Policy & Market


Renewables to get first UK CfD 'strike price' by end of 2013

The initial Contracts for Difference (CfD) "strike price" for renewables will be finalised by the end of 2013, says the UK government.

The finer details of the CfD remain among the most keenly-awaited areas of UK policy, despite claims by the government that its newly-launched Energy Bill and power market reforms provide renewables investors with the long-term visibility they need.

The CfD mechanism will replace the existing Renewables Obligation support scheme, which is set to end in 2017.

Among the elements specifically welcomed by industry are the government's decision to allocate CfDs on a first-come, first-served basis rather than on a six-monthly allocation round as originally proposed -- a "fairer and more transparent" system, says the UK's Renewable Energy Association.

The government confirms that a new state-owned company will act as a single counter-party to CfDs with low-carbon generators.

The Department of Energy and Climate Change (DECC) says that CfD contract allocation will initially take the form of an "administrative process" for renewables, with support levels set by government.

Although DECC declined to offer specific strike prices, it says the CfD will be an "improvement" from the standpoint of developers as it offers greater clarity on revenue levels "far earlier" in the development process.

During the first three years of EMR, to 2017, the strike price for renewables will be "similar" to the prices generators receive under the most recent Renewables Obligation banding.

From 2017, the government will move towards a "competitive price discovery" process through technology-specific auctions. By the 2020s it hopes to move to technology-neutral auctions, and by late next decade it believes CfDs will no longer be necessary.

While the government intends to standardise CfD contracts across various low-carbon technologies as soon as possible, it acknowledges that there will be some design differences initially – for example between intermittent and baseload generators.

There will be a two-stage application process for CfD contracts once developers have obtained planning permission and a grid-connection agreement, followed by a "small number of hurdles" post CfD-award in order to retain the contract.

The government says it expects the Energy Bill to achieve Royal Assent in 2013 so that EMR will be fully up and running by 2014.

But a number of details critical to the renewables sector remain to be ironed out in secondary legislation in the months ahead.

The Bill received a generally warm welcome from other UK industry groups.

Maf Smith, deputy chief executive of RenewableUK said: “This Bill is crucial in setting the investment framework for the next 20 years and ensuring that we can build on our current world lead in offshore wind and marine technologies, and guarantee clean domestic power and tens of thousands of green jobs”.