require smaller strike prices.

DECC also put a minimum 100MW capacity threshold on wave and tidal stream technologies, to ensure that these make up a larger share in the future energy mix.

DECC’s funding breakdown sparked criticism from industry groups, however.

RenweablesUK slammed the budget allocation as too “cautious” and said the proposals fail to provide investors with sufficient long-term clarity. The lobby group has suggested that current investment levels are too low and could hinder the country’s ability to add sufficient capacity to meet its 2020 goals. The latest decision by DECC could exacerbate this trend, it warned.

“An overly restrictive budget for the established group of technologies will mean a lower level of delivery of the cheapest technologies, risking consumers paying more than they should have to,” said the organisation in a statement on its website.

Industry group Solar Trade Association also argued that solar competing in the “more established” group would see new capacity decline significantly.

The Renewable Energy Association warned that the disproportionate allocation of funds to less-established technologies threatened the country’s energy security. Instead, more established projects and biomass conversion initiatives can “immediately plug the looming capacity crunch with low carbon generation whilst ensuring value for money for the consumer”, it said.

The government came under fire from the National Audit Office last month on the questionable allocation of funds for renewable energy projects with half of its budget for the CfD scheme already invested ( see EDEM 27 June 2014 ). Christopher Rene

By Christopher Rene