Rule changes to the 2017 Contract for Difference (CfD) auction will cost UK consumers an additional £1.5bn over 15 years, according to a new report.
A study of CfD2 by the National Audit Office found the decision by BEIS to introduce a 150MW cap for dedicated biomass with combined heat and power, anaerobic digestion and advanced conversion technology will increase bills by £100m per year.
Under the revised auction rules, smaller but more expensive-per-unit projects covered by the capacity cap were awarded CfDs, which increased the price of cheaper-per-unit projects such as offshore wind not covered by the cap.
“Almost all of this cost increase is due to small projects pulling up strike prices for projects that had already been accepted, rather than due to additional capacity being secured,” the report said.
“It is possible to infer from the published auction results that a fuelled technology project was likely to have set the strike price for the one winning (large) offshore wind project in delivery year 1,” the NAO added.
Innogy secured price support for the 860MW Triton Knoll offshore wind farm off Lincolnshire, which will come online in 2021-22, of £74.75 per megawatt-hour.
The NAO noted BEIS has recognised the CfD2 auction was “suboptimal” and it will not apply the capacity cap rule in the same form in future auctions.
Renewable Energy Association policy lead James Court said: “The fuelled technology cap was an unnecessary intervention and there should be no cap in the next auction.
“While this report focuses on fuelled technologies such as biomass and biomethane, similar reforms have unnecessarily excluded low-cost solar and onshore wind from competing.”
Energy UK chief executive Lawrence Slade added: “This report from the NAO further highlights the cost reduction to consumers and underlines the case for a level playing field in delivering all renewable technologies at future auction.”
Image: BEIS (Steph Gray)
CfD2 rule changes ‘cost £1.5bn’
By EBS