UK energy consumers could save more than £2bn if DECC’s Contracts for Difference auction rounds are opened up to include onshore wind, solar and biomass, according to a report commissioned by Drax.
The government is planning three auctions for CfDs over the next four years, all focused on offshore wind.
The research by NERA Economic Consulting and Imperial College includes whole system costs – levelised cost of energy plus the associated system integration costs for a given technology – which is not reflected in the current CfD design.
These costs include maintaining sufficient levels of backup capacity for reliability and managing flows on the transmission network to balance the system.
Once these additional costs are recognised, the report finds, offshore wind could require a CfD of £127/MWh, onshore wind £92-97/MWh, solar £96/MWh and biomass £84/MWh.
Once these new support levels are modelled over the planned energy auctions, including a proportion of the offshore wind budget being protected, a technology-neutral CfD auction is shown to save consumers £1.9-£2.2 billion.
NERA Economic Consulting associate director Daniel Radov said: “To ensure that we achieve environmental targets as efficiently as possible, it is essential to have policies in place that provide the right incentives to minimise costs.”
Drax chief executive Dorothy Thompson added: “This independent research shows it’s crucial we get the right mix of energy generation.
“Intermittent renewables like wind and solar are vital as we continue to clean up energy generation, but they need to be backed up by a constant supply of electricity that can be flexed up and down to make sure the UK’s businesses and households always have power on demand.”
Image: ABP biomass facility for Drax power station at Port of Hull (Spencer Group)
Tech-neutral CfDs ‘£2bn cheaper’
Drax says consumers losing out by DECC's focus on offshore wind auctions
By EBS