The Government is considering proposals that could speed up the distribution of renewable energy, cutting emissions and increasing energy security, but minister warn it could add to household bills.
Currently renewable energy projects are awarded contracts for difference (CfD) based purely on who can build at the lowest price. The new system would present officials with options to create more sustainable supply chains, innovate or encourage job creation, plus considering the cost of delivering electricity from the wind, solar farm, or tidal energy project.
The project has been seen as a success, helping to reduce the price of new offshore wind power by nearly 70% in just seven years to less than £40 per megawatt hour (MWh) for the cheapest projects. For comparison the electricity which will be produced by the Hinkley Point C nuclear power plant when it completes costs £92.50 per MWh in 2012 prices, not counting for inflation.
Last week EDF confirmed offshore work to install an underwater cooling water system for the Hinkley Point C nuclear power station is moving into its final stages. The first nuclear reactor for Hinkley Point C arrived at the site near Bridgwater earlier this year. The French energy giant told investors in February that Hinkley Point C could now cost more than £30bn to complete due to inflation, amid rising prices for building materials and labour.
The new contracts for difference promise an electricity producer a fixed price for the energy they produce for 15 years. They then sell their electricity at market rates, but get a top-up if that rate is lower than their guaranteed fixed price or pay back some of the profit if it is above.
Officials said there would be some obvious downsides to the changes. For example it will make it harder to assess which projects should win contracts when there are more factors than price to consider and would likely push up prices.
“While this could encourage developers to adapt their bidding strategies in a way that strengthens their investments in a wider range of factors in support of sustainable renewable energy deployment and security of supply, it could also increase deployment costs and consequently costs for consumers,” the Department for Energy Security and Net Zero said in a consultation document released on Monday.
“It would also add to the complexity of the CfD auction, including creating an increased risk of unintended consequences from auction design decisions.”
Minister for Energy Security and Net Zero Graham Stuart said: “This potential reform to the scheme to introduce non-price factors presents a solution to grow the renewable energy supply chain as we accelerate our energy transition plans to power more of Britain from Britain.”
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