Revised ‘strike prices’ for UK renewables to boost investment

Britain’s moves towards a lower carbon electricity generation system were boosted by a number of announcements by the government on the same day early in December.

Revised Contract for Difference (CfD) strike prices for renewable technologies and an update to the CfD contract terms; together with the National Infrastructure Plan 2013 were all published. The updated contract terms and strike prices, together with wider reforms to the electricity market, will lead to additional investments in renewable electricity generation projects up to 2020 of around £40bn, according the Department of Energy and Climate Change (DECC). Meanwhile, the Chief Secretary to the Treasury, Danny Alexander, signed an agreement with Hitachi and Horizon to support the financing of the development of the proposed new nuclear power station at Wylfa in North Wales.

Energy projects make up 58% of the total infrastructure pipeline in the National Infrastructure Plan. Investment in renewables, new nuclear and gas is required to replace 10–12% of current power generating capacity, which is due to close over the coming decade, says DECC.

On the same day, DECC announced that 16 renewable generation projects, totalling 8 GW of generation capacity, had reached the next stage of the ‘final investment decision enabling for renewables’ (FIDeR) process, which could be supported either through investment contracts or the CfD regime.

The revised strike prices for 2015–2019 included small increases in future prices for offshore wind, and small decreases in future support for solar and onshore wind energy projects. Financial support for onshore wind has been reduced by £5/MWh from 2015 onwards, compared to the draft strike prices, eg £100/MWh in 2015/16 has fallen to £95/MWh, and £95/MWh in 2017/18 has dropped to £90/MWh.

The strike prices and contracts give energy generators a sound, sustainable and long-term basis to invest in renewable energy, added DECC. Energy and Climate Change Secretary Edward Davey was bullish: ‘This package will deliver record levels of investment in green energy by 2020. Investors are queuing up to express their interest in these contracts. This shows that we are providing the certainty they need, our reforms are working and we are delivering ahead of schedule and to plan.’

Wind and marine energy trade association RenewableUK welcomed the announcements, suggesting that the reduction in financial support for offshore wind is less steep than had been mooted in draft strike prices published last summer.  

RenewableUK’s Deputy Chief Executive Maf Smith said: ‘We welcome the fact that the government has heeded the wind industry’s call for a more realistic level of financial support for offshore wind. It sends an important political signal that the government recognises the need to back this sector, if we are to attract big wind turbine manufacturers to the UK to open up factories creating tens of thousands of jobs.’

Smith added: ‘Obviously any reduction in support for onshore wind is unwelcome, and the government had promised that any drop would be based purely on economic evidence.’

The Renewable Energy Association (REA) made a different point. Chief Executive Dr Nina Skorupska said: ‘Today is actually a good news day for renewable electricity and renewable heat. The real reason that support for solar and onshore wind will go down is that they are leading the race for cost-competitiveness with fossil fuels. Government policy is working and bringing down costs. The important thing is that decisions are evidence-based, not purely political, and we need to see the methodology to assess that.’

Chief Executive of the Nuclear Industry Association, Keith Parker, welcomed the nuclear move, suggesting that: ‘Major infrastructure of this kind requires large upfront capital investment. Government guarantees in financing these projects will help keep overall costs down to the benefit of the consumer. We are also delighted to see that Horizon Nuclear Power has today announced important strategic contracts with three major UK-based companies for the provision of engineering and related technical services.’