ECEM: Sentiment tilted towards RO over CfD scheme

Renewables developers are evaluating subsidy scheme options in the UK with the new support system for producers, contracts for difference (CfD), set to roll out its first auction results in April next year.

And ICIS understands the scales are tilted in favour of the renewables obligation (RO) scheme, with some market participants wary of the new system. But some said the scheme could inspire confidence following the first stages of development.

Market sources agreed that most wind developers would opt for the RO scheme before its phasing out in 2017, with fierce competition certain to hit the CfD auctions.

More developers rushing to connect their onshore wind farms and apply for the RO system would in turn mean more ROCs feeding into what has repeatedly been an oversupplied market.

Renewable Obligation Certificates (ROCs) are issued to the UK’s green energy producers as a support scheme. These can then be sold to suppliers who need to comply with a mandatory annual quota. The government will phase out the RO system in April 2017 to new capacity, to be replaced by the CfD scheme, which gives support only to a limited number of projects, as defined by the levy control framework at annual auctions. The cut-off for solar installations of over 5MW will take place in April 2015.

In an interview with ICIS, Ian Temperton, advisory head at investment group Climate Change Capital, said that despite none of the schemes being risk-free, most producers that manage to connect installations before 2017 will generally opt for the RO. “Timing is the key. Everyone is familiar with the RO as it has been going on for a long time and the CfD is simply a bit too new,” he noted.

Gordon Edge, policy director at lobby group RenewableUK, agreed. “The projects which can be in operation before the RO closes in April 2017, or can secure a grace period to enter after that, will predominantly opt for the RO on the principle of ‘better the devil you know’,” he said.

The CfD auctions have limited funding for onshore wind, meaning most developers could miss out. So while the CfD largely takes out the risk of wholesale market movements, the RO still has the upper hand.

Jerome Guillet, from French-based renewable financial advisors Green Giraffe, said the CfD scheme would look more attractive once it has “gone through the early deals”.

“Change is something that people don’t like because you need to relearn and retest and get approved,” he explained.

Developer RWE pointed to predictability as the crucial point in any support scheme. “The key thing developers need from government is a predictable and timely roadmap. This is required to demonstrate the government’s long-term ambitions for the industry,” a company spokesman said.

A seeming lack of confidence in the new support scheme has caused RWE to cease work on the 340MW Galloper offshore project after realising it would not make the deadline to qualify for the RO scheme.

RenewableUK’s Edge expected any wind projects trying to make the cut for the CfD scheme “to have commissioning dates after the closure of the RO, when the CfD is the only game in town”.

With many wind producers likely to rush in before the cut-off date, the market could add to the oversupply that has plagued the ROCs market in recent years.

This would mirror the current situation where solar producers are rushing in to get connected to the grid before the end of March next year. Sophie Udubasceanu and Henry Evans