Government must continue to endorse offshore wind, says expert, as new financial support confirmed

Out-Law News | 04 Dec 2013 | 4:22 pm | 3 min. read

Offshore wind power installations will receive greater support than previously indicated, while support for onshore wind and solar power will fall, the Government has announced.

It has published finalised 'strike prices' and updated contract terms for renewable energy projects commissioned under new contracts for difference (CfDs), which will be established by the Energy Bill. The Department for Energy and Climate Change (DECC) said that the changes to the figures it consulted on in June could result in the construction of 10GW of offshore wind generating capacity.

Energy expert Ian McCarlie of Pinsent Masons, the law firm behind Out-Law.com, said that the announcement would provide some much-needed positive news for the offshore wind sector, and give developers and investors "some confidence that the development of offshore wind in the UK will continue".

"However, strong Government support and endorsement must continue if the ambition for offshore wind as a key part of the UK's generation mix is to be realised," he said. "Whilst the affordability of renewables is dominating the headlines and becoming a key political issue, it is essential that the Government delivers market reform in a clear and transparent manner which equally addresses the concerns of consumers and industry."

"Deployment of capital into offshore wind will mean new jobs and opportunities to deliver on this significant industrial opportunity and we must not lose sight of this. That said, some investors will be nervous that onshore wind and large solar have lost out due to the re-balancing towards offshore wind, not least at a time when there is increasing deployment of capital into onshore wind and solar, particularly from infrastructure and pension funds," he said.

The rates will be governed by new CfDs with suppliers, and costs passed to consumers through their energy bills will be capped under the Levy Control Framework. The changes to the rates published for consultation in June are intended to reflect the falling cost of some of the technologies, but are not expected to change the overall level of support. The Government said that the programme provided a basis for renewable electricity to form at least 30% of UK generation by 2020, in line with EU targets.

Offshore wind projects are expected to receive £155 per megawatt hour (MWh) generated at the start of the scheme, falling to £140/MWh by 2017/18 - £5 higher than previously announced. The strike price for onshore wind has been cut to £95/MWh until 2016/17, when it will fall to £90/MWh; while support for large solar projects will fall steadily from £120/MWh in 2014/15 to £100/MWh 2017/18. Onshore wind projects in Scotland will receive slightly higher rates. The Government has not included tidal range projects within its published rates, as these will receive support on a case by case basis.

CfDs are long-term contracts that will provide stable revenues for investors in low carbon energy projects. They will provide guaranteed payments to operators of approved renewable generation technology, calculated with reference to a technology-dependent 'strike price' and a market reference price. The payments are intended to replace existing incentives, and will enable the system operator to 'claw back' money if the market price is higher than the strike price.

The Government has also published details of 16 renewable generation projects that have reached the next stage of the Final Investment Decision Enabling for Renewables (FIDeR) process. These projects will now be invited to make binding applications, and could be offered early investment contracts before the CfD programme officially begins.

"Investors are queuing up to express their interest in [CfDs]," Energy Secretary Ed Davey said. "This shows that we are providing the certainty they need, our reforms are working and we are delivering ahead of schedule and to plan. With 16 new major renewable projects progressing in our 'go early' stage we are delivering ahead of schedule and are able to begin the move to the world's first low-carbon electricity market faster than expected."

Davey said that the Government would publish its full response to the consultation on the Electricity Market Reform (EMR) Delivery Plan, along with the final plan and further details of the strike prices later this month. The Delivery Plan will also set out how the Government will account for the EU's new state aid guidelines, which are expected to require the UK to move away from providing support and towards competition for more established technologies.