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2nd CfD ‘auction’ announced a success

Following the controversy of the first tranche of financial decc logoallocations under the Contracts for Difference scheme, the second such provision has been concluded.

Back in 2014, the government was heavily criticised on two measures firstly its dismissal of onshore wind energy as a valid recipient of CfD funds and the failure to put the allocation to competitive tender.

In this latest round however, the government submitted the allocation to a competitive market auction and as a result awarded 27 renewable energy projects at a total of £315m for 2GW of generating capacity.

The allocation presages a new era in the methodology for generating low carbon financial support.

Similar to the initial allocation offshore wind dominated the auction with a total of 1.1GW however in contrast 15 onshore wind projects were also awarded funds as well as 5 solar projects.

In a further contrast to the initial round, the maximum price for the winning technology was £114/MWH compared to the £154/MWH previously awarded.

The big difference was that the bidding renewable developers were required to compete against one another to sharpen their commercial offerings, as a result the government claim that the ‘savings’ were £110m with the prices for the two largest offshore wind farms coming in at 18% than the initial allocation.

Whilst those reductions are welcome, the £114/MWH compares very unfavourably with the current wholesale market price which is trading at around £42/MWH.

The scheme though is working to its principles, previously renewable generators were automatically eligible for subsidy, now under contracts for difference, those same generators need to prove that they can produce their output at the lowest marginal cost in order to win financial support.

Andy Cox, head of deal advisory for energy at KPMG welcomed the impact explaining:

“Strong competition for contracts has sent the costs of wind, particularly offshore wind, and solar tumbling”

Whilst Secretary of State for Energy and Climate Change, Ed Davey claimed:

“The auction has driven down prices and secured the best possible deal for this new clean, green energy”

Down, but still costly. Nobody said the move to a zero carbon economy was going to be cheap but at least this is a step in the right direction after the debacle of 2014.