Energy UK, the domestic energy industry trade body, has urged the government to reinstate Contracts for Difference (CfDs) auctions for established low carbon technologies like solar PV.
The call comes within Energy UK’s five year review of the Electricity Market Reform policy package, which in 2013 sought to trigger an evolution of the UK’s energy markets.
The full review is due to start next year but Energy UK, having consulted with its members, has put forward its opinion on some of the key policies. And central to that is a call for CfDs to not only continue, but for established low carbon technologies to be reinstated.
So-called ‘Pot One’ technologies, which includes just solar and onshore wind, have effectively been restricted from the CfD process since the first auction took place in 2015. Auctions have since then been limited to Pot Two – less established technologies such as offshore wind – which has resulted in significant cost reductions.
But Energy UK has now called for this exclusion to end and for Pot One technologies to be allowed to compete for ‘revenue stabilisation’ CfDs. It says these contracts would remove some of the inherent merchant risk of wholesale price fluctuations most commonly caused by volatility in the fossil fuel markets.
Energy UK is the latest in a long line of trade organisations, investors, public bodies – and even the government’s own advisories – to recommend that solar and onshore wind be allowed back into the CfD process.
The trade body said that the provision of such contracts “will ensure that consumers are accessing the cheapest new electricity sources needed”.
Subsidy-free or revenue stabilising CfDs have been mooted as a potential route to market for established renewables for some time but, while the government has previously said they were under consideration, there has been little policy development.
Lawrence Slade, chief executive at Energy UK, said that while the EMR had demonstrated that low carbon energy could be delivered at an “ever-reducing cost”, it was vital that this transition continued to accelerate.
“It is essential that we not only keep up the pace of decarbonisation in future but go further and faster. That’s why we are making recommendations which can make EMR deliver even more effectively in future,” he said.
But perhaps more interestingly, Energy UK has also picked up calls for renewables to be allowed to compete in the Capacity Market.
The idea was mooted by energy and clean growth minister Claire Perry at this year’s Aurora Spring Forum and appeared to be an extension of National Grid’s intention, announced last December, to trial renewables in frequency response markets. While existing renewables projects in receipt of government support would be excluded from competing, Energy UK considers that allowing new-build renewables to compete for contracts would enable them to stack additional revenue streams.
That, the trade body has said, would constitute a “helpful way” in enabling them to be more financeable moving forward.
It now wants National Grid, the CM’s delivery body, to consult with the industry “as soon as is practicable” to establish appropriate de-rating actors – a contentious issue for battery storage developers – that would allow renewable plant to compete in CM auctions as soon as possible.