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CfD – early winners

By Dave Elliott

The UK’s new  Contracts for a Difference system will replace the Renewables Obligation fully from 2017, but before then some green energy projects will be supported under it. 16 have been earmarked for consideration for this early support under the Final Investment Decision (FID) ‘Enabling for Renewables’ process.

They include a 300MW biomass CHP project on Teeside, 5 coal-to-biomass conversion projects by Drax/Eggborough (3GW in all), 7 offshore wind farms, 4.5 GW in all (3 proposed by Dong Energy) and 2 on-land wind farms, 200MW in all (one from Ecotricity), the grand total coming to 8MW. If they get accepted, the offshore wind projects will be eligible for CfD support with the revised wind strike price just announced starting at £155/MWh in 2014, falling to £150 in 2016, and then to £140 in 2017. Onshore wind projects will be paid £95 from 2014 reducing to £90/MWh from 2017. Biomass CHP will get £125, biomass conversion  £105/MWh. www.gov.uk/government/publications/investing-in-renewable-technologies-cfd-contract-terms-and-strike-prices

Compared with the draft prices originally proposed, the new CfD prices offer a bit less to PV solar and  on-land wind (illustrating, if you take a positive line, that they are getting cheaper), and a bit more to offshore wind (although some said that was economically odd, since on-land is cheaper!) Even so, the latter didn’t come in time to influence RWE in its decision to abandon the £4bn Atlantic Array project off the Devon and Welsh coasts, but that decision was evidently more to do with problems with the site- it has a hard rock sea-bed, making pile drilling hard.  It could be that, in time, floating offshore wind turbines will offer an easier option either there or further out- which might avoid the opposition that had emerged from the National Trust and others. For now there are still plenty of offshore wind projects going ahead, although Centrica said they may pull out of the £2bn Race Bank project proposed 17 miles off the Norfolk coast. It didn’t qualify for early CfD support. Nevertheless, Dong have stepped in to pick this project up, and overall it seems likely that the UK will get to 10GW of offshore wind by 2020 and maybe more- 18GW was the initial expectation. On land may not do so well, given the tighter planning regime that has been imposed, but should still reach 12 GW or so by 2020.

The CfD also in theory covers Carbon Capture and Storage. But as a new and still mostly undeveloped technology, it’s as yet not ready for a CfD, although DECC has been trying hard to stimulate projects at Peterhead and Drax. But it’s hard to know what will emerge, when and at what cost.

A little oddly, given that it’s an allegedly mature technology, the CfD also covers nuclear. The CfD proposed for the 3.2GW Hinkley Point C nuclear plant has a strike price set at £92.50/MWh from when it starts up, possibly in 2023, assuming construction starts in 2015- all this of course depending on whether the European Commission  allows the CfD and other support through. That support includes the £10 bn guarantee that EDF has been offered under the UKs £25 bn National Infrastructure Plan. But even without that, Hinkley will clearly be more expensive than onshore wind, although somewhat cheaper than offshore wind and much cheaper than wave and tidal stream, which will get £305/MWh under the CfD. Large PV solar gets £120/MWh in 2014/15, £115 in 2016, £110 in 2017 and £100 in 2018, and by 2023 may well be competitive with Hinkley…with maybe 10GW and perhaps even 20GW of PV, large and small, in place by 2020. Either way, much more than new nuclear, even by the mid 2020s, when the next project in the nuclear pipe-line, Hitachi’s Horizon project at Wylfa in N Wales might be ready. As well as being eligible for the CfD, presumably after a strike price negotiation, that has now got a promise of investment guarantee support under the National Infrastructure Plan (NIP), to be confirmed by 2016. It will probably be an Advanced Boiling Water Reactor, although, unlike EDF’s EPR, that design has yet to get UK Generic Design Assessment certification.

Some green energy projects are also candidates for NIP support: the Able Marine Energy Park, a port facility to support manufacture, assembly and installation of offshore renewable technologies on Humberside, and Mainstream Renewable Power’s Neart na Gaoithe Offshore Wind Farm in the Firth of Forth. www.gov.uk/government/news/new-infrastructure-plan-published-by-government

North American energy analyst Paul Gipe has compared these various projects and schemes and came up with some startling conclusions. He says that under the competitive-market CfD system  ‘Britain will pay more for wind energy-on and offshore-than any other country in Europe despite having a better wind resource than most other European countries’. Most of them use (two stage) guaranteed-price Feed In Tariffs, which he claims work better, so that, for example ‘prices for wind energy on land will be at least 25% higher in Britain than just the initial price in France and Germany. Prices for offshore wind in Britain will be 40% higher’. He adds ‘Critics of the CfD program have suggested that the high prices for wind were determined politically so that they would appear higher than the strike price for nuclear’. The CfD project lengths (15 years for wind, 35 for nuclear) add to the differential, though as both options are index linked, in discounted cash flow terms, he says inflation effects may have more impact on nuclear. Maybe, but short contracts mean less financial security, pushing up investment costs. www.wind-works.org/cms/index.php?id=39&tx_ttnews[tt_news]=2843&cHash=3ca15c81a19f57645bea0b4daf4e8e51

All the above are about electricity generation and arguably that’s an area which is bedeviled, or at least made complicated and controversial, by the inclusion of nuclear, and by the competitive market-based CfD. But DECC is also keen to press ahead fast with green heat. In its response to the latest Renewable Heat Incentive consultation, it sets out a range of improvements to the RHI support scheme- which many see as one of its better efforts, being more like a continental-style feed in tariff, but supported by the state, not consumers. www.gov.uk/government/consultations/renewable-heat-incentive-expanding-the-non-domestic-scheme

The non-domestic RHI scheme has been open to commercial, industrial, public sector, not-for-profit and community generators of renewable heat since November 2011. It aims to bridge the gap between the cost of fossil fuel heat sources and renewable heat through financial support for owners of participating installations. Given low levels of uptake for some technologies in the scheme and additional evidence from stakeholders, DECC decided to re-examine the evidence on the assumptions and cost data used to set the level of tariffs when this world-first scheme for renewable heat was launched. On the basis of the new input, it has decided to increase the support available for solar thermal systems to ₤100/MWh, ground source heat pumps to £72/MWh, deep geothermal to £50, biomass CHP to £41, and large biomass to £20. DECC is also introducing new support for air-water heat pumps (at £25/MWh) and commercial and industrial energy from waste (£20/MWh).

DECC has also published further details of the domestic RHI, the start of which had been delayed until this year, as well as confirming the tariff for solar thermal at ₤192/MWh. Ground sourced heat pumps will get £188/MWh, biomass boilers £122, and air sourced heat pumps £73. All good stuff for once…with DECC at long last attending to heating, including some community wide district heating projects. Just what is needed to balance the emphasis on electricity.

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