A collection of the UK’s solar stalwarts have welcomed the government’s consultation on allowing solar and onshore wind back into the Contracts for Difference (CfD) scheme.
Details on the consultation emerged on Tuesday (2 March 2020) before being fully unveiled that evening. The document details proposals to include so-called Pot I technologies into future allocation rounds after they were barred from the scheme after just the first allocation round.
The plans have been praised by Foresight Solar Fund, with its head of UK Solar, Ricardo Pineiro, telling Solar Power Portal that Foresight found the announcement to be “encouraging and a step in the right direction for the UK to be able to hit the target of net zero emissions by 2050”.
It was likewise welcomed by solar developer Lightsource BP, which won a successful CfD contract in the first allocation round, telling Solar Power Portal the company is “pleased” by the reintroduction.
However, neither Foresight or Lightsource BP were able to comment on the potential future strike price for solar. The Impact Assessment of the government consultation contains illustrative figures for the strike price of solar PV using 2012 prices. Whilst the document makes clear these are illustrative figures and not a forecast, calculated using the government’s current view on generation costs and previous CfD auction outcomes, it does place solar as the cheapest technology in the scheme.
With an illustrative price of £33/MWh, solar beats out onshore wind – which has an illustrative price of £34/MWh – and offshore wind, which comes in at £45/MWh. Offshore wind saw a record low strike price in the latest auction round, reaching as low as £39.65/MWh.
However, the illustrative figure of £33/MWh for solar was for a low cost scenario, with a high cost scenario coming in at £47/MWh.
This sits close to analysis from The Solar Trade Association and its members, released in December 2018, which predicted generation costs could fall to £40/MW, however costs weren’t expected to reach this figure until 2030, according to the analysis.
When asked about the prices by Solar Power Portal, James Armstrong, managing partner of Bluefield and adviser to Bluefield Solar Income Fund, pointed to the falling costs for both solar and onshore wind.
“It isn’t possible to be too specific on future CfD prices today, however solar and onshore wind are the two lowest cost renewable solutions and their costs continue to fall. Indeed, solar’s installation costs have dropped by over 90% in the past decade.
“The UK government has correctly identified that these two technologies can drive the decarbonisation of the UK energy market whilst providing cost effective, green energy for consumers. This type of policy measure is likely to be just the start as the UK and European governments target net zero emissions by 2050 and try and urgently address the issue of climate change,” Armstrong continued.
However, one company – solar and battery storage developer Anesco, which recently saw a change in leadership – was able to confirm that the illustrative figures sat in line with its expectations.
“While only an illustration, the prices that have been mentioned within the Impact Assessment fall within the range we might expect to see. These are broadly in line with market prices, so a CfD contract would not represent a subsidy,” Mark Futyan, CEO of Anesco, said, adding that the inclusion of solar and onshore wind is “fantastic to see”.
“The key benefit of the CfD scheme is the reduction in market risk which enables investors to achieve a lower cost of capital, bringing down the cost of zero carbon generation for consumers. By fixing the price for the long term, investors can be more certain of the price they will receive for future generation.
“This change will help bring forward a new wave of solar projects that we are well placed to support at Anesco from development, through construction, operation and market optimisation.”
Full details of the consultation, including the Impact Assessment, can be seen here.