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CfD Budget Controversy

contracts for differencesContracts for Difference (CfDs) is a new regime designed to ultimately replace the Renewables Obligation (RO). However even though the scheme is yet to commence it is surrounded by controversy.

Firstly the very structure of CfDs is in question with the first payments commencing in April 2015 yet the RO scheme it is designed to replace will run concurrently for two years and both schemes will be open to new applicants at the same time.

Furthermore the RO scheme will continue running until 2037 albeit on a diminishing basis and so some commentators’ talk of double charging of subsidies. In reality this will not happen but the policy of concurrency is questionable at best.

The initial awards under the CfD scheme are not without controversy either, firstly proven and cheaper technology like onshore wind was ignored in favour of less politically sensitive but expensive offshore wind and the failure to deliver on a pre-promised award to Drax for a further biomass conversion ended in the High Court and has now been overturned.

To add to the controversy DECC has now issued the draft budget for CfDs.

DECC’s budget of £205m per annum is split between 3 pots.

  1. Pot 1 with a total of £55m is dedicated to established technologies such as onshore wind and large scale solar. Both of which are subject of planning disputes and policy angst amongst the government.
  2. Pot 2 by contrast is for less established technologies but also less politically sensitive generation sources such as offshore wind and tidal generation for whom £155m has been dedicated per annum.
  3. The funding for Pot 3 however was conspicuous by its absence entirely, the pot that is Biomass, yet despite the critical role that Biomass plays in the UK’s renewable energy overhaul and the market leading role that Drax is playing in its conversion to Biomass units, DECC has chosen to award it no annual payments to encourage further take up.

Unsurprising the apparently politicised stance of the decision-making was met with derision from renewable energy groups with Renewable Energy Association chief executive Nina Skorupska saying:

“The limited funding for several key technologies will send shockwaves through the industry.”

“The best way to square this circle is by properly funding the cheaper technologies and introducing a minima for all technologies.”

And Gordon Edge, director of policy at Renewable UK, adding:

“An overly restrictive budget for the established group of technologies will mean a lower level of delivery of the cheapest technologies, risking consumers paying more than they should have to.”

With Drax’s biomass application already being heard in the High Court and DECC promising an appeal after having lost the initial case and the spectre of EU approval hanging over the schemes, CfDs look like they won’t be a silent addition to energy invoices. Indeed we are likely to hear a whole lot more about CfDs in the coming months.

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