DECC adds £25m to CfD scheme ahead of contracts auction

The Department for Energy and Climate Change (DECC) has made an extra £25m of funding available through its Contracts for Difference (CfD) scheme ahead of the crucial first round of auctions for low-carbon support.

The auction, starting tomorrow (29 January), will see low-carbon developers compete for £325m worth of support contracts, up from the £300m promised in October. The funding will be split between technology categories, enabling both established and less established technologies to access support.

“The high demand for contracts shows that we’re one of the top places for renewables investment, and the best place in the world for investing in offshore wind.” Energy and Climate Change Secretary Ed Davey said. 

The total amount of funding for less established technologies – such as offshore wind, wave, tidal stream, anaerobic digestion, and geothermal – has risen from £235m to £260m. Meanwhile, established technologies – such as onshore wind and solar – will remain at a total of £65m.

The Government’s CfD scheme aims to provide certainty and stability for investors in renewable energy projects by awarding contracts that guarantee a payment in case of a market shortfall. Projects will be required to compete for support as there is a high level of demand for contracts. As a result, the contracts will deliver new capacity more cheaply than through previous arrangements, resulting in lower bills.

New Generation

The scheme is the cornerstone of the Government’s reforms to the energy market which are estimated to lower the average annual household electricity bill by £41 over the period 2014 to 2030 compared to decarbonising without these changes.

“We are transforming the UK’s energy sector, dealing with a legacy of underinvestment to build a new generation of clean, secure power supplies that reduce our reliance on volatile foreign markets,” Davey added. “Renewable electricity generation and investment have both more than doubled since 2010.

“We attracted a record breaking £10bn worth of investment in 2014 and by making projects compete for support we’re ensuring consumers get the best possible deal as well as a secure and clean power sector.”

The projected spend of the budget remains within the Levy Control Framework, which caps the costs to consumers of government energy policies. An additional £50 million increase has already been indicated for established technologies in the budget for next year’s auction. Funding is expected to rise to over £1bn in 2020/21 for CfDs.

In response to the announcement REA policy analyst Frank Gordon said: “We welcome an increase in the CfD budget, and await with interest the outcome of the first allocation round. However, there remain concerns around CfD policy particularly for independent generators and other established and cost effective technologies such as solar and biomass which must be addressed by the next Government following the election.” 

Lucinda Dann

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