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UK changes 'could delay subsidy-free wind and solar by five years'

Ofgem's favoured option bad news for onshore wind and solar economics, says Aurora Energy Research

Planned network charging reforms by UK power regulator Ofgem would delay the deployment of subsidy-free solar and onshore wind by up to five-years, favour gas over renewables and damage the economics of battery storage, claims a new study from Aurora Energy Research.

Aurora said Ofgem’s preferred option following a three-year review of network charging arrangements – launched to correct perceived distortions in how different forms of generation are treated – could have “significant effects on the British power market”.

With the regulator due to deliver its final verdict this summer, the research group claimed its study of Ofgem’s draft proposals reached “some stark conclusions, which in many cases directly contradict Ofgem’s own Impact Assessment”.

With all the UK’s power asset classes suddenly subject to new charging arrangements, Aurora said combined-cycle gas turbines (CCGTs) would emerge as beneficiaries at the expense of renewables and storage, with older CCGTs staying in the market for longer.

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Onshore wind and solar would suffer under Ofgem’s favoured scenario, said the study, losing an embedded benefit and with new balancing charges imposed. “All else held equal, the changes would push back the deployment of subsidy-free renewables by 2-5 years.”

The reforms would knock 1GW off onshore wind and 5GW off PV deployment by 2035, it reckons. Aurora’s team said Ofgem’s assessment that renewables would remain shielded by guaranteed contract-for-difference (CfD) subsidy payments was flawed. “In reality onshore wind and solar PV are not eligible to receive these subsidies”.

Offshore wind – which does get CfDs – would also face an impact, with assets entering auctions having to add an average 2/MWh ($2.70/MWh) to compensate for the impact of extra charges at the costs level, Aurora believes.

Finally, “smart solutions” such as batteries would see higher charges under the Ofgem plans, said the study.

Weijie Mak, project leader at Aurora Energy Research and a co-author of the report, said: “These changes would have a significant impact on the returns for power utilities across a wide spectrum of asset classes.

“We understand the need for Ofgem to ensure network efficiency and consumer protection, however there is a risk that pursuing too narrow a focus on these objectives could undermine the transition towards cleaner and smarter forms of power generation, as well as undermining investor confidence.”

The Aurora study comes as the UK marked a week without coal power in its electricity mix for the first time since 1882.

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