UK spells out draft strike prices

UK Energy Secretary Ed Davey

UK Energy Secretary Ed Davey

The UK government today unveiled draft strike prices for renewables under the country’s impending Electricity Market Reform package – offering an initial £155 per MWh for offshore wind, £125/MWh for large-scale PV and £100/MWh for onshore wind in 2014-15.

The contract for difference (CfD) draft strike price for onshore wind will fall only modestly in 2018-19, to £95/MWh; for offshore wind the price will fall more sharply, to £135/MWh.

The government believes that CfD strike prices at these levels will deliver up to 16GW of offshore wind and 12GW of onshore wind by 2020.

Large-scale PV will receive £110/MWh in 2018/19, a level the government feels could deliver up to 3.2GW of capacity by the end of the decade. The government’s goal of 22GW of PV by 2020 is largely centred on smaller installations, which would be compensated outside the scope of the CfD mechanism.

The draft strike prices will not be finalised until later this year, after further consultation.

“But we believe after a huge amount of work – by National Grid, by ourselves, and the ideas having been reviewed by a panel of technical experts – that these numbers are really strong,” says UK Energy Secretary Ed Davey.

Speaking at a press conference, Davey acknowledged that the draft CfD strike prices are what “industry and the investment community have been asking for”.

But he downplayed the suggestion that uncertainty over the strike prices had dented investor confidence in UK renewables – a common refrain among industry sources in recent months.

The UK had 1.9GW of offshore wind capacity under construction at the end of 2011; by the end of last year that figure had fallen to 1.3GW.

“I don’t really recognise that there’s been a hiatus in investment, at least over a longer period,” Davey says.

A short-term lull – “over the last few months” – was to be expected as investors awaited the draft strike prices, he says. “But we’ve seen £30bn in investment in renewables since 2010, which doesn’t look like a hiatus in investment to me.”

With the draft strike prices in place, the government has now begun accepting applications for renewables projects to be compensated by the CfD mechanism, in the hopes of keeping a steady stream of projects coming on line.

On a day in which Whitehall unveiled its first large-scale estimate of the potential volume of shale gas in central and northern England, Davey also claimed that nuclear will eat up only a tiny sliver of the Levy Control Framework through 2020 – with renewables set to obtain “more than 90%”.

The picture is significantly less clear after 2020, however, when new nuclear capacity may come on stream.

The Levy Control Framework covers all of the government’s low-carbon support mechanisms, and is set to rise from £3.3bn in 2014-15 to £7.6bn in 2020-21.

The government did not publish a draft strike price for nuclear power today, and “never intended to”, Davey says.

“When we conclude bilateral negotiations with EDF [for the proposed Hinkley Point C nuclear plant] – if we conclude them, and I hope and believe we will – then we won’t publish a draft strike price, we’ll simply publish the actual strike price.”

He declined to give a date for that announcement, saying only that it will come in “due course”.

Separately, the government also confirmed it will establish a special CfD strike price for renewables projects on Scotland’s remote islands. Consultation will occur over the summer, with that differential strike price to be set out in the final Electricity Market Reform delivery plan in December.

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