Technology neutral auctions must be considered in cost of energy review, urges ERC

The UK Energy Research Centre (ERC) has urged Dieter Helm’s cost of energy review to consider the potential for technology-neutral auctions for the UK market.

If upheld, such a recommendation – made just days before the government’s long-awaited Clean Growth Strategy is due to be published – could see large-scale solar farms competing in Contracts for Difference-styled auctions once again.

Yesterday the ERC published a series of insights that it said should be considered by Helm’s review, due to report back either later this month or early next.

It stressed there was now “significant evidence” that government interventions through feed-in tariffs, auctions and other mandates had been a key driver for reductions in the cost of renewables, particularly in solar PV, wind and battery storage, which can then benefit consumers through cheaper, cleaner electricity.

It also drew from recent auctions in Mexico, Germany and the Netherlands which have demonstrably driven down the cost of renewables.

This, the centre said, had led to the conclusion that there was a strong case for including as many low carbon technologies as possible into a single competitive auction over time. Such a policy would see a CFD-styled auction with no specific ‘pots’, allowing all technologies to compete against each other for contracts.

However a technology-neutral approach would require more specific arrangements to support nascent or emerging technologies – such as carbon capture & storage – for them to realistically gain a route to market.

The prospect of subsidy-free CfDs were also raised once again, with the ERC claiming that they would be an ideal way of reducing investment risk in large-scale renewables without directly offering subsidy support. The centre did, however, conclude that the concept required work with scant details emerging from government other than confirmation last year that they were on the drawing board.

The ERC stressed the need to build on the existing set of instruments and mechanisms rather than make wholesale changes to protect investor confidence.

“Whilst alternatives may be desirable, our research on low carbon investment suggests investor confidence is already fragile, and radical policy change may make that situation worse rather than better,” the note said.

The Levy Control Framework, the mechanism which has effectively controlled investment in renewables, expires in 2020/21 and the government has yet to commit to an extension or replacement having originally been expected to do so within chancellor Philip Hammond’s last budget announcement.

Meanwhile, the ERC also concluded that there was “clear rationale for further government intervention” to promote energy efficiency technologies given their societal benefits. It noted that there had been a significant policy gap since the closure of the failed Green Deal, with its privatised replacement yet to fully ramp up.