The Department of Energy & Climate Change (DECC) has today (23 April) revealed the first eight renewable energy projects to be awarded early-stage Contracts for Difference (CfD) under the government’s Electricity Market Reform (EMR) programme.
There are five offshore wind projects, two biomass conversion projects, and one biomass combined heat and power (CHP) project being awarded early-stage CfDs, known as Final Investment Decision (FID) Enabling for Renewables.
It is thought that by 2020, the projects will:
- provide up to £12 billion of private-sector investment;
- create up to 8,500 jobs;
- produce around 15 terawatt hours (TWh) – five per cent of total electricity generation;
- account for 14 per cent of the renewable electricity DECC expects to come online; and
- reduce carbon emissions by 10 million tonnes per year (compared to fossil fuel power generation).
The investment contracts for the successful projects are scheduled to be signed and laid in Parliament in May 2014, which is when they will take legal effect.
The eight projects awarded contracts are:
| Project | Developer | Technology | Size (MW) | Location |
|---|---|---|---|---|
| Beatrice | Beatrice Offshore Windfarm Limited | Offshore wind | 664 | Outer Moray Firth, Scotland |
| Burbo Bank extension | Dong Energy Wind Power A/S | Offshore wind | 258 | Liverpool Bay, at the entrance to the River Mersey |
| Drax Unit #1 | Drax | Biomass conversion | 645 | Selby, North Yorkshire |
| Dudgeon | Dudgeon Offshore Wind Limited | Offshore wind | 402 | The Wash north of Cromer, Norfolk |
| Hornsea 1 | Dong Energy Wind Power A/S | Offshore wind | 1,200 | North Sea, off the Yorkshire coast |
| Lynemouth | Lynemouth Power Limited | Biomass conversion | 420 | Ashington, Northumberland |
| Teesside | MGT Power Limited | Dedicated biomass with combined heat and power | 299 | Middlesbrough |
| Walney Extension | Dong Energy Wind Power A/S | Offshore wind | 660 | Irish Sea, 19 km WSW off the Walney Island coast in Cumbria |
Further CfDs will be made available ‘in the autumn’, and the government has said it will ‘shortly’ publish further details of the allocation process (alongside the government response to the January Consultation on Competitive Allocation of CfDs).
‘Building the world's first low-carbon electricity market’
Speaking of the projects, Energy and Climate Change Secretary Edward Davey said: "These contracts for major renewable electricity projects mark a new stage in Britain's green energy investment boom.
"By themselves, they will bring green jobs and growth across the UK, but they are a significant part of our efforts to give Britain cleaner and more secure energy.
"These are the first investments from our reforms to build the world's first low-carbon electricity market – reforms which will see competition and markets attract tens of billions of pounds of vital energy investment whilst reducing the costs of clean energy to consumers.
"Record levels of energy investment are at the forefront of the government's infrastructure programme and are filling the massive gap we inherited. It's practical reforms like these that will keep the lights on and tackle climate change, by giving investors more certainty."
Drax to sue DECC
Despite electricity production company Drax receiving a contract to convert a unit of its North Selby coal plant to biomass, the firm announced today that it intends to sue the government over its decision not to award a contract for a second unit conversion.
In December 2013, the government advised Drax that two generating units (units two and three) at the power station were eligible for CfDs, but the firm has now been told that DECC ‘believes the second unit conversion is no longer eligible for an investment contract’.
As such, Drax has taken legal advice over the u-turn and believes it has a ‘good foundation to challenge this decision’.
Commenting on today's developments, Dorothy Thompson, Chief Executive of Drax, said: "Whilst we are pleased to have been offered an investment contract for our third unit conversion, we are disappointed by today's decision on the ineligibility of our second unit. Nothing has changed, as far as our plans are concerned, between being deemed eligible in December and now. We have, therefore, commenced legal proceedings to challenge the decision.
"Sustainable biomass provides a very reliable, flexible and cost effective renewable power source for the UK consumer. The performance of our first converted unit, which was converted last year to burn sustainable biomass in place of coal, continues to be strong.
"I am proud of what we have achieved to date and we remain fully committed to our strategy of transforming Drax into a predominantly biomass-fuelled generator, initially through the conversion of three of our six generating units, with a fourth unit conversion under evaluation."
Biomass in the UK
Plant biomass combustion accounted for 18.3 per cent of the UK’s renewable energy in 2012, and DECC’s ‘Renewables Roadmap’ estimates that by 2020, biomass could potentially provide between 26 and 42 per cent of renewable energy in the UK, but there are worries the government could be too dependent on biomass to reach its statutory target of generating 15 per cent of the UK’s energy from renewable sources by 2020.
Indeed, a 2012 report from the RSPB, Friends of the Earth and Greenpeace warned that producing power through certain types of biomass combustion can be ‘dirtier than coal’.
EMR background
Set upas part of the Energy Act (which received royal assent on 18 December 2013 and final regulations for which are expected for ‘late spring’), the EMR forms part of government’s plans to ‘help incentivise up to £110 billion of investment in new electricity infrastructure’ and deliver 30 per cent of the UK’s electricity from renewable energy sources by 2020.
According to DECC, the need for a renewable energy market is ‘crucial’, as around a fifth of Great Britain’s coal and oil-fired power plants are to close by 2020 (to meet environmental standards), and electricity demand will ‘grow significantly’ as heat production and vehicle fuel turn away from fossil fuels to electricity.
However, government was widely criticised last year for failing to bring forward a target to decarbonise the electricity sector.
Instead, in a bid to encourage investors to developlow-carbon energy projects, the EMR aims to remove ‘commercial risks’, such as wholesale price risk, through CfDs.
These will stabilise returns for generators at a fixed level known as the ‘strike price’ for 15 years, with generators receiving revenue from selling their electricity into the market as usual.
In addition, when the market price is below the strike price, generators will also receive a top-up payment from suppliers for the additional amount. Conversely, if the market price is above the strike price, the generator must pay back the difference.
DECC says CfDs will make it cheaper to deliver low-carbon generation by around £5 billion up to 2030 because they will ‘deliver cost of capital reductions that cannot be achieved through existing schemes’.
Read more about DECC’s overview of investment in renewables.
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