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UK: Call for Evidence on Enabling a High Renewable, Net Zero Electricity System

  • United Kingdom
  • Energy and infrastructure - Clean energy

17-12-2020

On 14th December 2020, the UK Department for Business, Energy & Industrial Strategy (BEIS) published a Call for Evidence on Enabling a High Renewable, Net Zero Electricity System. The Call for Evidence was released on the same day as the Energy White Paper (see our bulletin here) and as such has not attracted as much attention as it ordinarily would have. However, this should not be overlooked by stakeholders in UK renewables, as this will educate future policy of the CfD and support for low carbon generation.The deadline for responses is midnight on 22nd February 2020.

The information gathered by BEIS under the Call for Evidence will help them develop the Contracts for Difference scheme and wider policy instruments in light of the following three key policy objectives:

  • Maintaining growth in renewable deployment to meet net zero targets
  • Ensuring overall system costs are minimised for electricity consumers
  • Supporting and adapting to innovative technologies and business models

Simon Davies, Principal Associate comments: “It is important that stakeholders use this opportunity to engage with Government, as the long term future and direction of the CfD and greater generator exposure to market risks are some of the central topics under consideration. It was clear from the recent BEIS response to the CfD consultation that the Government is keen to ensure that the acceleration in renewables deployment is conducted in a manner that suits the needs of the system. If we are to achieve the level of deployment required to meet 2030 and net zero commitments, any radical changes implemented to achieve the objectives outlined above should not reduce revenue certainty provided by the current CfD or otherwise undermine investor confidence in new renewable generation projects by exposing them to greater market risks and costs of capital.”

Some of the key areas in respect of which BEIS is calling for evidence are as follows:

  • Merchant Projects and Alternative Revenue Streams: BEIS has noted that certain renewable projects are able to operate either wholly or partially without a CfD contract or any other support mechanism. Accordingly, BEIS is seeking responses on how the industry is currently approaching developing renewables projects without CfDs and in what ways non-CfD backed projects secure investment and obtain revenue from wholesale and other markets
  • ‘Price cannibalisation’/Wholesale power price outlook: BEIS is interested in the impact of greater deployment of low-marginal cost generation and ‘price cannibalisation’ (i.e. the depressive influence on the wholesale power price at times of high output from variable generation such as solar, onshore and offshore wind). BEIS is calling for evidence on i) the effects of increased low-carbon deployment on future wholesale power prices, ii) the viability of investment in new renewable projects based primarily on wholesale prices and iii) the impacts of extensive deployment of flexible assets such as storage
  • Future of the CfD: BEIS is calling for views on whether the now “mature” renewable technologies can provide the low carbon power required for net zero without further CfDs beyond 2021 (Allocation Round 4 "AR4") or alternatively if price support will continue to be needed to achieve the necessary volumes. Specifically, BEIS is asking how much longer after the 2021 allocation round should the current CfD be used
  • Wider Market Changes: BEIS is calling for evidence on changes or alternatives to the wholesale market that might facilitate greater merchant deployment and/or facilitate contracts between market participants that incentivise renewables deployment (as an alternative to Government intervention)
  • Increased Exposure to Market Risks: BEIS has outlined a number of changes to the market or CfD which could potentially increase a generators’ exposure to wholesale market prices (e.g. capping the support payments or reducing contract length), with the aim of incentivising efficient generator behaviour based on the needs of the market. BEIS has called for evidence on how renewable generators can change their operating or investment behaviour to respond to wholesale price signals and the impact on the cost of capital of introducing greater exposure to the market price
  • Flexible Services: Low-carbon technologies will increasingly need to provide services traditionally provided by non-renewable generators, such as inertia, frequency management and black start. BEIS is considering whether CfD generators should be incentivised to account for flexibility and wider system impacts, and/or to provide balancing services to the system operator and how this could be achieved
  • Co-location or multiple technologies: BEIS is calling for evidence on the benefits to the system of co-locating renewable generation projects with battery storage, hydrogen production or other low carbon technologies and whether the CfD should support these projects
  • Part Built Projects: Part built projects (i.e. which have not yet reached commissioning) are eligible to apply for a CfD in AR4, which will be of particular interest to a number of onshore wind and solar pv plant developers who may have been planning to build their projects on a merchant basis before it was announced that the CfD would be re-opened to them. BEIS is querying whether this is appropriate and whether part-built projects should continue to be eligible to compete for CfDs after the fourth allocation round
  • Extensions and Repowering: BEIS is considering if there is justification for extensions of existing projects (which may already receive RO or CfD support) or repowering old projects being supported through CfDs or any other Government mechanism.