A statement from the EC said that it has concluded that the CfD regime “promotes the generation of electricity from renewable sources is in line with EU state aid rules”.
“It is a fine example of how to promote the decarbonisation of the economy with market-based support mechanisms, at the lowest possible cost for consumers,” said commission vice-president in charge of competition policy, Joaquín Almunia.
In addition, the EC approved the UK’s plans for five fast-track FID enabling contracts for offshore wind projects totaling over 3GW of capacity and worth £9.7 billion.
“The Walney, Dudgeon, Hornsea, Burbo Bank and Beatrice wind farms together will provide 3.3 per cent of the UK electricity generation capacity, which should help the UK to meet its 2020 renewable target and to reduce greenhouse gas emissions,” the EC said in a statement.
At the same time the EC approved the UK’s planned capacity mechanism plan saying it “embraces the principles of technology neutrality and competitive bidding to ensure generation adequacy”.
UK energy secretary Ed Davey welcomed the EC’s decision saying it shows that the EMR plans are “urgent and needed to turn around the historic neglect of the sector.”
“We are the world leader in investment for low-carbon energy and energy security. The average annual investment in renewables has doubled since 2010 – with a record breaking £8billion worth in 2013. And we’ll continue to lead in building a low-carbon electricity sector based on homegrown energy sources, reducing our reliance on polluting fuels and volatile energy markets at the lowest possible cost to consumers,” Davey added.
The CfD scheme forms a central part of the UK’s Electricity Market Reform which seeks to secure the country’s power supply whilst decarbonising the energy sector, at the lowest cost to the consumer.
But while the nascent renewable energy sector falls into the EC’s guidelines for appropriate financial support, doubt remains as to whether support for mature nuclear power technology can be justified.
CfDs offer renewable generators a fixed price for the power they generate via a ‘strike price’. Consumer-backed funds will be paid to the generator to top up their income when wholesale prices are below the strike price, while generators will be required to pay back the difference between the strike price and the market rate if wholesale prices are higher.