The UK government will allow onshore wind and solar to compete in its next renewable energy auction next year, ending restrictions on the technologies which have been in place since 2015.
The Department for Business, Energy and Industrial Strategy revealed its plans as it opened up a consultation process on its Contract for Difference auction to be held next year, which could also include first-time contracts for energy storage and floating wind.
The auction will be Britain’s fourth instalment of the CfD auction process, which offers guaranteed strike prices to developers, with the first auction concluding in February 2015 and offering contracts to onshore and offshore wind, solar and bioenergy. However, government support for onshore wind and solar was rowed back following the Conservative election victory the following May, with the government stressing that the technologies did not require government support.
The latest auction concluded in September last year and promised to deliver 5.5GW of new offshore wind capacity, some of which will be delivered at a record low strike price of £39.65 ($49.95; €44.93) per MWh and below wholesale market electricity prices, ensuring unsubsidised offshore wind for the first time in the UK.
The UK last year legislated to become net zero in its carbon emissions by 2050, and the government’s advisory body, the Committee on Climate Change, has said its 47GW renewable energy capacity needs to quadruple to achieve this aim.
The changes to the system were welcomed by Gareth Miller, chief executive of energy consultancy Cornwall Insight, who said the move represents a “material change” and that “economic rationale and net-zero necessity are finally taking precedence over political considerations”, although he warned that developers and investors will need to heed considerations around negative power pricing.
“On negative pricing, the consultation proposes that CfD payments for any contract awarded in the future would stop during any period of negative reference prices, rather than only after six consecutive hours currently,” Miller said in a statement. “This will require close attention from developers. Applicants will need to understand forecasts of future negative price incidents with our power price forecasts suggesting this is a risk that investors will seek to quantify.
“All other things being equal, the net impact of the change is likely to be higher strike price bids as a result of either lost payment expectation or costs of mitigation. Greater exposure to power prices may encourage developers to invest accordingly in flexible battery storage to mitigate these risks. Alternatively, developers could seek to build in a premium into their bids to cover the expected periodic absence of payments. Financing structures may also require some ring-fenced cash in the projects to cover off this risk.”