A University College London critique of the UK’s energy policy ‘reset’ has called for ‘subsidy-free’ Contracts for Difference for onshore wind that would see the government underwrite the carbon value in long-term contracts.
In the report entitled UK Energy Policy: Politicisation or Rationalisation?, UCL professor of international energy and climate change policy Michael Grubb suggests the UK government should compensate wind generators for any difference between the ‘social cost of carbon’ and the amount that fossil fuel generators actually pay for CO2 emissions.
Grubb argues this would not be subsidising wind but would ensure wind generators gained the value already officially accorded to reducing CO2 emissions. “At the Treasury social cost of carbon for 2030, the value of the CO2 displaced by renewable energy could be on the order of £30/MWh,” he said.
Given the anaemic state of the European carbon pricing system and the freezing of the UK carbon price floor, the report states, no onshore wind investor can rely on the carbon value of onshore wind purely from wholesale market prices.
Grubb added: “Drawing on the demonstrated financial efficiency of contractual certainty, underwriting the carbon value in a long-term contract – a contract for difference on the carbon price, not the electricity price – would be the natural evolution to create a ‘subsidy free’ CfD.
“Moreover, this speaks to the government’s emphasis on consumers, who could then choose to buy green in ways that really mean something. If and when the carbon price is sufficient to ensure that fossil fuel generators pay this cost, there would be no underwriting cost, just the carbon price revenues to government.”
Image: Little Cheyne Court onshore wind farm (RWE)
