Allowing ‘established’ renewables access to the ring-fenced ‘less established’ budget under the Contract for Difference (CfD) scheme could slash £600 million a year off the cost of meeting the UK’s 2020 renewable energy target, according to analysis carried out by Baringa Partners.
Commissioned on behalf of solar developer Green Hedge Renewables, the research questions the government’s move to ring-fence 80% of the scheme’s overall budget for less established technologies. Baringa Partners calculates that removing the barrier between technologies would allow the UK to achieve 30% renewable electricity generation by 2020 – enough to meet its target of 15% renewable energy by 2020 – while slashing £600 million off the annual cost of the CfD scheme.
In a theoretical re-run of the first CfD allocation round, the removal of the budget barrier would have resulted in 1.54GW more renewable capacity added to the grid, compared to the 2.14GW that was awarded support. The extra capacity would have been worth 1.2TWh of renewable energy generation, enough to power 360,000 UK homes.
Extrapolating this analysis out to the end of the decade, the removal of the budget barrier would drop the CfD scheme’s annual budget of £1.353 billion to £719 million. In addition, a technology neutral auction would nearly double the amount of renewable energy generated from the support scheme, rising from 28TWh to 41TWh. The extra energy would be enough to power 4 million UK households.
According to Baringa, even if the government only dropped the ‘less established’ budget to 35% of the CfD budget as oppose to 80%, the net result would still be a budget saving of £590 million.
“The CfD system works well to reduce the level of government support for low carbon energy by introducing competition. But it appears at odds with the idea of a competitive allocation that 80% of the budget is ring fenced for the 'winners' chosen by government, even though they are – and are forecast to remain – substantially more expensive”, explained Green Hedge Renewables’ managing director, Niels Kroninger.
He continued: “Baringa’s analysis shows that this decision comes at a substantial cost to consumers: an additional spend of £600 million per year for fifteen years. Reforming the system to make it technology neutral, or at least limit the amount earmarked for more expensive technologies, should be a priority before the next auction.”
As part of the analysis, Kroninger also predicted that solar farms will be able to bid below the wholesale market price by 2020. Kroninger added: “Ground-mounted solar power without subsidies can happen over this parliament. Having a reliable technology, which relies on neither subsidies nor fuel imports and is 100% carbon neutral is within reach. Making it happen should be a priority for the new government.”
However, despite Amber Rudd’s promise that the newly-elected Conservative government would unleash a solar revolution, the Department of Food, Environment and Rural Affairs (Defra) led by Liz Truss has been vocal in its opposition to the development of solar farms. In addition, the Conservatives have pledged to remove all new subsidies for onshore wind farms, one of the ‘established’ technologies that solar PV competes with for the limited CfD budget. It is not clear whether the government will alter the CfD structure to prevent onshore wind from entering or if it will hope new planning rules that devolve the planning process to local authorities will halt the development of onshore wind projects.