Onshore wind is set to be allowed to bid for government-backed revenue stabilisation contracts.
The move has been welcomed by the industry, which has long argued that David Cameron’s administration was wrong to remove support for offshore wind in 2016, given its relatively low cost.
Trade body Renewable UK said allowing onshore wind and solar to bid for contracts for difference (CfDs) is a win for decarbonisation and the economy.
“Backing cheap renewables is a clear example of the practical action to tackle climate change that the public is demanding, and this will speed up the transition to a net zero economy,” said CEO Hugh McNeal.
“As one of the UK’s cheapest power sources, new onshore wind projects will be a huge boost for jobs and investment in local economies across the UK”.
Solar Trade Association CEO, Chris Hewett echoed that sentiment:
“New clean power auctions for Pot 1 technologies will accelerate the decarbonisation of the power sector and drive the shift towards net zero, bringing with it new jobs, cheaper electricity and opportunities closer to home for Britain’s highly experienced solar investors.”
Unsubsidised renewables can already bid for capacity market agreements. However, they are subject to derating factors, meaning they only receive a fraction of the auction’s per kilowatt clearing price. Energy companies and developers will now need to work out strategies that best fit their projects, given additionality rules.
In the absence of government-backed contracts, developers have been trying to secure corporate backers for wind farms, with companies such as Vattenfall attempting to convince even small companies to commit to buy power direct in order to help finance their projects.
The contracts for difference scheme, where developers compete for limited pots of money, has led to steep cost reductions for offshore wind.
Government is expected to confirm the CfD u-turn later today.
CfDs guarantee developers a set price for power, enabling them to finance projects. If the market price rises above the set price (or ‘strike price’), developers pay it back. If the market price falls below the set price, project owners get a top up, paid via customer bills.
This creates an interesting balancing act for policymakers, given the increase in renewable generation is pushing down the wholesale cost of power.
Update: Beis has now confirmed the news.
Its consultation also aims to reduce payments to generators during periods of negative pricing, likely to be an increasingly frequent occurrence, and to look at how to ease co-located storage into the mechanism.
Meanwhile, the paper confirms new coal-to-biomass conversions will be excluded from future rounds of the CfD scheme.
The consultation also asks for views on how to break down ‘pots’ allocated to technologies, how to link offshore wind decommissioning costs to future CfD rounds, and extending delivery years out to 2030.
See the consultation here.