Saturday 28 February 2015

UK low-carbon contract winners revealed: Wind scores, solar disappoints

The first round of the Contracts for Difference (CfD) programme — the UK scheme that is designed to support low-carbon generation and a capacity margin in the energy sector — has concluded. Contracts were offered to 27 renewable electricity projects with a total value of some £315 million (US$500 million), which include two offshore wind farms with a total planned capacity of more than 1.1 GW, 15 onshore wind projects and five solar projects.
In total, more 2 GW of new low-carbon capacity (including renewables, nuclear and carbon capture and storage) could be built under the CfD scheme. According to the government, this CfD scheme will cost £110 million ($170 million) per year less than would have without the program. And as a result of the scheme, consumers are getting around 550 MW more capacity than could have been funded without competition.
 
Indeed, Greenpeace Chief Scientist Dr Doug Parr said: “We’ve known onshore wind is much cheaper than nuclear for a while, but now we learn that solar power is already cheaper than new gas generation in some cases. It makes you wonder what could have been achieved with less party-political manoeuvring and more stable government support for the clean technologies already being embraced by the world’s largest economies.”

Overall Policy Criticized

And, while some technologies evidently argue they deserve more from the current support mechanisms, other more fundamental criticism has been levelled at wider UK energy policy.  In a position paper from the Energy Futures Network titled: “Competition, Regulation and Reform in the Electricity Sector,” Professor Dieter, helm of the University of Oxford, pointed out that in the last couple of years the coal price has halved, and in 2014 the price of gas fell by over a quarter. However, the wholesale price of electricity in Britain is almost twice the level in northern Europe while capacity margins have tightened and retail prices have not reflected the underlying fossil fuel prices. “The British electricity sector is therefore failing on all three main objectives: security of supply, carbon emissions and competitive pricing,” said Helm.
He argued that a comprehensive package of measures could put the industry back on a sustainable basis of workable competition, in the context of significant consumer protection and the attainment of the climate change policy objectives. “All are practical and evolutionary, and could be implemented quickly,” Helm stated.
Outlining his proposed solution to the challenges, Helm said: “In principle, each market failure needs a separate policy instrument, and the obvious answers are to fix the quantity and auction it; and to set a carbon price. There would be a single capacity auction, into which all the options could bid (demand reductions, new coal, gas, wind, solar, nuclear and so on). The firm-power contracts would be awarded to the lowest bidder, with credible penalties for non-delivery. Those technologies that are intermittent would sub-contract for back-up and hence face the full costs of the intermittency.
Helm continued: “These bids would be net of the expected carbon price, either established in a permits trading regime or (better) through a carbon tax.  The single unified auction solves other problems too. In particular it puts entrants on the same basis as incumbents.”
Helm placed these proposals in the context of UK energy policy.
“It is far from obvious that piecemeal change will additively improve competition, though a number of the measures are justified on a stand-alone basis. The highly political controversies need a permanent solution, and not just a series of ad hoc reforms,” said Helm. “The package is simple to state: a Pool wholesale market; a unified capacity and FiT auction (or a two-stage auction if technology choice is to be made by government), and a default tariff.”
Indeed, commenting on the development, Clare Hatcher, partner at London-based law firm Clyde & Co LLP, said: “In terms of CfDs and capacity auctions, they show that the new regime is struggling a bit to achieve the government’s three objectives, which is low cost energy, carbon reduction and security of supply. In practice, the capacity market auction is not going to achieve what’s really needed, which is to have an excess of capacity available as a reserve margin.”

http://www.renewableenergyworld.com/rea/news/article/2015/02/uk-low-carbon-contract-winners-revealed-wind-scores-solar-disappoint

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