A gentle start, but steep curve ahead for FiT CfD costs

Our recent webinars for end-users, consultants and generators provided the latest insight on energy prices, charges and benefits.  In our latest blog from the series Gavin Baker, Head of Pricing, focuses on the new Feed-in Tariff Contract for Difference (FiT CfD) charge.

Amongst all the other non-energy charges on business energy bills these days, the one starting to appear for the FiT CfD probably won’t stand out.

Although fairly insignificant this year, energy buyers need to have it on the radar as it is a charge that will ramp up rapidly in the future.

The charge is to fund the support mechanism replacing the existing Renewables Obligation (RO) and will apply to new nuclear plants, as well as renewable power sources above 5MW.  Consumers will have to pay both RO and FiT CfD charges until the RO scheme closes in 2037.

While our forecasts suggest that FiT CfD charges will not be particularly significant in 2016-17 given the small number of projects being commissioned under the scheme, after that they will rise sharply as more large scale generation comes on stream.

The nature of the scheme means there are a number of variables which need to be considered in trying to forecast likely out-turn costs.

Under the scheme, low-carbon generators get a guaranteed price for the electricity they produce. The Government has set and auctioned ‘strike’ price contracts for each generator, and the scheme will pay the difference between the actual market price and the relevant strike price for the electricity generated.

That means what happens to wholesale prices will impact on what consumers pay for the scheme – a rise in market prices for example would mean lower top-up payments are needed.

The timing of when significant projects get commissioned and start receiving payments will also be a factor in determining charges year to year.

One of the major early projects which is expected to be subsidised under the scheme is a biomass-powered unit at Drax’s power station near Selby. However, the European Commission is carrying out a state aid investigation into the subsidy and a rejection of support under the scheme would reduce early costs of the FiT CfD. 

In our recent webinar we looked in detail at what might happen to FiT CfD costs next year and the years beyond under a range of different scenarios.

As well as the latest insight on the FiT CfD, the webinars also covered what is happening with wholesale prices, along with latest forecasts on system and network charges and whether the timing of the Triad periods last winter provides any pointers to when they might fall this winter.

To watch the FiT CfD highlights from our webinars in June 2016 use the links below:

> Generator webinar (Small-scale & FiT CfD)