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Negative pricing extended in CfD rules as clarity on energy storage, renewables integration yet to come

Further clarity on how renewables are to be integrated into the UK's wider energy system is to be revealed later.

Further clarity on how renewables are to be integrated into the UK's wider energy system is to be revealed later. Image: Getty.

The government has confirmed that it will extend the negative pricing rule for projects bidding in next year’s Contracts for Difference (CfD) auction, but will further consult with the industry on potential amendments for energy storage and system flexibility.

Yesterday (Tuesday 24 November) the Department for Business, Energy and Industrial Strategy (BEIS) confirmed changes to the next round (AR4) of the CfD mechanism, allowing established technologies such as solar and onshore wind to compete for support for an expanded budget allocation, intended to support some 12GW of new renewable capacity.

The consultation response also established further rules which the government had consulted on in March this year, including an extension to the rule on negative pricing periods.

Previous rounds included a rule that stated generators would not be compensated for power exported to the grid if day-ahead prices dipped into the negative for six hours or more. This is broadly in line with European law, which prohibits the award of subsidy payments during extended periods of negative pricing.

Yesterday BEIS confirmed that this rule would be extended from AR4 onwards, determining that generators would not be paid for any settlement period in which day-ahead prices are negative.

The government determined that while the rule change could possibly open renewables projects to greater investment risk, and therefore higher costs of capital, this was not expected to be material, and the decision helps disincentivise the generation of electricity at times of high supply and low demand.

But while a formal decision has been made on negative pricing, the government confirmed plans to consult further on prospective rule changes with regards to energy storage and system flexibility.

Energy storage projects will continue to be allowed to connect alongside generators competing for CfD contracts, but they must be metered in such a way that satisfies the Low Carbon Contracts Company (LCCC) – the body which facilitates CfD contracts – to ensure that they can only be charged from the generator, and not the grid.

BEIS’ consultation response said it would continue to work with the LCCC, Ofgem, National Grid ESO and wider industry stakeholders to identify any further barriers that may need to be lifted in future allocation rounds.

It also stated that the department will be seeking broader views on how renewables can be integrated into the country’s energy system, teasing a forthcoming ‘Call for Evidence on Renewable Support’ to support that work.

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