Government publishes first ‘strike prices’ for future renewable energy projects

The much anticipated ‘strike prices,’ guaranteeing what the National Grid will pay for renewable energy generation, have been published. These are still in “draft” form whilst negotiations continue this calendar year.

Broadly similar support

The first ‘strike prices,’ guaranteeing what the National Grid will pay for renewable energy generation, will provide “broadly similar” support to suppliers as that currently provided under the Renewables Obligation, the Government has announced.

The guaranteed prices are proposed to be available from 2014 – 2019 for onshore and offshore wind, tidal, wave, biomass conversion and large solar projects.

Calculation of project worth

The tariffs may well be high enough to initiate long awaiting investment decisions that should lead to many of these markets expanding. Developers will finally be able to calculate whether the major offshore wind projects stack up financially. If they think they do (and we must presume that there have been negotiations behind the scenes to ensure that these prices do work), they should be able to start issuing invitations to tender to turbine manufacturers and the rest of the supply chain to bid for contracts. When those contracts are let, we should start to see the manufacturers finally committing to establish manufacturing plants in the UK – something that the market is eagerly awaiting!

The draft rates published are outlined below. The table of rates in each year will apply in the year that any contracts are signed. The contract periods have been limited to 15 years, rather than the 25 years for ROCs. 15 years is sensible though because this aligns tariffs with the same loan periods that banks are offering finance for on these projects. However, the ‘strike prices’ are only set out for contracts entered into before 2019 and these prices reduce as you get closer to 2019. This places considerable pressure on companies to progress projects in order to secure the contracts as soon as possible.

The rates will be governed by new Contracts for Difference (CfDs) with suppliers which will be created by the Energy Bill, which is currently before the House of Lords. The ‘strike prices’ will also need to pass EU State Aid restrictions. The Government has not yet finalised strike prices for new nuclear or carbon capture and storage projects.

Notes:

• Further detail will be published in July, as part of consultation on the draft EMR Delivery Plan.
• Expected deployment under these strike prices is broadly consistent with deployment scenarios presented in the Renewables Roadmap13 and reflects new cost

  assumptions and the growth figures announced at Budget 2013. They are subject to change prior to public consultation in July 2013, as part of the draft EMR Delivery

  Plan.

• There is no published strike price for Tidal Range. Instead, given the lack of cost data available, DECC will consider how best to price CfDs and the appropriate length of

  contracts for tidal range projects on a case by case basis.

• Please note that there are 14 published strike prices, in contrast to the 35 Renewables Obligation (RO) support bands for renewables. In some cases, we are offering

  one strike price to cover two or more support bands under the RO, as we are moving away from having more than one support level for a single technology. In addition,

  we are not offering strike prices for a number of RO technologies at the present time, for example due to sustainability reasons.

• Some technologies are offered the same strike price whether or not they are Combined Heat and Power (CHP) projects, as noted in the table above. CHP projects will

  also receive support and revenue for the heat element of their generation, therefore overall they will receive greater support than non-CHP generators. This is intended to

  incentivise CHP generation.

1. Control totals for the Levy Control Framework will be set in nominal terms at the relevant Spending Review.
2. Dependent on industry cost reductions over time – figures are not Government forecasts and do not include deployment supported under the small‐scale Feed‐In Tariff. The upper end of the offshore wind range is reached if costs come down to meet industry aspirations and there is some delay to nuclear and CCS build out.
3. Standard and advanced gasification and pyrolysis, including advanced bioliquids.
4. Combined Heat and Power.
5. Based on biomass contracts ceasing to pay in 2027.
6. The policy of whether and how dedicated biomass will be supported under CfDs will be confirmed within the draft EMR Delivery Plan, published in July 2013.
7. The draft strike price is based on the assumption that Dedicated Biomass CHP generators can apply for the current (1p/kWh) Renewable Heat Incentive (RHI) large biomass tariff. This assumption also applies to other technologies with CHP. Revised RHI tariffs were consulted on in September 2012 and a Government response is pending. DECC may adjust the Dedicated Biomass CHP strike price (and other technologies with CHP) once RHI tariffs have been confirmed.
8. Energy from waste without CHP is not supported under CfDs, which is consistent with the position under the Renewables Obligation.
9. The proposed strike prices for geothermal have been set with the aim of giving equivalent returns from investment as could be accrued under the RO. The Government has commissioned an external report on the potential of geothermal power in the UK – due to conclude in July – and its findings will be incorporated in setting the final strike prices.
10. For larger hydro projects, DECC will consider how best to price CfDs and the appropriate length of contracts on a case by case basis, similar to the proposed approach for Tidal Range.
11. The strike prices for Tidal Stream and Wave are intended for the first 30 MW capacity of any project. For higher capacity projects, support for the additional MW will be set at the offshore wind strike price.
12. As per previous footnote.

For more information, help or advice please contact our Energy Team on 0191 211 7777.