Renewable Energy Association comments on draft budget for Contracts for Difference scheme

Planned budget will not ensure value for money for consumers

The Government has published the draft budget this morning for the new Contracts for Difference (CfD) scheme, setting out the level of funding that will be available for new renewable power projects under CfDs [1]. The scheme was granted State Aid approval yesterday [2] and secondary legislation for CfDs will be debated in the House of Lords this afternoon [3].

The REA is very conscious of the need to limit the cost of renewables subsidies to consumers. It is surprising therefore that Government has allocated three times as much budget to less-established technologies (£155 million per year for pot 2) than to the cheaper, more established technologies like solar power, onshore wind and conventional waste to energy technologies (£50 million per year for pot 1). There is also no additional funding for biomass conversions (pot 3). However, it is mainly the technologies in pots 1 and 3 that can immediately plug the looming capacity crunch with low carbon generation whilst ensuring value for money for the consumer.

It is nevertheless very important to foster innovation and cost reduction in the early stage technologies that offer the promise of a huge boost in engineering jobs and a price-stable, low carbon energy future. This could be achieved at lesser expense to the consumer by shifting a portion of the pot 2 budget into pots 1 and 3, where more capacity can be delivered at lesser cost, and introducing minimum deployment guarantees ("minima") for each technology in the CfD scheme (currently only wave and tidal stream technologies have a minimum deployment guarantee). This would ensure continued deployment across all renewable power sectors, sustaining jobs, innovation and cost reduction in early stage technologies, whilst ensuring better short term ‘bang for your buck' on delivering clean power.

REA Chief Executive Dr Nina Skorupska said:

"The limited funding for several key technologies will send shockwaves through the industry. It's really important not to lose sight of the bigger picture today. Ultimately all renewables, not just in power but in heating and transport too, are really competing with fossil fuels that are mostly imported from overseas and damage the climate.

"With many people struggling with their energy bills, cost-effectiveness is every bit as important, and DECC cannot say that this planned budget delivers value for money for the consumer. The best way to square the circle is by properly funding the cheaper technologies and introducing minima for all technologies. This will ensure continued investment, innovation and job creation across all sectors, whilst also bringing forward cheaper clean power in the short term to address the looming capacity crunch."

As well as minima for all technologies, the REA continues to urge DECC to introduce quarterly rather than annual allocation rounds and earlier access to the backstop power purchase mechanism (the Offtaker of Last Resort) [4].

The REA is very concerned by the lack of funding for pot 3 (biomass conversion). The Committee on Climate Change said last week that "sustainable biomass could have a useful role in meeting UK renewables targets at least cost" [5]. The Government has also published a biomass calculator today, welcomed by the REA's Back Biomass campaign, which confirms that sustainable biomass generation can make a significant contribution to reducing greenhouse gases [6].

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