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United Kingdom

United Kingdom

Pricing changes null CfD budget boost

UK: Changes to the pricing structure of the government's new Contracts for Difference (CfD) scheme could mean the increased budget could will have a reduced impact.

The increased CfD budget may not stretch as far (Pic: Nuon Energy)
The increased CfD budget may not stretch as far (Pic: Nuon Energy)

Despite the £95 million (EUR 120 million) increase in the first round budget, a lower reference price could mean the extra money will be unable to support much more capacity.

The reference price is the government's estimate for the cost electricity to be each year.

Under the CfD scheme, the government pays power producers the difference between the reference price and the guaranteed strike price (the cost of producing the electricity).

By reducing the reference price it means more money will be taken from the budget to pay for the top-up.

Last week, the Department of Energy and Climate Change (Decc) increased the yearly budget to £300 million. The first competitive round of financing will open on 16 October.

Previously, the UK government had set the reference price of electricity at £56.09/MWh (EUR 71.05/MWh) in 2015/16. In the revised Allocation Framework, the reference price has been set at £51.06/MWh (EUR 64.68/MWh). All of the reference prices up to 2020/21 have been lowered.

Year Original Reference Price (£/MWh) Revised Reference Price (£/MWh)
2015/16 56.09 51.06
2016/17 58.54 52.88
2017/18 60.20 50.52
2018/19 61.77 48.93
2019/20 62.89 49.32
2020/21 63.78 53.43

For wind projects, the strike prices will be £95/MWh produced onshore and offshore sites will receive £155/MWh. The prices will progressively decrease to £90/MWh and £140/MWh respectively by 2018/19.

RenewableUK director of policy Gordon Edge welcomed the £95 million increase to the budget but said:

"The reduction in the all-important reference price of electricity means that the extra budget does not go as far, so when you weigh the good news of the extra funding against the bad news on the reference price, offshore wind developers will end up only slightly better off and onshore wind developers end up in about the same place as they were under the original budget.

"It goes to show that when announcements like this are made, it is always worth reading the small print carefully to get the full picture."

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