New Energy World™
New Energy World™ embraces the whole energy industry as it connects and converges to address the decarbonisation challenge. It covers progress being made across the industry, from the dynamics under way to reduce emissions in oil and gas, through improvements to the efficiency of energy conversion and use, to cutting-edge initiatives in renewable and low-carbon technologies.
Different strokes – supporting UK renewable generation
6/4/2022
5 min read
Feature
The UK government’s contract for difference (CfD) scheme has been highly successful in both bringing new renewable generation projects forward and reducing prices. Here, Victoria Judd and Gibran Alaoui explain how, and discuss the scope for evolution of the support mechanism.*
In the context of energy security, which has risen to the top of the list of national concerns in the wake of the war in Ukraine, and higher oil and gas prices, investments in renewable energy seem like a safe option. Green energy is still at the forefront of national infrastructure developments and the real question seems to be – will there be enough Gigawatts soon enough to meet demand?
Does this mean, therefore, that government subsidies for renewable technologies have got the right balance in such a way to attract funding to green energy projects?
Large uptake of CfDs
In the UK, the process of energy market reform in 2014 brought significant changes to the subsidy structure for renewable energy by introducing the contract for difference (CfD). This replaced renewable obligation certificates with a bilateral contract pursuant to which the government’s Low Carbon Contracts Company (LCCC) would pay the difference between the market price of electricity and the strike price (reflecting the cost of investing in a particular low carbon technology) to the relevant project developer (and vice versa in the event of a particularly high electricity price).