New UK renewables auction to fund 2GW of capacity from 2016

Henry Evans

26-Feb-2015

Two major offshore wind developments in the UK have succeeded in securing subsidies in the government’s first ever competitive auction for renewable energy funding, which will provide a guaranteed stream of income to over 2GW of projects, it was announced on Thursday.

1.2GW offshore wind

The results of the first auction of the Contracts for Difference (CfD) programme revealed that 714MW of capacity from the East Anglia One offshore wind farm and the 450MW Neart na Gaoithe were successful in securing a strike price of £119.89/MWh and £114.39/MWh respectively.

Developer ScottishPower Renewables says it will aim to begin construction on East Anglia in 2017 and achieve full commissioning by 2019.

Mainstream Renewable Power, which is the developer behind the Neart na Gaoithe project, has previously indicated that the wind farm will start exporting power in 2017.

Major onshore wind projects to secure a strike price are the 177MW Dorenell wind farm and 104 Kype Muir project, both in Scotland and obliged to commission by 2018-19 at the latest.

Successful applicants will receive the strike price for each megawatt of electricity generated over a fifteen year period.

In total, the auction has secured subsidies for 27 renewable projects with just over 2GW of capacity.

In addition to the two large offshore farms, 15 onshore wind farms providing 750MW of capacity were also successful.

Each technology received a different clearing price in the auction, with five solar PV projects had the lowest clearing price. A combined 72MW of solar capacity was successful, and almost half of this capacity will receive their payments in 2015/16.

These will be the first to receive their CfD payments, with the rest kicking in from 2016 onwards.

Unsuccessful project uncertainty

Despite the volume of capacity that has secured contracts, there will now be doubts over the ability of projects that failed in the bidding process to reach a final investment decision.

Although the next auction round is scheduled to take place this autumn, experts have previously warned that some renewable projects that fail into the first auction would fall by the wayside in the wait for the next tranche of subsidies.

Up to 5GW of offshore wind capacity was thought to be bidding into the auction including the 1.14GW Moray Firth development.

Higher development stage costs for offshore wind compared to other renewable projects could deter developers from committing more capital to keep projects afloat ahead of the next auction (see EDEM 13 November 2014).

Experts have also previously warned that competitive nature of the auction could lead to developers submitting bids at unsustainable levels that could compromise their ability to deliver on the contract’s terms (see EDEM 2 June 2014).

Both successful offshore wind projects entered the auction with bids considerably lower than the banded strike price of £155/MWh that the Department of Energy and Climate Change (DECC) had initially set for offshore wind ahead of moving to a competitive allocation method.

Despite the absence of public information on non-successful applicants, economic consultancy NERA has estimated that just 27% of applicants to the auction were successful based on the total value of applications compared to the money that has been awarded.

Cost reduction

Industry commentators on Thursday agreed that the auction had succeeded in driving a cost-reduction in the renewables sector.

“The prices achieved by the onshore industry show what utter folly it would be to choke off this low cost form of low carbon power and the results also demonstrate that the offshore industry, provided the conditions are maintained, is well on the path to achieving its stated aim of £100/MWh by 2020,” said RenewableUK’s chief executive Maria McCaffery. Henry Evans



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