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BusinessGreen: Government publishes crucial contract for difference terms


Government says details will help investment community 'get on and invest' in low-carbon energy projects


Further details on how financial support will be provided to new low-carbon generation projects has been released today by the government, including crucial draft terms for the proposed contracts that will guarantee generators fixed electricity prices.

The so-called contracts for difference (CfDs) will be awarded to large-scale clean energy projects, including renewable energy, nuclear and carbon capture and storage (CCS) developments, to ensure backers have the revenue certainty required to invest.

The proposed support levels, known as strike prices, were first revealed in June, starting at £100 per megawatt hour for onshore wind, £155/MWh for offshore wind, and £105/MWh, £95/MWh and £125/MWh for biomass conversion, hydro and large solar projects respectively. Meanwhile, negotiations are ongoing over the level of support that will be available to nuclear and CCS developers.

The Department of Energy and Climate Change (DECC) said CfDs are the most efficient way to provide long-term support for low-carbon generation as they remove exposure to volatile wholesale prices, while still protecting consumers from paying for support when prices are high. 

Ministers estimate the system will be £5bn cheaper than extending the current Renewables Obligation (RO) subsidy scheme through to 2030.

However, critics have argued that agreeing payments far above market prices for up to 40 years will see consumers lose out and energy companies handed excessive subsidies.

The CfDs and an accompanying auction-based capacity market, which from next year will see generators bid for contracts to supply back-up capacity, are designed to incentivise up to £110bn of private sector investment by the end of the decade, leading to a major overhaul of the UK's energy infrastructure.

But details of the schemes have emerged slowly, leaving many projects in hiatus. Most notably, the government has spent well over a year in talks with EDF about building a new nuclear reactor at Hinkley Point in Somerset.

Business and Energy Minister Michael Fallon said today's publication of the draft terms for the proposed contracts would help the investment community "get on and invest".

"No other sector is equal in scale to the British power market, in terms of the opportunity that it offers to investors, and the scale of the infrastructure challenge," he added. "This will put the UK one step ahead in the global race to develop clean technologies, and will support up to 250,000 jobs across the energy sector."

Businesses can now submit feedback on today's proposals until 2 September, with the finalised terms expected to be published in December.