The U.K. government appears to have welcomed solar, onshore wind and other well-established renewables technologies in from the cold by announcing plans for a new generation capacity auction next year.
The procurement round announced yesterday by the Department for Business, Energy and Industrial Strategy (BEIS) will be the first to include “Pot 1” generation technologies solar, onshore wind, hydro, landfill gas, sewage gas and energy-from-waste plus combined heat and power (CHP) since 2015, when David Cameron’s government bowed to pressure to halt incentives for onshore wind farms.
With the U.K. solar industry in the doldrums since feed-in tariffs were slashed by the Cameron government five years ago, the Boris Johnson administration yesterday acknowledged relying on the recent advent of unsubsidized solar projects – ‘merchant’ facilities – in the country will not be enough to reach the stated ambition of a net-zero greenhouse gas emission economy by 2050.
Subsidies still needed
A consultation document published yesterday by BEIS about potential changes to the contracts for difference (CfD) subsidy program, stated: “We are aware of a number of projects (mainly solar PV and onshore wind) that have deployed or are planning to deploy on a merchant basis since the last Pot 1 auction was held. Unsubsidized renewables are now also eligible to participate in the capacity market [which ensures sufficient back-up power supply]. We are pleased to see the costs of these technologies continue to fall, enabling some deployment without subsidy. However, there is a risk that if we were to rely on merchant deployment of these technologies alone at this point in time, we may not see the rate and scale of new projects needed in the near-term to support decarbonization of the power sector and meet the net-zero commitment at low cost.”
Under the CfD regime, renewable energy generators bid a maximum tariff “strike price” to be received from the government. Generators receive the strike price minus the day-ahead hourly wholesale price of electricity as a bonus on top of any payments they receive separately from the commercial sale of the power they generate.
The government did not reveal how much new renewables generation capacity it expects to commission as a result of next year’s exercise as the terms of the auction may be affected by responses to the consultation about proposed CfD changes which was opened yesterday and will run until May 22.
BEIS is asking for feedback on how it could encourage the co-location of energy storage facilities with CfD-allocated renewables generation capacity after the government calculated the U.K. could save £17-40 billion (€19.6-46 billion) by 2050 by harnessing flexible technologies such as energy storage, demand-side response and interconnectors. Storage is currently excluded from the CfD bidding process and facilities have to be metered separately.
The government also wants thoughts on retaining the current pot system which applies different terms to generation technologies dependent on where they are in the cost-reduction journey. Next year’s exercise is also set to procure generation capacity from wind farms on remote islands, wave, tidal, anaerobic digestion, geothermal, biomass plus CHP and advanced conversion technologies such as gasification under a competition for Pot 2, less-established technologies.
BEIS is resistant to the idea of transferring Pot 2 technologies which have fallen dramatically in cost to Pot 1 yet but is considering whether stubbornly high offshore wind farms should receive special treatment, and whether to exclude coal-to-biomass facilities from the subsidy program. The latter technology refers to former coal-fired power stations converted to burn lower-carbon but still polluting biomass.
Incentives program extension
With BEIS proposing extending the biennial CfD auction regime four years to the end of March 2030, another suggestion includes beefing up a policy which requires renewable energy project developers planning assets with at least 300 MW of generation capacity to hold plans to encourage local supply chains. The government is asking whether the policy should be applied to smaller clean energy facilities, which could imply additional costs for solar developers but is in line with an ambition to drive economic development outside London.
Other proposals, such as tightening up punishments for developers who fail to deliver CfD projects and easing hard-and-fast budgetary decisions related to the award of subsidy contracts are similarly unlikely to generate much opposition from the renewables industry.
U.K. trade body the Solar Trade Association welcomed the news PV projects would be eligible for next year’s CfD auction. Chief executive Chris Hewett said the announcement marked “a major shift in the right direction for government policy on onshore renewables and a welcome opportunity for the solar industry”.
He added: “New clean power auctions for Pot 1 technologies will accelerate the decarbonization of the power sector and drive the shift towards net zero, bringing with it new jobs, cheaper electricity and opportunities closer to home for Britain’s highly experienced solar investors. The government is backing a winner in solar, which is not only the U.K.’s most popular energy technology but also highly cost-effective and one which offers unique opportunities to enhance local biodiversity and agriculture.”