Contracts for Difference: Exemptions implemented and consultation launched

On 16 January 2018, Cornwall Insight issued its latest Contracts for Difference (CfD) Supplier Obligation (SO) report, forecasting the cost of the Total Supplier Obligation (TSO) for each delivery year until 2021-22. There are two major changes to the scheme recently announced that are now factored into our forecasting.

First, following confirmation of the exemption for Energy-Intensive Industries (EII), our central scenario reflects the lower demand base with the removal of consumption for this sector. Secondly, following the Supreme Court’s rejection of RSPB Scotland’s application to appeal the planning consents for Neart na Gaoithe, the offshore wind project is now included in our central scenario.

The inclusion of the 448MW Neart na Gaoithe project in our central scenario sees an uplift of £0.456/MWh to the TSO in 2021-22, based on the estimated commissioning date of 2021 according to developer, Mainstream Renewable Power.

In other developments since the last report in October, Phase 1 of the Walney offshore wind extension has commissioned (330MW). Six of the 14 projects awarded contracts via the Final Investment Decision for Enabling Renewables (FIDeR) process are now in operation with a cumulative capacity of 1.6GW.

Another FIDeR project expected to fully commission in the current quarter is the Lynemouth biomass conversion (420MW). REMIT data shows that the plants three units will undergo pre-commissioning tests and plan to be fully operational by mid-March.

Following the publication of the Clean Growth Strategy, BEIS has launched a consultation seeking views on proposed amendments to the scheme.

The consultation sets out a definition of remote islands wind as a new technology that can compete under the “less-established” technology category in future auctions. The proposed definition of a remote island is an island located in the territorial sea of the UK (other than the part adjacent to Northern Ireland) where all parts of its coastline are situated at least 10 kilometres from mainland GB. For a project to qualify as a remote island CfD unit it would have to: be located on a remote island, require at least 50km of cabling (of which 20km must be subsea), and be connected to the GB national transmission system or the distribution system.

In addition, refinements designed to ensure more efficient Advanced Conversion Technologies (ACT) and Combined Heat and Power (CHP) plants can compete for subsidy are included, as are updated greenhouse gas emissions criteria that new projects using solid and gaseous biomass must comply with.

The major change proposed in the consultation is to the definition of remote islands wind. With remote island and offshore wind potentially participating in the same future auctions, it is possible that windfarms could procure the entirety of capacity awarded in the next auction and push out other less-established technologies.

Whilst windfarms can provide a large amount of installed renewable capacity with seemingly ever decreasing costs there is a downside to windfarms dominating CfD auctions. The danger of large projects, such as offshore wind participating in CfD auctions was perhaps seen in Allocation Round 2, with only £176mn of the £290mn budget spent at peak. With fuelled technologies subject to a maxima of just 150MW, the result suggests that other windfarms bid into the auction but due to their size consequently breached the budget. If a project or flexible bid breaches the budget, it is rejected and if there are no other projects or flexible bids that can utilise the remaining budget without it being breached then the auction is forced to close without the full budget being utilised.

Another issue with high levels of installed wind capacity comes in the form of price cannibalisation. During times of high wind generation, the half-hourly reference price decreases, which translates into higher top-up payments to intermittent CfD generators, whose top-up payments are based on the half-hourly wholesale power price. With suppliers passing through the costs of the scheme, the burden of these higher payments ultimately falls on to the consumer.

With the consultation open until March 2018 and the next CfD auction provisionally planned for Spring 2019, it remains to be seen whether the proposed remote island wind definition will receive support and whether these projects will be able to participate alongside offshore wind and fuelled technologies in a Pot 2 “less-established” technologies auction.

Cornwall Insight’s quarterly forecast of CfD Supplier Obligation costs includes: a forecast of costs on a £/MWh basis, project news, and relevant consultations for suppliers and market developments. For more information on the report please contact l.drummee@cornwall-insight.com.

Related thinking

Low carbon generation

Our Renewables Pipeline Tracker: In with the new – scoping projects and progression through planning stages

Our latest Renewables Pipeline Tracker was published on 11 June, and this blog provides a summary of some of the recent developments in our coverage of the pipeline for new build and repowering renewables assets in GB. What’s new? Seabed leasing rounds, scoping projects and CfD announcements Since our previous...

Commercial and market outlook

In the midst of the Australian Energy Transformation Process

Australia is in the midst of an energy supply and distribution transformation. This transition is twofold and includes not just bridging the gap from conventional fossil fuels to renewable technologies (due to their reduced carbon footprint, lower levelized cost of energy and improved reliability levels by comparation), but also requires...

Low carbon generation

Nuclear energy and its potential importance for net zero

This article was originally written as a longer piece in Energy Spectrum on 21 March 2021. To find out more about a subscription to Energy Spectrum, please contact Nick on n.palmer@cornwall-insight.com. Nuclear energy has been an integral part of the UK’s electricity system for many decades. Currently, nuclear provides around...

Commercial and market outlook

The PM’s 10-point plan: Further thoughts from our Energy Spectrum webinar

In our regular Energy Spectrum webinar on Tuesday 24 November, Senior Writer Nick Palmer and Head of Relationship Development Robert Buckley discussed the government’s 10-point plan for a green industrial revolution. They considered what has led to this point, what is in the plan, what the reaction was to it...

Low carbon generation

Renewables Pipeline Tracker: Higher, faster, stronger – the changing nature of offshore wind

Having released our October 2020 Renewables Pipeline Tracker report, which covers the latest developments for pipeline renewables sites across GB, this blog explores our recent findings on the pipeline and in particular offshore wind. The Renewables Pipeline Tracker is updated quarterly and includes information across over 1,000 prospective renewables sites...

Power and gas networks

Understanding the backdrop of the UK hydrogen economy

We are delighted to publish our research note on the hydrogen sector: 'Understanding the backdrop of the UK hydrogen economy'. Serving as a primer for our upcoming series of hydrogen insight papers, we chart the UK’s progress in developing a hydrogen industry. In our paper, we cover essential developments in...

Home supply and services

COVID-19-driven changes to electricity Third Party Charges

The impact of COVID-19 on the energy sector has been a hot topic for the last few months. As we progress further into the UK’s lockdown period we are now beginning to piece together the wider picture of effects across energy Third Party Charges (TPCs). These impacts are expected to...

Energy storage and flexibility

FiT costs to reach all-time high amid COVID outbreak

Energy Third Party Charges (TPCs) have certainly been in the limelight recently, and rightly so as less consumption from non-domestic sectors is resulting in a greater recovery of money from domestic households amid the COVID-19 outbreak. Several measures have been taken to date to protect domestic suppliers and consumers from...

This site is registered on wpml.org as a development site.