Blog: CfD auctions are good news for business

20th May 2014

Related Topics

Related tags

  • Generation ,
  • Renewable ,
  • Procurement ,
  • Business & Industry


John Midgley

EEF's Richard Warren on Decc's confirmation that low-carbon energy technologies will have to compete to win electricity supply contracts and why its good for companies

The government response to January’s consultation on the allocation of Contracts for Difference (CfDs) arrived last week with little attention from either the main stream or environmental press.

Perhaps unsurprisingly the bulk of attention was given over to the announcement of a new consultation on proposals that will likely see the Renewables Obligation scheme closed to solar photovoltaic (PV) projects larger than 5MW next year, which has sent the renewables lobby in paroxysms of despair.

The reaction to the solar announcement comes as no surprise, it could potentially spell a massive blow to the rollout of large-scale solar PV projects; such projects would have to compete to prove their cost effectiveness against other forms of low-carbon technology and at present it simply isn't able to do so.

What does surprise me, however, is that the announcement of competitive auctions received very little attention. There’s a possibility that this is because it was seen an almost forgone conclusion, but in itself it is a significant move that could have profound implications.

In a nutshell, Decc has moved from a position in which it intended to allocate upwards of 50% of the CfD budget with no form of competition or price discovery to one where all established technologies (including onshore wind and solar PV with a capacity of more than 5MW) will have compete against one another in auctions.

This has largely come about owing to new EU state aid rules on support for renewables. EEF is wholly supportive of the change and has been calling for technology neutral auctions for some time. The move has been achieved with such simplicity and with little opposition, the crucial question is: Why wasn’t it considered before?

Competitive auctions have been shown to be highly successful in driving down the cost of renewables elsewhere, in Brazil for example, but despite calls from UK industry for their early introduction, Decc showed precious little interest in such an approach until forced to do so by the European commission.

You may ask why this matters, if the end result is the same and we’ve ended up with competitive auctions anyway? Well it matters because it demonstrates a worrying lack of concern from the energy department about the affordability element of the so-called “energy trilema” – affordability + security of supply + decarbonisation.

The government’s order of priorities is clearly decarbonisation, followed by a poorly defined “security of supply”, which seems to be aiming for the greatest mix of technologies. Meanwhile, affordability gets little or no look in.

Introducing competitive CfD auctions has been largely uncontroversial and it could save consumers significant sums of money. However, Decc seems to prefer an almost “gosplan” approach in which it chooses the technologies and the prices rather than allowing the market to do so.

There still remains a group of “less established” technologies (including offshore wind) which won't be subject to competition, and while auctions aren’t suitable for all, I see no reason why offshore wind projects, for example, shouldn’t compete with one another to ensure the most competitive prices.

The space left available for competition in the electricity market is shrinking; the energy department will effectively set the price for new baseload power through CfDs, and will have an increasing influence on the prices for new plant through the planned capacity market.

In this situation, it is crucial that Decc seeks to install market mechanisms into the process wherever possible to ensure that affordability is being properly considered.

The introduction of auctions for CfDs from the outset is good news for businesses, but Decc could go further and must, in future, place a higher priority on affordability in its ongoing challenge to balance decarbonisation, energy security and cost.

Richard Warren is senior energy policy adviser at EEF, the manufacturers' organisation.


Subscribe to IEMA's newsletters to receive timely articles, expert opinions, event announcements, and much more, directly in your inbox.

Transform articles

IEMA reviews political party manifestos

Ahead of the UK general election next month, IEMA has analysed the Labour, Conservative, Liberal Democrat, and Green Party manifestos in relation to the sustainability agenda.

19th June 2024

Read more

Sarah Spencer on the clear case for stronger partnerships between farmers and renewable energy developers

6th June 2024

Read more

A system-level review is needed to deliver a large-scale programme of retrofit for existing buildings. Failure to do so will risk missing net-zero targets, argues Amanda Williams

31st May 2024

Read more

Chris Seekings reports from a webinar helping sustainability professionals to use standards effectively

31st May 2024

Read more

Although many organisations focus on scope 1 and 2 emissions, it is vital to factor in scope 3 emissions and use their footprint to drive business change

31st May 2024

Read more

Joe Nisbet explores the challenges and opportunities of delivering marine net gain through offshore renewables

31st May 2024

Read more

IEMA submits response to the Future Homes Standard consultation

31st May 2024

Read more

Hello and welcome to the June/July of Transform.

31st May 2024

Read more

Media enquires

Looking for an expert to speak at an event or comment on an item in the news?

Find an expert

IEMA Cookie Notice

Clicking the ‘Accept all’ button means you are accepting analytics and third-party cookies. Our website uses necessary cookies which are required in order to make our website work. In addition to these, we use analytics and third-party cookies to optimise site functionality and give you the best possible experience. To control which cookies are set, click ‘Settings’. To learn more about cookies, how we use them on our website and how to change your cookie settings please view our cookie policy.

Manage cookie settings

Our use of cookies

You can learn more detailed information in our cookie policy.

Some cookies are essential, but non-essential cookies help us to improve the experience on our site by providing insights into how the site is being used. To maintain privacy management, this relies on cookie identifiers. Resetting or deleting your browser cookies will reset these preferences.

Essential cookies

These are cookies that are required for the operation of our website. They include, for example, cookies that enable you to log into secure areas of our website.

Analytics cookies

These cookies allow us to recognise and count the number of visitors to our website and to see how visitors move around our website when they are using it. This helps us to improve the way our website works.

Advertising cookies

These cookies allow us to tailor advertising to you based on your interests. If you do not accept these cookies, you will still see adverts, but these will be more generic.

Save and close