Reform of CfDs could save billions claims report

Consumers could save £2 billion if Contract for Difference (CfD) auctions were opened up to a wider range of technologies and the auction process was reformed to reflect true costs, according to a new report.

Drax Group, which owns the eponymous coal- and biomass-fired power station in Yorkshire, commissioned NERA Economic Consulting and Imperial College in London to compile the research.

Their analysts looked at the wider costs – known as system integration costs (SICs) – that are not currently taken into account when the UK Government awards CfDs to support renewable generation.

They looked at the work they had already carried out on the topic for the Committee on Climate Change, the body that advises ministers, and considered how SICs could be better reflected in the auction process.

CfDs for biomass

The researchers came up with two scenarios under which policy could be adjusted to take into account SICs.

They said the scenarios would allow the UK Government to spread the CfD budget more equally between established technologies – such as biomass, onshore wind and solar – and less-established technologies, like offshore wind, wave and tidal.

They concluded that biomass should be allowed to compete against onshore wind and solar as an established technology.

Drax said biomass would need a CfD of £84/MWh when taking into account SICs, compared with £96/MWh for solar, £92-97/MWh for onshore wind and £127/MWh for offshore wind.

‘Finish the job’

Meanwhile, the Low Carbon Contracts Company (LCCC) – the independent body setup by the UK Government to manage CfDs – has announced that a number of projects have passed their “Milestone Requirement”.

The “Milestone Requirement” is reached when projects have either spent 10% of their expected development and construction costs or have contracts in place to finance the project and buy all of the materials needed to complete the project.

Both methods are designed to build investor confidence in projects that have been awarded CfDs.

> Download the report