British wind and solar industry offer voluntary switch to contracts for difference

The associations of the British wind and solar industry, Renewable UK and Solar Energy UK, support the proposal to transfer still running contracts with fixed feed-in tariffs according to the »Renewable Obligations« (RO), which was open to new projects until 2017, to a new system based on contracts for difference (CfD). The two associations estimate that this will affect around 25 percent of the country’s electricity production. The plan is expected to effect savings running into billions for electricity customers and would also provide long-term security for older generation facilities.
Energy UK, the British energy industry association, has also endorsed the proposal, which was first put forward by the UK Energy Research Centre (UKERC). Energy UK also includes the country’s nuclear power plants, which contribute around 15 percent of electricity generation. Overall, this would decouple about 40 percent of the total from the pricing system in the electricity market, which has led to enormous distortions and is expected to continue to do so, primarily due to dramatic increases in gas prices. According to Energy UK, a switch could save British electricity consumers GBP 10.8 billion to GBP 18 billion (USD 12.5 billion to USD 20.8 billion), depending on the specific design. The share attributable to private households would amount to GBP 150 to GBP 250 (USD 173 to USD 289) of relief per year.
Solar Energy UK stressed in a statement that under the current RO system, it is not the system operators who benefit from the exorbitant prices: They receive a fixed payment. But because the electricity is traded on the wholesale spot market, where the most expensive type of generation – gas-fired power plants – determine the price level, »there is a risk that consumer costs will rise further if the regime is not reformed urgently.« Moreover, unlike calls for windfall taxes, such a transformation would »improve rather than damage investor confidence.«
Renewable UK calls the CfD system in place for newer wind and solar plants, in which operators receive a guaranteed off-take price but must give back marketing revenues above that price, a »flagship« that has enabled large amounts of electricity to be generated at favorable prices. This winter alone, repayments of GBP 3 billion (USD 3.5 billion) are expected from existing CfD projects. As soon as the government formation currently underway is complete, Solar Energy UK intends to debate the proposals in detail: »We are ready to discuss with new ministers as soon as they take office.«

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