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Inclusion of onshore wind in Contract for Difference mechanism key to reducing cost of UK decarbonisation, Arup report finds.

Fiona Fitzgerald Fiona Fitzgerald UKIMEA Press Office,London
24 July 2017

A report by Arup has shown the potential for onshore wind to become the lowest-cost form of new energy generated in the UK if it were included in the existing Contract for Difference (CfD) mechanism. 

The research, carried out for ScottishPower Renewables, shows that a CfD strike price cap in the region of £50-55/MWh would enable delivery of onshore wind to the consumer at a similar price to that of a new gas power station.

 

Onshore wind is one of the few electricity technologies that is fully exposed to volatile wholesale electricity market prices having been excluded from the Second Round of CfDs. The report argues that a Market Stabilisation CfD is urgently needed, despite onshore wind being an established technology, to bring forward investment and level the playing field with gas generation.


Despite uncertainties, new government figures released last month have shown that onshore wind has set a quarterly record high, providing 8.3 per cent of our power. The figures demonstrate that onshore wind is a key technology in our energy mix; the report by Arup shows that its potential with the right support is far higher.  

Arup undertook its analysis using two possible methodologies for estimating the potential Administrative Strike Price (ASP), which acts as a maximum price cap for the relevant technology for a Market Stabilisation CfD. The report Enabling Investment in Established Low Carbon Electricity Generation is available to download. 

Currently, onshore wind has no access to guaranteed long-term revenue streams. Other generators, including carbon-emitting generators, are able to secure up to 15-year capacity contracts. However on-shore wind investors are fully exposed to fluctuations in the wholesale electricity price, increasing the risk and cost of investments. Access to a Market Stabilisation CfD mechanism would make a significant difference to driving efficiency – ensuring that the UK’s transition to low carbon generation progresses in the most cost effective manner. ” Filippo Gaddo Filippo Gaddo Director, Energy Economics and Regulation

Arup’s report clearly shows that access to a market framework, designed to reduce risk and provide a level playing field with gas generation, would enable onshore wind to continue delivering cheap electricity to households and businesses across the UK – some £40/MWh cheaper than new nuclear against the proposed strike price cap of £50-£55/MWh. This relative saving would increase in an auction as investors would compete to secure a contract – making it even cheaper. Development of a market stabilisation mechanism provides the opportunity to deliver value for money for UK consumers by continuing cost-effective deployment of onshore wind well into the 2020s. ” Lindsay McQuade Policy and Innovation Director, ScottishPower Renewables