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New renewables prices more competitive
1 September 1998
Renewable energy will appear more competitive in the liberalised market under the latest proposals for new trading arrangements. However, the proposals will not result in any material difference to the prices paid to renewable generators. The change hinges on the need to find a new reference price against which to compensate public electricity suppliers (PESs) for the higher price of renewable generated electricity bought through the Non-Fossil Fuel Obligation (NFFO). At present, PESs receive the difference between the price paid to renewable generators and the average pool selling price (about £0.026/kWh). But, under new trading arrangements planned by the Office of Electricity Regulation (OFFER), the pool will disappear, to be replaced by a balancing market. OFFER suggests the new price benchmark be set at the average purchase costs of each PES. Renewable commentators have been arguing for years that this would be a more realistic price against which to judge renewables' competitiveness. This is because PESs buy most of their electricity, at a higher price than pool price, under contracts for differences which average around £0.035/kWh. If average purchase costs do form the basis of the new reference price, the PESs will see a considerable reduction in the amount they are reimbursed for their purchases of NFFO electricity, leading to a fall in the overall cost of the NFFO.
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