UK confirms CfD competition plan

The UK government has confirmed its intention to force “established” renewables technologies to compete for Contracts for Difference (CfD) from later this year based on cost alone, with major implications for onshore wind and solar PV.

The government originally signaled its intention to initiate the CfD scheme – the lynchpin of the sweeping Electricity Market Reform package – with a first-come-first-served allocation system for renewables projects.

Yet a number of factors – including the European Commission’s growing impatience with technology-specific support schemes – have led Whitehall to ditch the idea of a first-come-first-served system altogether for technologies deemed established.

That grouping – including onshore wind and large-scale PV, in addition to others like landfill gas and energy-from-waste-with-combined-heating-and-power – would instead be forced from this autumn into a “constrained allocation” system, in which bids are assessed on price alone.

These sectors benefit from things such as years of research and development and “established, responsive supply chains”, the government concludes in a newly published consultation document.

In contrast, less-established technologies – including offshore wind, wave and tidal – will for now be exempt from engaging in “competitive price discovery”, and will continue to receive subsidies based on how advanced they are deemed to be.

The UK has always intended to move over time to a system in which all low-carbon energy technologies – including nuclear – compete directly with one another. The debate has centred on how quickly to do so, and which technologies – if any – deserve special treatment in the meantime.

In late 2013 the government first signaled that it may move immediately towards competitive bidding for onshore wind and PV. At the time, trade group RenewableUK said that such a move could send “shockwaves” through the onshore wind sector.

The government notes that landfill gas, sewage gas, and energy-from-waste with CHP projects will probably submit the lowest bids in the new CfD system, which will go live this autumn. But those technologies will likely consume a “relatively small proportion” of the budget made available for the CfD, it claims.

The remaining CfD budget will then be fought over by developers of onshore wind, PV and mid-sized hydro projects.

Among those three technologies, PV “is currently more expensive than others in this group”, the government acknowledges. The CfD strike price for large-scale PV is due to kick in later this year at £120 ($197) per MWh – compared to £100/MWh for onshore wind.

Under a competitive bidding system, the CfD strike prices would essentially act as the starting point – or the maximum – for the bidding rounds.

However, the government simultaneously embraces the notion that the cost of PV “will continue to fall significantly for the remainder of the decade” while also largely washing its hands of any responsibility to help speed along that reduction.

Utility-scale PV costs will fall on the back of the markets in countries like China, the US and India, rather than the UK, the government says. In contrast, it embraces the huge role Britain is likely to play in driving down offshore wind costs.

The government does dangle the prospect of establishing minimum and maximum thresholds for the established technologies – potentially leaving a larger scope for mid-term PV development than would otherwise be the case. A consultation on that possibility will be launched in March.

The UK installed 1.45GW of large-scale PV last year, a sixfold increase on 2012, thus making it the world’s sixth largest market, according to market researcher NPD Solarbuzz.

The UK will publish confirmation of its approach to competitive bidding in late February – after an underway consultation with industry – and its draft CfD Allocation Framework in March.