The Department of Energy and Climate Change (DECC) has published further details on how Contracts for Difference (CfDs) will work when they are introduced in 2014.
Under CfDs large-scale solar developers will receive £125/MWh – a rate the government claims is broadly in line with predicted Renewable Obligation funding.
The paper published on Wednesday sets out the draft terms of CfDs as well as the methodology that will be used for CfD allocation.
Business and energy minister Michael Fallon said that the new details provide the certainty that investors required to “get on and invest”, he added: “No other sector is equal in scale to the British power market, in terms of the opportunity that it offers to investors, and the scale of the infrastructure challenge.
“When compared to the existing system of support, the Renewables Obligation, this new support mechanism will make it cheaper to deliver low-carbon generation by around £5 billion up to 2030. This will put the UK one step ahead in the global race to develop clean technologies, and will support up to 250,000 jobs across the energy sector.”
Contracts will be awarded on a ‘first come, fist served basis’ (FCFS) providing there is sufficient headroom in the CfD budget. When half of the budget has been allocated, the scheme – providing there is not sufficient budget available to continue with FCFS – will move to Allocation Rounds. Once Allocation Rounds are in operation, the delivery body will run two rounds a year for low-carbon projects to secure CfDs.
DECC has also released details of how it will look to incentivise ‘timely delivery’ of projects. The first of the so-called incentives is a Substantial Financial Commitment milestone which will require developers to have spent a certain percentage of overall costs within one year of signing the CfD. The Substantial Financial Commitment will be calculated for each qualifying technology.
In addition, DECC will specify a Target Commissioning Window – within which developers will be encouraged to complete the project. Once the window finishes, the CfD duration will start to expire and so DECC hopes that this will encourage developers to complete projects within the window for maximum benefit. The CfD will also have a Longstop Date specified, which will give the CfD counterparty the right to terminate the contract if it is not delivered in time, DECC hopes that this will dissuade developers from applying for CfDs for projects that are unlikely to succeed.
The new details published today fail to address the solar industry’s primary concern with the proposed CfD mechanism – that only solar developments over 5MW will be eligible for CfDs. The Solar Trade Association’s head of external affairs, Leonie Greene said: “Cutting off the sub 5MW market therefore makes solar unique in having a bleak outlook under Electricity Market Reform when the Renewables Obligation (RO) closes. That's not acceptable and we can't believe it's what politicians want given the recent focus on mid-scale and roof-mounted solar. In fact, the result of the policy framework as currently set out would be to drive a focus on schemes larger than 5MW.”
DECC will be accepting feedback on the proposals from industry until early September, with the final terms expected to be published in December 2013.