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United Kingdom

CfD access would make onshore competitive

UK: A new report commissioned by ScottishPower Renewables suggests onshore wind in the UK could compete with gas if it was given access to the contracts for difference (CfD) support mechanism.

Onshore wind can compete on level terms with gas, report claims (pic: RES)
Onshore wind can compete on level terms with gas, report claims (pic: RES)

The report by UK consultancy firm Arup found that giving onshore wind projects access to the auction, with a strike price cap of £50-55/MWh (€56-61/MWh), would mean new wind capacity could cost the same as new gas generation.

The strike prices are some 40% less than the strike price afforded to the 3.2GW Hinkley Point C nuclear facility due to be build in Somerset, UK by the mid-2020s.

The report states gas generators are largely immune to fluctuations in the wholesale electricity price, largely because the price is being set by gas prices, so if the price falls, so do operating costs.

"Therefore gas generation benefits from a natural hedge to the wholesale market, whereas onshore wind does not," the report said.

The creation of an administrative strike price — a cap on the cost of wind — would mean gas and wind can compete on more of a level playing field, as well as protect wind from market fluctuations that dissuades investors.

"Currently, onshore wind has no access to guaranteed long-term revenue streams. Other generators, including carbon-emitting generators, are able to secure up to 15-year capacity contracts.

"However, onshore wind investors are fully exposed to fluctuations in the wholesale electricity price, increasing the risk and cost of investments.

"Access to a market stabilisation CfD mechanism would make a significant difference to driving efficiency — ensuring that the UK's transition to low-carbon generation progresses in the most cost-effective manner," said Arup head of energy economics Filippo Gaddo.

Onshore wind in the UK is excluded from the next CfD auction due to take place in late-2017 or early-2018. More than 748MW of onshore capacity across 15 projects won contracts in the first auction, awarded in February 2015.

The previous renewables obligation onshore subsidy regime was cancelled a year earlier than expected in 2016 with a one-year grace period for projects that met a certain criteria.

Lindsay McQuade, policy and innovation director at ScottishPower Renewables said: "Arup's report clearly shows that access to a market framework, designed to reduce risk and provide a level playing field with gas generation, would enable onshore wind to continue delivering cheap electricity to households and businesses across the UK — some £40/MWh cheaper than new nuclear against the proposed strike price cap of £50-£55/MWh.

"This relative saving would increase in an auction as investors would compete to secure a contract – making it even cheaper. Development of a market stabilisation mechanism provides the opportunity to deliver value for money for UK consumers by continuing cost-effective deployment of onshore wind well into the 2020s," McQuade added.

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