Miliband Expands CfD Subsidies in AR7

Extended contracts and relaxed eligibility criteria will line the pockets of renewable energy developers with gold

Miliband’s AR7 contract changes will line the pockets of renewables developers with gold

Yesterday, the Government published its plans to reform the Contract for Difference (CfD) subsidy scheme for the forthcoming Allocation Round 7 (AR7). The summary is that Miliband is going to line the pockets of renewable energy developers with gold to maximise the capacity he can deliver from the AR7 auction. This announcement is the subject of this week’s bonus article.

The most important change is that the length of new CfD contracts will be extended from 15 to 20 years for fixed bottom offshore wind, floating offshore wind and solar power. CfD contracts give developers an index-linked fixed price for their output, so this change is a blatant attempt to make CfDs even more attractive for developers. The impact assessment says there will be a reduction of medium-term subsidy costs because of a 11-13% reduction in strike prices. However, they do concede there will be extra subsidy costs in the long term because of the longer contract length. Scenario One assumes that the “capture price” (essentially the market value) of the output from renewables will be £40-45/MWh up to 2030, falling to £25-30/MWh by 2045. This is tacit acceptance that wind and solar often produce too much when demand is low, so the market value of their output can sometimes fall to zero. They need the fixed-price CfD subsidies to maintain their revenue stream. Scenario Two assumes higher capture prices and miraculously this delivers a long-term net benefit. Of course, as we have covered before, the costs of curtailment and the cost of connecting these projects to the grid are set to increase sharply by 2030. Miliband’s promise of a £300 reduction in energy bills is now a distant dream.

The Government have also decided to extend the eligibility criteria for fixed-bottom offshore wind projects. Now they will be able to apply for a CfD without having achieved full planning consent. This is a sign that Miliband is scraping the bottom of the barrel in an attempt to award as much capacity as possible in AR7.

The Secretary of State will also be given visibility of the bid stack for offshore wind and be able to vary the budget accordingly. The impact assessment says this should reduce the risk of underspending the offshore wind budget, which is another way of saying increasing the risk of more subsidies falling on consumer bills.

However, in slightly better news for consumers, the Government will not allow projects to re-bid capacity in AR7 that was won at lower prices in earlier allocation rounds. However, they are holding open the possibility of implementing an “enduring policy from AR8” that might allow this surrendered capacity to be rebid.

There are several other minor changes that are beyond the scope of this brief article.

Overall, it appears that Miliband is desperate to secure the maximum renewable capacity in AR7 and is willing to sacrifice consumer bills by lining the pockets of renewables developers with gold. In effect, he is trying to get as much capacity under contract in AR7 to make his Clean Power 2030 plan irreversible, even if he loses his job. This will set in stone crippling energy bills for decades to come.

We need something radical from the opposition Conservative and Reform parties if we are to avoid even more rapid deindustrialisation and economic collapse. Perhaps they should announce they will repudiate the contracts if they get into office?

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