Exclusive: CfD budget increase could lead to less solar

Changes to the way DECC calculates levels of support for large-scale PV could mean less overall capacity being built, despite the trumpeted increase in budget, Solar Power Portal has learned.

The Department for Energy and Climate Change (DECC) has confirmed the budget for the upcoming Contracts for Difference (CfDs).

The government has added £95 million in extra support for the CfD scheme in response to industry criticism that the level of budget was insufficient to spur significant renewable deployment. The revised budget now includes £15 million extra in every year from 2016/17 to 2020/21 for established renewables – of which solar is included.

 

 2015/16

 2016/17

 2017/18

 2018/19

 Final Pot 1

 £50 million

 £65 million

 £65 million

 £65 million

 Indicative Pot 1

 £50 million

 £50 million

 £50 million

 £50 million

However, the increase in budget may not translate to an increase in the deployment of solar PV. As part of Contract for Difference: Final Allocation Framework for the October 2014 Allocation Round published on Thursday, the government has revised the load factor it applies to each technology. 

DECC has increased the load factor for solar PV from its initial budget from 10% to 11%. Conversely, DECC has decreased the load factor for onshore wind, taking it from 28% to 26.7% Load factor describes the expected average output of a project over a year proportionate to its peak load.

The effect of this means that solar PV will consume more of the available CfD budget per megawatt than onshore wind, despite the increase in budget. If DECC is assuming that 1MW of installed solar will generate more power than previously, it must allocate that 1MW more of the budget. The reverse is now true for onshore wind.

"Where deviations exist between the load factors used in the renewable obligation setting, and those in the Allocation Framework – for example on offshore wind – this is because our assessment of load factors for projects commissioning in the near future differs from historical load factors observed in the past," a DECC spokesperson told Solar Power Portal.

In addition, DECC has decreased the predicted market reference price. The changes are outlined in the table below: 

 Market ref price £/MWh

 2015/16

 2016/17

 2017/18

 2018/19

 Final

 £51.06

 £52.88

 £50.52

 £48.93

 Indicative

 £54.95

 £57.63

 £59.27

 £60.89

Strike prices will top up the difference between the market reference price; the greater that difference, the more budget is consumed.

Lars Weber of Neas Energy explained what impact this would have on the CfD budget: “The 30% increase [in the overall budget] does not translate to 30% increase in renewable capacity. The decrease in predicted market reference price means that in DECC’s allocation calculations, every MW built and MWh produced will cost DECC more.”

Neas Energy calculates that the changes to load factors and the revised market reference price could result in a net gain of almost zero extra solar capacity and in some years negative. Neas' calculations in the table below show that this could mean more than 300MW less potential solar capacity out till 2018/19, for 30% more money.

 Maximum PV built (MW)

 2015/16

 2016/17

 2017/18

 2018/19

 Final

 721.6

 1009.0

 1091.6

 1305.4

 Indicative

 875.0

 992.2

 1122.1

 1455.4

The ‘indicative’ figures are based on the draft CfD budget and previous market reference price and load factors. The final figures are based on DECC’s latest calculations.

The decrease in the market reference price revealed in yesterday’s documents indicates that the government no longer feels power prices can only go up. This will have an impact on renewable obligation projects as well. Part of the revenue of RO projects is fixed based on the value of a ROC, but the rest is dependent on prevailing power prices.

“If the reference price is going to drop by as much as 20% by 2018/19 it will impact on ROCs. If you have a ROC asset, yes part of your payment is fixed, but you’re also completely exposed to the market,” said Weber.

Ironically, the result could be that the contracts for difference scheme becomes a more attractive proposition than some have previously thought.

Additional reporting by John Parnell.