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Full CfD proposals include prospective changes to technology pots, negative pricing and energy storage

Image: BEIS.

Image: BEIS.

The formal consultation document on changes to the Contracts for Difference scheme includes a potential revision of technology pots, an extension of the negative pricing rule and a relaxation of energy storage metering requirements.

Earlier today it was revealed that the government was to welcome back established, so-called ‘Pot 1’ technologies into future CfD allocation rounds, allowing onshore wind and solar PV to compete for potential support.

A formal consultation document, released this evening (2 March 2020) provides full details of those potential changes, which could see established technologies welcomed back into the fold from next year.

The consultation, launched by the Department for Business, Energy and Industrial Strategy (BEIS), confirms the government’s intent to once again support established technologies by introduction a competition for Pot 1 technologies from Allocation Round 4 (AR4), slated to take place next year.

BEIS writes in the consultation that while it is aware of established technologies coming forward without subsidy support on a merchant basis, the risk remains that insufficient numbers of such projects will come forward to deliver the renewables capacity needed to decarbonise.

However all technologies competing for contracts must still have the support of their local communities. Such communities are to be granted a “more effective voice” on developments and have a “definitive say” on whether or not projects can proceed.

Commenting on the changes, business and energy secretary Alok Sharma - himself just a few weeks in the job - said: “Ending our contribution to climate change means making the UK a world leader in renewable energy.

“We are determined to do that in a way that works for everyone, listening to local communities and giving them an effective voice in decisions that affect them.”

BEIS has, however, resisted any prospective urge to reallocate technologies to different pots. At £39.65/MWh, the strike price of several offshore wind projects in the third allocation round, set for delivery in 2023/24, raised the prospect of them having matured sufficiently to be rendered established, however BEIS said the reallocation of technologies, or the introduction of technology-neutral auctions, raised risks of low-cost renewables being shouldered out by those capable of deploying at more significant scales.

But the consultation does propose an alternative structure to the pots, introducing a new ‘Pot 3’ carved out specifically and solely for offshore wind, with floating offshore wind replacing it in Pot 2. The reasonings behind this, and the questions to be considered, are laid out on pages 21 and 22 of the consultation.

Energy storage

However the interest of the UK’s energy storage industry will be most piqued by the section which poses the addition of storage into CfD round allocations, deeming the asset class critical to the wider system integration of the renewable capacity the auctions procure.

Currently storage can be added to CfD sites so long as they comply with the terms of their respective contract, however they must be metered separately on the count of them not being considered part of the facility itself. In a consultation from 2016, this additional metering was described as a burden by a number of respondents.

BEIS is therefore asking a series of questions to explore what can be done to facilitate wider co-location of storage with renewable generators that land CfD contracts, starting with the type of storage solutions that could be sourced, what barriers to co-location exist within the CfD framework, and what changes could be introduced to better facilitate co-location.

Negative pricing

The consultation also includes scope for changes to the way negative pricing is handled within the CfD framework, a factor which is especially timely given the increased incidence of such periods so far this year.

Under the existing framework, a generator’s difference payment - the top-up payment between the day ahead price and the strike price - is capped at that strike price, meaning that operators cannot receive greater payments if prices dip into the negative. This is further compounded by the addition of a rule which stops payments to all CfD-backed generators if prices are below zero for six or more consecutive hours, designed to reduce the risk of increased costs to consumers.

The government now proposes to extend the existing negative pricing rule, ensuring that difference payments are not paid to CfD generators when the day-ahead hourly price is negative for any period. This change, BEIS says, will discourage contract holders from generating in ways that are “unhelpful to the overall system” and strengthen incentives for generators be responsive and flexible, such as through the addition of storage.

More specific draft revisions to the CfD contract are to be published at a later date and while BEIS has tasked Baringa with an analysis of negative pricing - included within the consultation document - the department has too pledged to issue a call for evidence on potential further changes in this regard.

Next steps

BEIS’ consultation is to remain open until 22 May 2020, after which the department will deliberate over responses and factor them into any prospective revisions to the CfD scheme and contracts. AR4 is slated to go ahead in 2021 as previously planned.

Full details on the consultation, and how to respond, can be found here.

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