Onshore wind farms could deliver power to consumers at a lower cost than high-efficiency gas plants if given access to contracts for difference, according to a new report by consultancy firm Arup.
The research, commissioned by Scottish Power Renewables, found that onshore wind projects could be built with a strike price of no more than £50 to £55/MWh, making them effectively “subsidy-free”.
The report says this would be a suitable range for an administrative strike price – or strike price cap – for a “market stabilisation” contract for difference (CfD), which would be designed to give developers the certainty afforded by a guaranteed price whilst offering no overall subsidy.
The range is based on two different calculations of the level of a “subsidy-free” strike price.
In the first instance, a figure of £47/MWh was reached by forecasting the revenues which could be generated by onshore wind projects in the wholesale, balancing and ancillary services markets and subtracting the cost of integrating the projects into the power grid.
In the second, these system costs were subtracted from the price required to build new high-efficiency combined-cycle gas turbines (CCGTs) to reach a figure of £52.50/MWh.
The report says a slightly higher range of £50 to £55/MWh would provide “the headroom potentially required to attract entrants to market and promote competition”.
“Currently, onshore wind has no access to guaranteed long-term revenue streams. Other generators, including carbon-emitting generators, are able to secure up to 15-year capacity contracts,” said Arup associate director Filippo Gaddo.
“However onshore wind investors are fully exposed to fluctuations in the wholesale electricity price, increasing the risk and cost of investments.
“Access to a market stabilisation CfD mechanism would make a significant difference to driving efficiency – ensuring that the UK’s transition to low carbon generation progresses in the most cost-effective manner.”
Scottish Power Renewables policy and innovation director Lindsay McQuade commented: “Arup’s report clearly shows that access to a market framework, designed to reduce risk and provide a level playing field with gas generation, would enable onshore wind to continue delivering cheap electricity to households and businesses across the UK – some £40/MWh cheaper than new nuclear against the proposed strike price cap of £50 to £55/MWh.
“This relative saving would increase in an auction as investors would compete to secure a contract – making it even cheaper.”
Following a commitment in the 2015 Conservative manifesto to “halt the spread the spread of subsidized onshore wind”, developers have been excluded from the second CfD auction round taking place this summer, which is instead reserved for immature “Pot 2” technologies such as offshore wind and tidal power.
The Conservative manifesto for the 2017 general election stated that the party does not believe that new onshore wind is “right for England”, raising hopes that CfDs might be made available to wind farms in Scotland. However, these hopes were soon dashed when the Scottish Conservatives declared in their manifesto that onshore wind is not “right for Scotland” either.
“Subsidy-free” strike price based on market revenues
Source: Enabling Investment in Established Low Carbon Electricity Generation, Arup
“Subsidy-free” strike price based on CCGT costs
Source: Enabling Investment in Established Low Carbon Electricity Generation, Arup