PwC RENEWABLE ENERGY VIEW 2015
| LESSONS FROM THE FIRST CFD ALLOCATION ROUND
The past 12 months have also seen two batches of CfDs awarded to renewable projects, starting with FID enabling (FIDe) followed by the first competitive CfD auction, which was finalised in February 2015. With two sets of CfD now allocated, it is possible to comment on the relative levels of the subsidies awarded across the contracts and also the relative competitiveness of technologies. February’s announcement of the results of the first CfD allocation round made for interesting reading; with the exception of Energy from Waste, all other technologies offered CfDs cleared well below the administered strike price. The results were seized upon by
State of the Renewable Industry
Government as a testament to the benefits of competitive allocation and a good thing for consumers and the environment, as the process demonstrated that you could buy more renewable energy for the same pot of money. But what were the key lessons?
Solar at grid parity? Solar has also shown signs of strong cost reduction with the most recent reference point coming from the first competitive CfD auction. The clearing price for solar in 2015/16 at £50/MWh highlighted some of the flaws in the allocation system. With these developers bidding below the true cost of the project, in anticipation that the price would clear at a higher level, they were left with projects that could not stack
up economically and have decided not to progress these projects. A more credible reference point for solar might be the clearing price of £79.23/MWh for delivery in 2016/17, matching onshore wind. This still represented a very significant discount to the headline strike price of £120 /MWh.
Lessons fromthe first CfD allocation round
Where next for onshore wind? With a significantly higher clearing price in 2016/17 at 79.2 £/MWh, three solar projects cleared the mature technology pot along with one onshore wind project. The 626MW of onshore wind that cleared the 2018/19 auction at 82.50 £/MWh, suggests no competition from solar in that year with a few notable winners; Banks Renewables with 3 projects (180MW) and Infinergy with the 177MW Dorenell wind farm. Although there was some competitive tension between onshore wind and solar in 2016/17, for future auctions it feels hard to see how onshore will compete successfully with solar which continues to demonstrate aggressive cost reduction potential.
February’s announcement of the results of the first CfD allocation roundmade for interesting reading; with the exception of Energy fromWaste, all other technologies offered CfDs cleared well below the administered strike price.
Offshore wind – glass half full or glass half empty? Perhaps the biggest surprise is the clearing price achieved for the two offshore windfarms – Mainstreams ‘Neart’ project cleared in 2017/18 at 114.4 £/MWh while the East Anglia round 3 project cleared at 119.9 £/MWh. While some may wonder at the ability to deliver projects at these prices,
Table 1: CfD allocation round one outcome (Real 2012) Technology
Admin. Strike Price
Advanced Conversion
Energy from Waste (EfW)
Offshore Wind
Onshore Wind
Solar PV
£/MWh MW
£/MWh MW
£/MWh MW
£/MWh MW
£/MWh MW
155-140 80 155-140 95-90 120-100 501 32.88
79.23 45
79.23 38.67
82 REview Renewable Energy View 2015 Solar at grid parity?
The results were seized upon by Government as a testament to the benefits of competitive allocation and a good thing for consumers and the environment, as the process demonstrated that you could buymore renewable energy for the same pot ofmoney. But what were the key lessons?
119.89 714
79.99 77.5
2015/ 2016
TABLE 1 CFD ALLOCATION ROUND ONE OUTCOME (REAL 2012)
2016/ 2017
2017/ 2018
119.89 36
2018/ 2019
114.39 26 80
94.75 114.39 448 82.5
626.05
on the positive side, this demonstrates a level of cost reduction for offshore wind that is in line with the Government and industry’s ambition of 100 £/MWh by 2020. These clearing prices need to be put in the context of the strike prices offered to the five Final Investment Decision (FID) enabled CfD projects – 150 £/MWh for the projects due to commence operations from 2017 and 140 £/MWh for the projects commencing operations from 2018. In total, FIDe contracts were awarded to 3.2GW of offshore wind projects. Invariably the Government will have to deal with further challenges to the FID enabling decision given the outcome of this competitive allocation round. In a hypothetical scenario where the FID projects had been held back to compete in this first CfD round and all offshore cleared at 120 £/MWh, this would have freed up c. £300m of Levy Control funding or c. 1.3GW of additional offshore projects. This scenario demonstrates the
Investment in Renewables
The past 12months have also seen two batches of CfDs awarded to renewable projects, starting with FID enabling (FIDe) followed by the first competitive CfD auction, which was finalised in February 2015.With two sets of CfD now allocated, it is possible to comment on the relative levels of the subsidies awarded across the contracts and also the relative competitiveness of technologies.
importance of the LCF in determining the total capacity which can be deployed. The CfD budget available for each technology ‘pot’ is already known, as is the spend based on the CfDs allocated to date. This allows that for the latter years of the LCF at least, the CfD budget is largely allocated for both pot 1 and pot 2 technologies, although there is still considerable CfD budget available for FID before 2019 (c. £1bn). Therefore, although the technology CAPEX is certainly decisive in
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