The UK government’s consultation on the Contracts for Difference (CfD) scheme is a delightful surprise to the renewable energy industry.
Of course, this is ‘only’ a consultation rather than a definitive policy announcement, but its content gives significant positive indications of likely policy, one that will keep power flowing to Britons while delivering the targeted 2050 net-zero goal at reasonable consumer prices.
To meet those goals, the Committee on Climate Change has already suggested that the UK needs four times its current capacity of renewable generation.
The suggestion that onshore wind and solar could be part of the ‘Pot 1’ CfD auction – awarded to established technologies – grabbed many of the headlines. The previous omission of solar and onshore wind from the more recent CfD allocation rounds had led boom and bust with the rush to qualify for the now-discontinued ROC (renewable obligation credits) regime followed by a dramatic decline in deployment of both technologies and amazement that fossil fuel generation was bizarrely receiving far more subsidy in the capacity mechanism that is designed to keep Britain’s lights on.
The few solar and wind projects currently advancing are those viable without some form of price support. Such a small level of activity was nowhere near enough to continue the low-cost decarbonisation of the energy sector as older plant comes to the end of its life and coal-fired powered stations are shut down.
The inclusion of onshore wind and solar in the next allocation round, slated for 2021, is low risk for the government. Never has the level of price support needed been so low. All that is maybe needed is the enabling of project developers to see predictable and stable revenue flows. Projects securing a CfD will be offering the lowest prices yet. The big unknown is quite how close they will be to those of offshore wind’s low £39/MWh ($49/MWh) of the last CfD round and to wholesale price.
The reinforcement of the role of communities in projects will have a significant impact on onshore wind and solar projects. Developers are given clear guidance on how to win that support. Suggestions include early and frequent local community engagement, and clear articulation of local benefits.
As with all guidance, the successful players in the market are already following this best practice. If implemented, new projects will only go-ahead with local support. This may be the UK government's way of heading off any last-gasp opposition to projects in some of its core supporter areas. The community considerations in the consultation sets the ‘mood music’ for local authorities. It signals that such projects will have the blessing of central government.
The bottom line is that over the last 10 years any remnant Nimbyism has shifted from one of “I guess this is acceptable here” to “we need more of these”.
Other suggestions in the consultation paper impact all renewable developments too. The 300MW threshold for supply chain plans (SCP) means they currently only effectively apply to offshore wind projects. Lowering this limit, or changing the criteria changed, for example, where the project is “large enough to make a material impact on the supply chain”, could mean more onshore wind projects require a SCP.
The government also appears keen on increasing the enforceability of SCPs. This will ensure delivery of commitments made early in the development process. A stronger compliance process will be politically popular as a way for any UK subsidies to deliver direct benefits for British supply chains, innovation and jobs.
Rather than enforcement, it is the criteria for SCPs that are the real challenge to the industry, such as local content. Although SCP criteria is not mentioned in the consultation, offshore wind’s so-called “sector deal” is referenced. The deal includes an industry commitment to increase UK content to 60% by 2030. Encouragingly the development of floating technologies through the use of a separate strike price is also raised.
On balance, the consultation provides positive news for renewable energy in general, and onshore wind and solar in particular. The key will be translating this consultation into policy. For that, we’ll have to wait a few more months. If at least what is suggested becomes policy, it will enable Britain’s renewable sector to get on delivering the UK government targets.
Mike Blanch is associate director of UK renewables consultancy BVG Associates
