Contracts for differences to reinvigorate UK offshore wind

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4 July 2013, Nuclear, Solar, Wind

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The new CfD support scheme for large-scale renewable generation in the UK will replace the Renewables Obligation (RO) scheme in April 2017 and will provide a relatively generous and stable income per unit of generation by offshore wind farms. By contrast, the RO scheme provides a variable level of support to renewable generation based on the variable market prices of electricity and Renewables Obligation Certificates (ROCs). The guaranteed level of remuneration is likely to reinvigorate investors hitherto worried that the strike prices may not have been as high as required.

The CfD scheme will be introduced in 2014 and will run alongside the RO scheme until April 2017, giving investors a one-off choice of support scheme in the transition period.

Millions of pounds of investment have been withheld from the UK's offshore wind industry since the announcement of the introduction of the CfD scheme in 2010. The long lead times of projects and the high capital costs have resulted in a significant slowdown of investment in the sector while the government decided on the level of the strike price.

The preliminary announcement of a strike price of GBP155/MWh for offshore wind compares favorably with the ROC scheme, which currently provides less than GBP140/MWh. However, given the long lead times of offshore wind projects, by the time new wind farms come online strike prices will have been reduced to GBP140/MWh in 2017 and GBP135/MWh in 2020.

The current ROC price of GBP44/MWh and the market electricity price of around GBP50/MWh would have to increase and stabilize at GBP50/MWh and GBP55/MWh respectively for equivalent returns under the two regimes. The stable nature of the guaranteed returns under the CfD scheme will give confidence to investors, and is likely to inspire rapid growth of the UK's offshore wind industry before 2020.


www.datamonitorenergy.com / asken@datamonitor.com / @DatamonitorEN

Source: MarketLine

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