The UK Government has proposed that the new regime for renewables subsidies – Contracts for Difference – will by-pass the first-come first-served round and move straight to competition.
Under the new proposals "established" technologies, including onshore wind, solar PV, energy from waste with combined heat and power, and hydro, would move straight to constrained allocation, where they would compete on price for a limited slice of the CfD budget. Less established technologies, including offshore wind, wave and tidal, would not require to compete for price against the established technologies, and therefore are likely to be given a "preferred" slice of the CfD budget.
This is not an entirely surprising move, given the scale of projects that applied for the preliminary FID enabling round, and which hoovered up the budget limits set by the Levy Control Framework, but nevertheless it is highly significant and marks a dramatic change in the renewables subsidy regime for established technologies.
The move to the auction process of constrained allocations means that generators will be competing for subsidies based on the cheapest bid. There is a clear expectation on the part of DECC that the published strike prices for the established technologies will effectively become caps, and that generators will need to bid below the published levels in order to secure funding support.
Government is minded to reserve a minimum allocation of 100MW for wave and tidal projects at least until 2019, given that they are still at demonstration stages, and DECC has also indicated that biomass conversion projects and Scottish islands projects may need special treatment.
For all other established technology developers, although they saw it coming, the subsidies regime is clearly going to get tougher, and depending on your forecast of how the RO market is going to work post-March 2017, it may be advisable to accelerate schemes currently in development so that they qualify for RO support before the end of the transition period.
Disclaimer
The material contained in this article is of the nature of general comment only and does not give advice on any particular matter. Recipients should not act on the basis of the information in this e-update without taking appropriate professional advice upon their own particular circumstances.
