Renewable electricity projects will compete for £300 million in support this autumn – an increase of £95 million from the indicative budget published in July, Energy and Climate Change Secretary Ed Davey announced today.
The funding for Contracts for Difference, which provide long-term certainty for investors, are a cornerstone of the Government’s reforms to the electricity markets, designed to drive investment in a new generation of clean, secure electricity supplies.
Low-carbon electricity projects will compete at auction for the contracts, which will deliver new capacity much more cheaply than through the previous arrangements, resulting in lower bills. It’s estimated that the reforms to the electricity markets will mean that average annual household electricity bills are around £41 lower over the period 2014 to 2030 than decarbonising without these changes.
The increased budget will be split between different types of technologies:
- Established technologies, such as onshore wind and solar, will compete for up to £65 million in support, reflecting the fact that these technologies are already more competitive.
- Less established technologies, such as offshore wind and marine, will share in up to £235 million, demonstrating the Government’s commitment to helping these technologies become as competitive as the more established low carbon generation sources.
The projected spend of the budget remains within the Levy Control Framework, which caps the costs to consumers of government energy policies. Mr Davey said:
“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.
“Average annual investment in renewables has doubled since 2010 – with a record breaking £8 billion worth in 2013. By making projects compete for support, we’re making sure that consumers get the best possible deal as well as a secure and clean power sector.”
The budgets for next year’s auction will be confirmed in 2015, but £50 million more has already been indicated for established technologies, with significant further funding potentially available to fund further projects, including Carbon Capture and Storage, by 2020-21.
The Government is able to increase the CFD budget because the latest estimates of the overall costs of other policies, in particular the Renewables Obligation, are lower than expected. This will help to ensure that there is enough funding available to encourage competition in the auction. Some money has also been held back to manage the risk of overspending from other policies and for future auctions.
The Government also confirmed that the Renewables Obligation will close to new large-scale solar above 5MW from 1 April 2015. As the sector grows and becomes increasingly competitive, the Government is ensuring that billpayers are seeing the benefits.
There will be a grace period to protect projects that had made significant financial commitments by 13 May, when the consultation on the change began. We will consult on an additional grace period to protect projects on track to commission before 1 April 2015 against the risk of missing the RO closure date due to delays in getting connected to the grid.
After consulting the industry, the eligibility criteria have been amended so that they are better aligned with the practicalities of solar project development processes. The Government is also changing the way it supports rooftop-mounted solar power, in line with the Solar Strategy. This includes changes to the Feed-in Tariff Scheme (FiTs), with a new degression band for solar installations over 50KW, which will help to protect existing levels of financial support for this type of rooftop-mounted solar, as well as consulting on changes that would enable businesses and other organisations to take their panels and FiTs with them when they move premises.
This year’s CFD budget will be split between technology pots. Within each pot technologies will compete against each other, but less established technologies are not expected to compete against the established technologies.
- Pot 1 (established technologies): £50m for projects commissioning in 2015/16, and an additional £15m (i.e. £65m in total) for projects commissioning from 2016/17 onwards.
- Pot 2 (less established technologies): £155m for projects commissioning from 2016/17 onwards, and an additional £80m (i.e. £235m in total) for projects commissioning from 2017/18 onwards.
- Pot 3 (biomass conversion): No budget released in 2014.
The projects that win the auction will receive 15 year contracts - meaning that the total spend per year for contracts allocated in the first allocation round this autumn will be up to £300m.
Decisions on the budget for the 2015 allocation round will be taken next year. The remaining LCF budget in each year from 2015/16 to 2020/21 is higher than we indicated in July, based on projected spend, even after the additional £95m announced today.
Onshore wind (>5MW), Solar Photovoltaic (PV) (>5MW), Energy from Waste with CHP, Hydro (>5MW and <50MW), Landfill Gas and Sewage Gas
Less established technologies:
Offshore Wind, Wave, Tidal Stream, Advanced Conversion Technologies (ACT), Anaerobic Digestion (AD), Dedicated biomass with CHP, Geothermal and Scottish Islands onshore wind (Scottish Islands onshore wind remains subject to State Aid approval)
This budget is in addition to the substantial amounts of support for renewables already being spent under existing schemes (the Renewables Obligation and small scale Feed in Tariffs) as well as on top of the funding for the eight projects awarded Investment Contracts in April 2014 under the FID Enabling for Renewables process.
In April we published our Solar Strategy. This sets out the actions that Government is taking in partnership with the industry to ensure that the solar sector continues to grow. It included a focus on deploying more solar panels on the top of commercial, industrial and public sector buildings – a part of the sector that had been deploying at lower levels than we expected.
Later this year, we intend to run a consultation on allowing businesses to transfer their panels and FITs payments to a new building, encouraging them to invest in solar PV. We are aware that some mid-scale property owners are unwilling to invest in solar PV as they anticipate tenants moving premises before they start seeing any payback. They are also concerned that that they will not be able to redevelop the building during the life of the solar installation – which can be 20 years or more.