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Renewables in the Capacity Market and more CfDs: Energy UK’s EMR review recommendations

Established techs like solar and onshore wind could soon compete in the Capacity Market if Energy UK has its way. Image: Getty.

Established techs like solar and onshore wind could soon compete in the Capacity Market if Energy UK has its way. Image: Getty.

Industry trade body Energy UK has said renewables should be fast-tracked into the Capacity Market and new, ‘revenue stabilisation’ Contracts for Difference auctions put into place as part of the Electricity Market Reform’s (EMR) five-year review.

The EMR review is due to commence next year, offering a chance to both reflect on the progress its suite of policies has made in the power sector.

Lawrence Slade, chief executive at Energy UK, said that the success of EMR had demonstrated that low carbon energy could be delivered at an “ever-reducing cost” to customers providing it is supported through the right framework.

But while the reform has stimulated billions of pounds worth of investment in clean energy, Slade said it was vital that this now accelerates.

“It is essential that we not only keep up the pace of decarbonisation in future but go further and faster. That’s why we are making recommendations which can make EMR deliver even more effectively in future,” he said.

Within a vision document published yesterday (23 May), Energy UK has outlined a raft of recommendation that it feel could bring go some way to helping achieve that acceleration.

Perhaps most interestingly, Energy UK has picked up on sentiments expressed by energy and clean growth minister Claire Perry to explore the role renewables may be able to play in future Capacity Market auctions.

This would automatically exclude projects already receiving government support, but Energy UK said it may be a “helpful way” for renewables projects to stack different revenue streams.

It now wants National Grid, the CM’s delivery body, to consult with the industry “as soon as is practicable” to establish appropriate de-rating actors – a contentious issue for battery storage developers – that would allow renewable plant to compete in CM auctions as soon as possible.

The vision document also suggests that the government keep CfDs in place, but tinker with them slightly to address imbalances and the need for more, low carbon energy generation on the system. It stresses that CfD auctions should continue to “maintain the momentum” of cost reductions seen most notably in the offshore wind sector.

The vision document does however suggest some refinements to the scheme, most notably the addition of “revenue stabilisation CfDs” for established technologies like solar and onshore wind. Such an addition would, according to Energy UK, help remove the inherent merchant risk of banking on wholesale market revenues that can fluctuate as a result of volatility in the price of fossil fuels.

The trade body said that the provision of such contracts “will ensure that consumers are accessing the cheapest new electricity sources needed”.

Subsidy-free or revenue stabilising CfDs have been mooted as a potential route to market for established renewables for some time but, while the government has previously said they were under consideration, there has been little policy development.

Meanwhile Energy UK has also recommended that advanced notice of auction dates is given at regular intervals to provide the sector with greater certainty, and that the milestone delivery date is extended from 12 to between 18 and 24 months in order to reduce the risk and cost of projects while simultaneously providing developers more time to assess new suppliers and negotiate financing.

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