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Renewables auction propels the UK 11 GW further away from fossil fuels

renewables

The fourth round of UK Government’s “Contract for Difference” (CFD) scheme has secured a record amount of renewable energy, enough to power 12 million homes.

The Scheme

The Contracts for Difference scheme is the government’s main mechanism for supporting low-carbon electricity generation.

CfDs incentivise investment in renewable energy in two key ways. Firstly, CfDs can provide developers with high upfront costs and long lifetimes with direct protection from volatile wholesale prices. In conjunction to this CfDs have the ability to protect consumers from having to take on the burden of paying increased support costs when electricity prices are high.

CfDs incentivise investment in renewable energy by providing developers of projects with high upfront costs and long lifetimes with direct protection from volatile wholesale prices while at the same time protecting consumers from paying increased support costs when electricity prices are high.

Renewable generators in the UK deliver sealed bids competing with each other for contracts with the Low Carbon Contracts Company (LCCC), a government owned company that guarantees a flat rate for electricity produced over a 15-year period. This gives producers the assurance they need to invest in renewable energy in the UK and grants access to private investment which would otherwise go elsewhere.

Consumers are protected within the scheme by ensuring that renewable energy generation companies are only paid the difference between the price they bid in the auctions, and the market price for energy. Thus, if energy prices surpass the quote given at auction, the LCCC will pay nothing in subsidy.   In this way if energy prices go above what was quote at auction, the LCCC pay nothing in subsidy.

The Difference

The CFD scheme is a relatively cheap way for government to subsidise investment in new technology while ensuring that the subsidies are as low as possible, through the auction system and only paid out when the companies need them, by paying the difference between bid-price and market-price.

In this way, the Government has attracted enough private investment to deliver 11GW of electricity (the average requirement of the UK grid is around 30GW) for a subsidy of only £295 million per year. Whether these investments would have happened without this scheme is hard to know, it simply cannot be refuted that the production of 11GW produces a big change in such a short period of time..In addition to securing a record level of clean electricity generation capacity, the fourth CfD round has delivered energy from a greater number of renewable technologies than ever before, helping to ensure a more secure, more resilient energy system.

“Eye-watering gas prices are hitting consumers across Europe. The more cheap, clean power we generate within our own borders, the better protected we will be from volatile gas prices that are pushing up bills.

Thanks to today’s record renewable energy auction, we have secured almost 11GW of clean, home-grown electricity – which would provide as much power as around 6 gas fired power stations.

These energy projects already have planning permission, now they have a funding contract in place. We’re going to these projects built as soon as possible to better protect millions of British families from rising costs.”

Business and Energy Secretary Kwasi Kwarteng

Final thought

Novel funding mechanisms for renewable energy schemes may seem like a dry subject. However, to achieve the energy transition at the speed we need to achieve it, schemes like CFD will be essential. Britain has long been a model for other countries in using novel arrangements to unlike private investment in public infrastructure. The most lauded example is the UK’s auctioning of radio spectrum which has been widely copied as a way to raise revenue for Government.

With a decade left on the clock for the world to halve carbon emissions now is the time for the UK to think big. There are numerous emerging technologies that could make a useful contribution to decarbonisation that have been demonstrated in principle but lack the scale to compete financially with established carbon emitting industries.

Could the LCCC produce similar schemes for the production of green hydrogen? To produce carbon neutral steel? Or to produce low carbon or carbon neutral cement? That is the question.

They are already working on a scheme to produce capacity to the energy grid which will allow for a future when renewables can be relied upon to produce all electricity even during production troughs.

Good news on renewables

Overwhelming foreboding news on carbon emissions simply cannot be ignored. There is so much bad news on carbon emissions. The task is daunting and we should not shy away from the sheer scale of what needs to be done. However, if we do not highlight good news stories and successes in the fight to reduce global warming we will be unable to spread best practise and we risk demoralising each other in the process. We can’t fix climate change as individuals, but that doesn’t mean that there are no climate heroes!

Photo Credit: Dave Pickersgill

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