Green, ethical, energy issues in the news

Martyn1981

Brief article setting out the subsidy pots for the upcoming 2021 CfD contracts. The '£' amounts are getting smaller, but as the article explains, costs are falling, so the subsidy top up can keep getting smaller. It's also possible that if enough of the leccy is sold at higher prices, then the subsidies could be net zero, since any income above the CfD strike price has to be repaid to the subsidy pot.

UK to offer £265m in subsidies for renewable energy developers

Renewable energy developers will compete for a share in a £265m subsidy pot as the government aims to support a record number of projects in the sector through a milestone subsidy scheme later this year.

Under the scheme, offshore wind developers will compete for contracts worth up to £200m a year, and onshore wind and solar farms will be in line for their first subsidies in more than five years.

Alongside the £200m funding pot for offshore windfarms, there will be a further £55m available to emerging renewable technologies such as tidal power, of which £24m will be earmarked for floating offshore wind farms.

The government will also make £10m available to developers of onshore wind and solar farms for the first time since it slashed subsidies in 2015, or enough to deliver up to 5GW of renewable energy capacity.

Dan McGrail, chief executive of the trade organisation Renewable UK, said the scheme could bring forward private investment of over £20bn in a boost to jobs and the UK supply chain, while reducing energy bills and helping the UK to meet its climate targets.

michaels

Martyn1981 said:

Brief article setting out the subsidy pots for the upcoming 2021 CfD contracts. The '£' amounts are getting smaller, but as the article explains, costs are falling, so the subsidy top up can keep getting smaller. It's also possible that if enough of the leccy is sold at higher prices, then the subsidies could be net zero, since any income above the CfD strike price has to be repaid to the subsidy pot.

UK to offer £265m in subsidies for renewable energy developers

Renewable energy developers will compete for a share in a £265m subsidy pot as the government aims to support a record number of projects in the sector through a milestone subsidy scheme later this year.

Under the scheme, offshore wind developers will compete for contracts worth up to £200m a year, and onshore wind and solar farms will be in line for their first subsidies in more than five years.

Alongside the £200m funding pot for offshore windfarms, there will be a further £55m available to emerging renewable technologies such as tidal power, of which £24m will be earmarked for floating offshore wind farms.

The government will also make £10m available to developers of onshore wind and solar farms for the first time since it slashed subsidies in 2015, or enough to deliver up to 5GW of renewable energy capacity.

Dan McGrail, chief executive of the trade organisation Renewable UK, said the scheme could bring forward private investment of over £20bn in a boost to jobs and the UK supply chain, while reducing energy bills and helping the UK to meet its climate targets.

How does this work?  I understand the CFDs are net so basically companies swap variable electricity market prices for a fixed income per unit but how does the govt work out how much subsidy is being bid for when the variable market pries are not yet known - for example this year if a company had a CFD for £85ph wouldn't the govt be making a profit on the deal if the average market price is more than £85?

QrizB

michaels said:

Martyn1981 said:

Brief article setting out the subsidy pots for the upcoming 2021 CfD contracts. The '£' amounts are getting smaller, but as the article explains, costs are falling, so the subsidy top up can keep getting smaller. It's also possible that if enough of the leccy is sold at higher prices, then the subsidies could be net zero, since any income above the CfD strike price has to be repaid to the subsidy pot.

How does this work?  I understand the CFDs are net so basically companies swap variable electricity market prices for a fixed income per unit but how does the govt work out how much subsidy is being bid for when the variable market pries are not yet known - for example this year if a company had a CFD for £85ph wouldn't the govt be making a profit on the deal if the average market price is more than £85?

There is far more info than you really need on the official website of the Low Carbon Contracts Company:
https://www.lowcarboncontracts.uk/

It looks as thoguh there's an electricity price (Market Reference Price, MRP) agreed in arrears, and then generators are paid (or charged) depending on how much energy they geenrated and how their strike price compares to the MRP.

There are two separate MRPs, one for baseload generation (nuclear, biomass) and one for intermittent generation (wind, solar).

And yes, it's possible that if prices are high enough the Gov't will make a profit.

michaels

QrizB said:

michaels said:

Martyn1981 said:

Brief article setting out the subsidy pots for the upcoming 2021 CfD contracts. The '£' amounts are getting smaller, but as the article explains, costs are falling, so the subsidy top up can keep getting smaller. It's also possible that if enough of the leccy is sold at higher prices, then the subsidies could be net zero, since any income above the CfD strike price has to be repaid to the subsidy pot.

How does this work?  I understand the CFDs are net so basically companies swap variable electricity market prices for a fixed income per unit but how does the govt work out how much subsidy is being bid for when the variable market pries are not yet known - for example this year if a company had a CFD for £85ph wouldn't the govt be making a profit on the deal if the average market price is more than £85?

There is far more info than you really need on the official website of the Low Carbon Contracts Company:
https://www.lowcarboncontracts.uk/

It looks as thoguh there's an electricity price (Market Reference Price, MRP) agreed in arrears, and then generators are paid (or charged) depending on how much energy they geenrated and how their strike price compares to the MRP.

There are two separate MRPs, one for baseload generation (nuclear, biomass) and one for intermittent generation (wind, solar).

And yes, it's possible that if prices are high enough the Gov't will make a profit.

Useful, although I still don't understand how the level of subsidies is calculated when there may not be any subsidy involved at all?

QrizB

Are you querying the "£265m in subsidies" headline figure? Because I've no idea what that means and I don't want to guess. I was hoping there would be a FAQ on the official CfD allocation round 4 portal but there isn't, so far as I can tell. There is some other interesting info there, all the same:
https://www.cfdallocationround.uk/faqs

... including that the CfD isn't directly funded by the government but by a levy on electricity consumers.

QrizB

Replying to myself is something I try to avoid, but this doc might help:
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1016774/cfd-ar4-draft-budget-notice.pdf

Martyn1981

michaels said:

QrizB said:

michaels said:

Martyn1981 said:

Brief article setting out the subsidy pots for the upcoming 2021 CfD contracts. The '£' amounts are getting smaller, but as the article explains, costs are falling, so the subsidy top up can keep getting smaller. It's also possible that if enough of the leccy is sold at higher prices, then the subsidies could be net zero, since any income above the CfD strike price has to be repaid to the subsidy pot.

How does this work?  I understand the CFDs are net so basically companies swap variable electricity market prices for a fixed income per unit but how does the govt work out how much subsidy is being bid for when the variable market pries are not yet known - for example this year if a company had a CFD for £85ph wouldn't the govt be making a profit on the deal if the average market price is more than £85?

There is far more info than you really need on the official website of the Low Carbon Contracts Company:
https://www.lowcarboncontracts.uk/

It looks as thoguh there's an electricity price (Market Reference Price, MRP) agreed in arrears, and then generators are paid (or charged) depending on how much energy they geenrated and how their strike price compares to the MRP.

There are two separate MRPs, one for baseload generation (nuclear, biomass) and one for intermittent generation (wind, solar).

And yes, it's possible that if prices are high enough the Gov't will make a profit.

Useful, although I still don't understand how the level of subsidies is calculated when there may not be any subsidy involved at all?

I think, but I'm not entirely certain, that the size of the scheme and the difference between the bid price and the reference price is used to calculate the successful bidders, by adding up the schemes (from the cheapest) until the subsidy pot is reached. But all successful schemes get paid the same amount, equal to the price of the highest cost successful bidder.

If, as I think you are asking, the bids are equal to, or even perhaps below the reference price, then I believe there is a generation/capacity max for each pot, so (again starting from the cheapest) you add up the schemes generation size this time, until they reach the capacity limit.

Martyn1981

The early schemes, if anything, were quite simple. The Gov would set a max bid price, so you had to bid under it to be considered, and then added up the capacity till they hit the limit. Eg

Let's say a CFD had a bid max of £80/MWh, and wanted 1GW of generation, and received 10 bids of

A. 200MW £50
B. 200MW £55
C. 300MW £60
D. 300MW £65
E. 100MW £70
( 5 more bids above £70, but below £80)

Then schemes A, B, C and D would get awarded CFD contracts, and all at £65/MWh


Now they seem to be working from max subsidy commitment, but it's still the same principle since presumably the capacity was set, with a cost figure in mind.

QrizB

Martyn1981 said:

michaels said:

Useful, although I still don't understand how the level of subsidies is calculated when there may not be any subsidy involved at all?

I think, but I'm not entirely certain, that the size of the scheme and the difference between the bid price and the reference price is used to calculate the successful bidders, by adding up the schemes (from the cheapest) until the subsidy pot is reached. But all successful schemes get paid the same amount, equal to the price of the highest cost successful bidder.

If, as I think you are asking, the bids are equal to, or even perhaps below the reference price, then I believe there is a generation/capacity max for each pot, so (again starting from the cheapest) you add up the schemes generation size this time, until they reach the capacity limit.

That would be consistent with the draft budget doc I linked to, which has a table of "administrative strike prices".

michaels

So I think the level of subsidy is based on the bid price vs the 'Administrative Strike Prices' copied below in 2012 pounds so multiply by 1.18 for current pounds.

Interesting that the strike price for onshore wind is less than for offshore - I thought onshore wind was cheaper?

What I think this means is the actual 'cost' of the CFDs in terms of the levy on electricity prices is variable rather than fixed at the subsidy level and that at the moment the levy has actually been adjusted down to zero - i.e. we are not paying any extra on our bills for the current CFDs because of the current high prices.  I don't know if the levy can go negative as the current CFD pot is £200m and climbing.

As mentioned above, there is a capacity cap on some of the pots so whatever level of subsidy is bid for (even zero/negative) the max of solar plus onshore wind is 5gw (with a max of 3.5gw of either) - this may mean we see negative subsidy bids far exceeding these limits; I'm not sure if this negative subsidy will then increase the subsidy available for the other two pots that cover 'new technologies' and offshore wind - neither of these appear to have a cap so in theory there is no limit to how much offshore wind that could be bid for if the bid price is below £46 per MWH!!

Technology Type Administrative Strike Price
Advanced Conversion Technologies (ACT) 190
Anaerobic Digestion (> 5MW) 128
Dedicated Biomass with CHP 163
Energy from Waste with CHP 121
Floating Offshore Wind 122
Geothermal 133
Hydro (>5MW and <50MW) 93
Landfill Gas 62
Offshore Wind 46
Onshore Wind (> 5MW) 53
Remote Island Wind (> 5MW) 62
Sewage Gas 151
Solar PV (> 5MW) 47
Tidal Stream 211
Wave 258

Of course the more cheap renewables we contract via this CFD auction the lower forward electricity prices are likely to be, and the less the value of HPC output and thus the more expensive the HPC CFD will be....