The Competition and Markets Authority has recommended DECC finalises proposals for Contracts for Difference budgets and the allocation of technologies to pots at least one year ahead of an auction.
In today’s summary of energy market investigation remedies, the CMA said potential bidders need to be able to make informed decisions about whether to progress a project in advance of the auction.
It recommends DECC undertakes an assessment of the appropriate allocation of technologies and budgets to pots prior to each CfD auction.
The CMA also recommends DECC conducts an impact assessment and consults before allocating technologies between pots.
As part of its analysis and consultation, the CMA said, DECC should estimate the extent to which the short-run costs of supporting low-carbon generation are affected by its decision.
This should then be weighed against any long-run benefits such as cost reductions of future projects, to assess overall impacts on customers, it said.
The Renewable Energy Association said such assessments should take into consideration the savings that could be provided by DECC supporting a portfolio of renewable technologies, including onshore wind and solar.
It warned, however, that these recommendations should not be used by DECC to delay future auctions, including those stated to take place at the end of this year. “DECC should carefully analyse the timeline for how such a recommendations are implemented,” it said in a statement.
The REA said it saw potential issues in the CMA’s suggestion to have 100% of transmission losses charged to generators. “This could negatively affect the deployment of renewables, adding yet further costs to projects and could benefit fossil fuel generators over renewables,” it said.
The investigation was also critical of DECC’s “suboptimal” design of the non-auction CfD Investment Contracts awarded under the Final Investment Decision Enabling for Renewables process.
The CMA found the cost of the early CfDs was £250–£310m per year higher than had the projects been awarded contracts through a competitive auction.
As a consequence, the CMA has recommended DECC undertakes and consults on an impact assessment before awarding CfDs outside the auction mechanism.
It calls for a two-stage process – before entering into negotiations with prospective generators to identify the possible costs and the benefits; and after the negotiations with generators and the agreement of a strike price to determine the impacts on customers.
Image: 3 Whitehall Place (DECC)
