The Contracts for Difference (CfD) regime was introduced by the UK government in 2014, and replaced the Renewable Obligation (RO) scheme (except to the extent that RO is still operating for those renewable energy generators that signed up to the scheme before it closed, as the payments are guaranteed for the length of the period agreed under that scheme).
As the Government’s websitei makes clear:
The Contracts for Difference (CfD) scheme is the government’s main mechanism for supporting low-carbon electricity generation.
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, and they protect consumers from paying increased support costs when electricity prices are high.
Renewable generators located in the UK that meet the eligibility requirements can apply for a CfD by submitting what is a form of ‘sealed bid’. There have been 3 auctions, or allocation rounds, to date, which have seen a range of different renewable technologies competing directly against each other for a contract.
Successful developers of renewable projects enter into a private law contract with the Low Carbon Contracts Company (LCCC), a government-owned company. Developers are paid a flat (indexed) rate for the electricity they produce over a 15-year period; the difference between the ‘strike price’ (a price for electricity reflecting the cost of investing in a particular low carbon technology) and the ‘reference price’ (a measure of the average market price for electricity in the GB market).
Eagle-eyed observers of the BBC’s website may have noticed an articleii written by Roger Harrabin that appeared there on 9th February 2022. It carried the title: “Renewables auctions to be held annually in green energy push”.
In the past, allocation rounds (ARs) for CfDs have been held broadly every two years, with AR1 running from October 2014 to April 2015; AR2 running from March to September 2017); AR3 running from May to September 2019); and AR4 opening to applications on 13th December 2021. And, according to a Business Statementiii issued to Parliament by Kwasi Kwarteng on 9th February 2022, AR5 is to be brought forward to March 2023.
And now, as the BBC tells us:
The government has re-stated its faith in green technologies with a decision that it says will create a steady stream of renewable energy projects.
Energy Secretary Kwasi Kwarteng says renewable power is the best way to shield the UK from volatile gas prices.
He announced that auctions to supply low-carbon electricity will now happen every year, instead of every two.
He says this will bring more certainty to firms planning to invest in wind turbines and solar panels.
The renewables industry is delighted…
I should think it is. This has proved a nice little earner (or, more precisely, rather a big earner) for the industry since its inception. Those who would have you believe that renewables aren’t subsidised should reflect on why there is such delight on the part of “Big Wind”.
One has to hope that a comment made by the Secretary of State towards the end of his Parliamentary Statement is significant, and that somebody is keeping an eye on “the wider system, including total system costs”:
As more renewables are added to the system, we will continue to consider how the scheme could evolve over the longer term to ensure it reflects the impact of renewables on the wider system, including total system costs.
It would be nice to think that, at last, there is a recognition that unreliable and unpredictable renewable energy greatly adds to the “total system costs” and that, better still, those costs are allocated to those responsible for them, namely the renewable energy companies. That would also help to level the playing-field, and ensure that claims about “cheap” renewables are held up to the glare of full publicity of the overall costs implications they have for the wider system.
On the other hand, the associated press releaseiv does give cause for some concern. While I appreciate that the whole point of a press release is to obtain publicity and drum up support for a new initiative, I think when we are talking of a Government press release it should be more substantial than the sort of “advertising puff” one might expect of a business, and it should be scrupulously accurate in all that it claims. In this case, I have a concern that Government ministers believe their own publicity.
For instance, it begins like this:
The rollout of low-cost renewable energy in the UK will be accelerated as the government ramps up auctions for its flagship renewables scheme to boost investment and jobs.
That immediately raises a number of controversial questions. By referring to “low-cost renewable energy” it obviously seeks to undermine claims that the expensive and unreliable renewable energy we are increasingly being forced to rely upon is in any way behind the current energy price crisis. In doing so, it conveniently ignores the fact that the early rounds of CfD provided very high prices for renewable energy companies, and that they are generally locked in for 15 years. Thus high costs are baked in (to use a phrase much loved of green lobbyists) to the system until 2030 and beyond, but nobody in Government seems to want to talk about that. As for boosting investment and jobs – where are the jobs? Point them out: if all this is as successful as claimed, it shouldn’t be too difficult.
A little further on we read this:
CfDs are the government’s primary method of supporting renewable energy, driving down the cost of technologies and playing an important role in leveraging £90 billion of private investment by 2030.
Where does that figure of £90 billion come from? It’s an aspiration, but there is no guarantee that it will be achieved. It’s a pity that Government press releases aren’t fact-checked by the BBC’s “misinformation correspondents” or subject to the jurisdiction of the Advertising Standards Agency or Trading Standards-style laws.
The auction scheme has already proved successful at bringing down the per unit price of offshore wind by around 65% since the first auctions were held – helping the UK become one of the world’s largest generators of wind power.
It is gratifying that costs are coming down, but they are coming down from a very high starting point, and, as mentioned above, they don’t take into account the costs of destabilising the National Grid. Perhaps it wouldn’t be appropriate for a Press Release, but a footnote with a link to a handy website where the actual costs can readily be seen might have been nice.
Here we go again:
In the last allocation round, new contracts were awarded, with the potential for nearly 6GW of further capacity. This is enough to power over 7 million homes at record low prices and could see the creation of thousands of jobs across the UK.
This is just smoke and mirrors, and not worthy of a serious communication. “Potential”, “nearly” and “power over 7 million homes” combine weasel words with something close to active deception. Homes can be said to be “powered” if that power is reliable and constant, which renewably-generated power most certainly isn’t. The Government shouldn’t be using the same sharp advertising tactics of renewable companies. It should be telling its people the clear, straightforward, unadulterated truth. As for “could see the creation of thousands of jobs across the UK” I fear this is wishful thinking. Without firm legal commitments to create long-term well-paid jobs for UK citizens, then this amounts to little more than spin.
Disappointingly, perhaps for want of anything else to say, this paragraph is simply repeated further down the press release.
I don’t know what others feel, but I’m not sure that quotes from business people should appear in a Government press release, but that’s what has happened here, with quotes from Dan McGrail, Chief Executive of RenewableUK and Morag Watson, Director of Policy at Scottish Renewables. It all just feels a little too cosy. As for Morag Watson saying this:
The Contracts for Difference mechanism plays a central role in facilitating that, and increasing the frequency of auctions is essential if we are to tackle climate change.
I am far from convinced that the hubristic claim that “we” can “tackle climate change” should be allowed. With UK emissions representing around 1% of global emissions that are rising, not falling, it is simply wrong, in my opinion, to talk as though “we” can do anything at all about climate change by reducing our emissions. This idea that it’s all down to us and that we can do it is, frankly, ridiculous. The language of all concerned should be moderated to reflect the global reality.
Finally, the press release contains this little gem:
The share of coal free electricity generation in the whole of 2020 increased by 41.9% (5,202 hours) compared to 2019 (3,665 hours).
I wonder why they didn’t mention 2021’s lousy statistics?
Perhaps the next CfD ARs should stipulate the exclusion of certain wind turbine manufacturers, unless the story reported by the BBC (Giant wind turbine collapse to be investigatedv) turns out not to be their fault? In fact, why not stipulate that all turbines to be used under any CfDs must be manufactured in the UK using materials also manufactured in the UK? Or would the UK’s expensive energy render low CfD bids unfeasible in that case…?