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Subsidies, Conservatives and Solar

As we near the end of fixed subsidies under the old regime, we thought it would be helpful to take a look at the results of the first auction under the Contracts for Difference scheme (CfD) and how the scheme could work for solar.

What are Contracts for Difference?

This competitive bidding system requires developers to enter into a silent auction to bid for subsidies. The system involves countless complexities, but in its simplest form, the lowest £ to power output bids wins the auction. Thus, it has attracted praise from the European Commission as it ensures the best value for taxpayer’s money.

Although designed to encourage competition, the government is still interfering with the outcome. 80% of the budget is targeted towards ‘less established technologies’ which include Anaerobic Digestion and Offshore Wind. This leaves the cheaper and more efficient technologies like onshore wind and solar competing for a mere 20% of the budget.

The First Auction

In February 2015 we saw the results of the first auction which pledged £1.28 billion in support of 2.14 Gigawatts of renewable energy. A surprise to many was the success of five solar farms setting a price of £50 per Megawatt. To put this into context, this is almost half that of nuclear while ‘less established technologies’ are successfully claiming up to £120 per Megawatt.

Soon after the auction the Department of Energy and Climate Change boasted about the success of the auction. Unfortunately this came at a time when two of the five successful solar projects announced they were uneconomic and would not be built. The remaining three are doubtful.

Could CfDs work for Solar?

The Conservative government vows to halt the spread of onshore wind farms but continues to support the goal of 15% renewable energy by 2020. Promisingly the newly appointed Secretary of State for Energy and Climate Change has promised to ‘unleash a new solar revolution’.

Meanwhile, Green Hedge Renewables commissioned Baringa Partners to recalculate the February auction results without the government’s favour towards ‘less established technologies’.

By focusing payments solely on the most cost effective technologies, Baringa have shown it to be theoretically possible to meet the 15% renewables target while saving £600 million of taxpayers’ money each year! Alternatively, if the full £1.28 billion was offered only to the most cost effective technologies, the total capacity would increase by 1.54GW; 41% of the current total.

With onshore wind farms expected to disappear from CfD auctions, solar will be far better placed to compete for the 20% ‘established technology’ fund. Additionally, if the favour towards inefficient technologies is reviewed, solar farming may move to the forefront of renewable energy in the UK.

If you have been approached by a renewable energy developer or are interested in the prospect of renewable energy on your land, please contact Chris Thyer or Calum Gillhespy on 01748 829 210 for further information.

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