The UK Government today published revised draft strike prices for Contracts for Difference, the subsidy regime that will replace the Renewables Obligation (RO) with effect from 31 March 2017. And the news is not good for onshore wind developers.
With effect from the middle of 2014 transition arrangements will apply, where generators can opt to accredit under the existing RO regime or, alternatively, apply for Contracts for Difference. For onshore wind developers, with projects due to commission before 31 March 2017, that choice may be influenced by the further degradation of the strike price announced today.
The strike price in Contracts for Difference is the benchmark that governs how much of a subsidy is paid to generators, where the market price for electricity (the reference price) is less than the benchmark – and conversely how much is repaid by generators if the reference price exceeds the strike price. If it is set too high the expectation is that it will always exceed the market price and the public purse will be in a constant state of subsidy; if it is set too low it will not remove the risk of wholesale market price volatility – and in fact will introduce a new risk of permanent cross-subsidy by generators in favour of the CfD Counterparty. This, of course, would kill further development of onshore wind post-31 March 2017.
Government has obviously been unnerved by the betting game of trying to set the strike price at the right level for what is still the most productive sector of the renewables industry. There is severe political pressure around domestic fuel bills, and the Government has today hedged its bets further.
In June this year, the draft strike prices for onshore wind started (2014/15) at £100 MWh, reducing to £95 MWh by 2018/19.
In the Government announcement today, the strike price for 2014/15 remains unchanged, but reduces to £95 MWh for 15/16 and 16/17, and then £90 MWh for 17/18 and 18/19.
There has been a minor uplift in the offshore wind subsidy, by increasing the 2018/19 level from £135 MWh to £140 MWh, but otherwise the levels remain the same as the draft June prices.
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