The UK Government has launched a consultation on support for island renewables projects.
Earlier this month, the Government announced a strike price for island onshore wind at £115 per MWh. This is £15 higher than the strike price for onshore wind on the mainland. The intention is clearly that the strike price will be a sufficient bridge for the higher development costs on the islands (not least, the significantly higher transmission costs).
Whilst industry gave a cautious welcome to the higher strike price, it was clear from responses to the earlier announcement that developers did not see the strike price on its own as being enough to encourage large-scale investment. Mindful of that, but showing some reluctance to let go the purse strings, the new consultation exercise is intended to test whether the strike price on its own could support – as Government quite deliberately expresses it – the "more cost-effective projects".
Responses to the consultation exercise are likely to repeat existing arguments, including the options of (a) setting a higher strike price that is enough to bring on all projects or (b) setting different strike prices for different island groups, due to differing transmission costs. Government has more or less indicated, however, that these options will not find favour. They already argue, pre-empting the responses to the consultation, that:
- setting the strike price at such a level as would support all projects would over-compensate the cheaper projects and would lead to higher overall costs that the base case, and
- a differentiated strike price could not deliver value for money relative to the base case.
Of course, island developers are likely to point out (again) in their responses to the consultation that the base case is effectively a mainland base case and a flat £115 per MWh strike price is not enough to compensate for what the Government-sponsored Baringa/TNEI analysis acknowledges is a much higher per unit cost of transmitting from the islands, ranging from +25% on Orkney and Shetland to +50% on the Western Isles.
So, £115 is a welcome start, but the responses to the new consultation are likely to indicate a much higher level of subsidy in order to bring forward many of the proposed island developments.
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.
