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Neart na Gaoithe and East Anglia Phase 1 awarded CfD

By: Chris Anderson 26/02/2015 DECC

General Windfarms

The controversial green energy auction has been hailed as a huge success by the UK government and according to them has significantly driven down prices.

Only Neart na Gaoithe Offshore Wind farm truly got what they had originally planned for. East Anglia Phase 1 Offshore Wind farm had to substantially reduce the project scope to 714 MW for its first project down from a 1200 MW capacity project, however the 2 projects combined could deliver over 1.1GW of new capacity. The fact that two Offshore Wind farm projects were offered CfD's was a surprise to many industry watchers as it was considered the the LCF would only be enough for a single project.

All the awarded projects could lead to the UK emitting 4m fewer tonnes of CO2 into our atmosphere each year. That’s the equivalent CO2 savings of taking up to 2 million cars off the UK’s roads.

The auctions have led to over £315m of new contracts being offered to five renewable technologies, some more established like onshore wind and solar, and also less established technologies such as offshore wind, which is seeing its costs fall as the industry grows. The contracts being offered not only include the two offshore wind farms above, but include 15 onshore wind projects, 5 solar projects, 2 energy from waste and 3 others. In total, over 2GW of new capacity could be built, costing £110m per year less than it would have without competition.

Energy & Climate Change Secretary, Ed Davey said: “This world leading auction has delivered contracts for renewables projects right across the UK. “These projects could power 1.4 million homes, create thousands of green jobs and give a massive boost to home-grown energy while reducing our reliance on volatile foreign markets.

“The auction has driven down prices and secured the best possible deal for this new clean, green energy.”

Only the most price competitive projects received contract offers – helping to drive down the cost of renewables support. As a result, consumers are getting more for their money, with around 550MW more capacity than could have been funded without competition. All technologies apart from energy from waste cleared significantly below the maximum prices per megawatt hour (MWh), known as strike prices, showing competition has delivered better value for consumers. The clearing price for solar came in at up to 58% lower than the price would have been without competition, offshore wind at up to 18% lower and onshore wind at up to 17%.

Contracts have been offered to a range of companies, including small developers and independent generators, including projects in England, Scotland and Wales.

Contracts for Difference, will according to UK government statements provide long-term certainty for investors, are a seen by them as a cornerstone of the Government’s reforms to the electricity markets, designed to drive investment in a new generation of clean, secure electricity supplies.

Successful projects receive 15 year contracts - meaning that the total annual spend for contracts allocated in the first allocation round is forecast by National Grid at up to £315m/year for 15 years (in 2012 prices). However, actual annual spend will depend on how wholesale prices and project-specific operational factors change over time.

By making projects compete for contracts, the reforms have built on progress under previous subsidy regimes and delivered new capacity more cheaply, meaning consumers can buy more renewable electricity without having additional impacts on bills. This is a key element of decarbonisation under Electricity Market Reform, through which it’s estimated that average annual household electricity bills will be around £41 lower over the period 2014 to 2030, compared to decarbonising without these changes.

The projected spend remains within the budget allocated to CFDs from within the Levy Control Framework, which caps the costs to consumers of government energy policies. The costs of the Levy Control Framework have been set out in this Command paper.

This is the first allocation round for CFDs, and available funding for CFDs for renewables and carbon capture and storage in future years will could rise to over £1 billion per year by 2020/21. The budget for the next allocation round will be confirmed later this year - £50 million more has already been indicated for established technologies.

This budget is in addition to the significant pipeline of deployment already expected to come forward under existing schemes (the Renewables Obligation and small scale Feed in Tariffs) as well as funding for the eight projects awarded Investment Contracts in April 2014 under the FID Enabling for Renewables process.

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Neart na Gaoithe and East Anglia Phase 1 awarded CfD

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