The fact that the industry is now talking about the difficulty new technologies face in trying to access UK subsidies under the Contract for Difference (CfD) scheme, is in itself a positive sign that the marine energy sector is beginning to make some headway towards the first commercial scale projects, according to Regen SW.
The advantage of CfDs is that, once a contract has been awarded, the generator is effectively guaranteed a price and is protected from the fluctuations of the wholesale market.
The other big advantage of CfDs for marine energy, Regen SW states, is that the industry has managed to negotiate a generous strike price at £305 MWh (defined in 2012 prices and inflation index linked for 15 years). However, it is restricted to projects of less than 30 MW.
Regen SW points out that there are some general issues and some very specific issues with the current CfD scheme.
The general issue is that in order to obtain a CfD allocation, a project developer has to be in a position to convince government, or more accurately the Low Carbon Contracts Company, that the project will be going ahead.
In practice, this means having planning permission, a grid connection agreement and to be some way towards financial close and supply chain commitment. This puts a lot of burden on the project developer, and requires more up-front expenditure to get to a position to apply for a CfD allocation, according to Regen SW.
Clearly however, there is a case to look at the CfD allocation process to see how some of the conditions could be streamlined and made more flexible. There is also a strong case to look at pre-allocation for demonstration zones and tests sites, such as EMEC, Wave Hub and PTEC, which would further encourage developers to utilise infrastructure that is already in place.
Regen SW states that the key issues with CfDs relate to the allocation process and some of the unexpected restrictions that the CfD contract imposes.
The challenge is that the CfD scheme has not been designed for new technologies where there may be a multi-phase build out approach, and where new technology may be upgraded or redeployed over time.
The issues could all be addressed relatively easily, according to Regen SW, and some may already be mitigated through negotiation with the Low Carbon Contracts Company. However, taken together, Regen SW states, they make CfDs extremely difficult to operate and introduce further uncertainty which makes the scheme unattractive for investors.
Regen SW suggests that some in the industry believe it needs to move away from CfDs altogether to a new scheme – perhaps based on a FIT type approach.
Regen SW’s view is that it would be difficult for DECC to introduce a new scheme, which would require a complete review of the support available and EU state aid approval. It would also risk a miss-timed renegotiation of the support levels available, so working within the existing CfD system, to address the issues above and perhaps work towards a ‘CfD lite’ option for new technology is probably the best route forward, according to Regen SW.
Regen SW is a non-profit company working to enable business, local authorities and other organisations to deliver renewable energy and energy efficiency and build a prosperous low-carbon economy in the South West of England.