The winning projects in the latest Contracts for Difference (CfD) auctions would pay back £7 billion per year to consumers once they are up and running if wholesale energy prices remained at current levels, according to analysis by the Energy and Climate Intelligence Unit (ECIU).
The think tank said the projects contracted in previous allocations rounds would also return £6.7 billion per year to consumers once they are all commissioned, bringing the total annual savings to nearly £14 billion.
Under the CfD scheme, contracted generators either receive or pay the difference between an agreed strike price and a reference price for wholesale electricity. The figures presented by ECIU assume a wholesale electricity price of around £200/MWh.
In the fourth CfD allocation round, the results of which were announced on Thursday (7 June), contracts were awarded to around 10.8GW of low-carbon generation, including 7GW of offshore wind, 2.2GW of solar and 1.5GW of onshore wind. The latter includes nearly 600MW of onshore wind on remote islands.
The offshore wind projects cleared at a record-low strike price of £37.35/MWh in 2011/12 prices. According to the ECIU, this equates to around £45/MWh in 2021 prices.
The think tank said the £7 billion the winning projects would eventually pay back each year if wholesale electricity prices stayed at their current level of £200/MWh equates to an annual saving of around £100 per household.
ECIU said the massive surge in gas prices since last autumn and the knock on effect on the power sector, where prices are typically determined by marginal gas generation, meant CfD generators returned £300 million to the Low Carbon Contracts Company – the CfD counterparty – during a six-month period over the winter. It said they are currently forecast to return £1 billion between April this year and March 2023.
Dr Simon Cran-McGreehin, head of analysis at ECIU, said: “To keep bills low, these new wind farms can’t come online soon enough. At today’s prices with gas so expensive every household would be getting the equivalent of a £100 net zero dividend.
“In the meantime, existing wind and solar projects are already doing their bit to help bill payers, saving an estimated £1.3 billion over 18 months in the current gas crisis”
ECIU said that at current wholesale prices, increasing offshore wind capacity to the government’s previous target of 40GW by 2030 would take annual savings to £26 billion. Adding another 10GW to hit its latest target of 50GW by 2030 would push the savings to £34 billion per year – not including those from any further onshore wind and solar that is also built.
Commenting on the CfD auction results, Dr Nina Skorupska, chief executive of the Association for Renewable Energy and Clean Technology (REA), said: “These record low CfD prices are good news for the UK’s energy system and showcase the value to consumers of moving to renewables.
“Built at prices well below current market rates, these renewable power projects will be paying back to consumers and saving us all money.
She added: “The 11GW of capacity being delivered will be essential for the UK’s energy security as we look to reduce our reliance on expensive, imported fossil fuels.
“We now need an expansion of the CfD scheme to six monthly auctions and to extend reserved capacity for other technologies, such as geothermal and wave projects, which have the potential to be as low cost as offshore wind and employ thousands of people.”