Politicians should relinquish control over CfD auctions, Lords told

Politicians should relinquish control over Contracts for Difference (CfD) auctions to make them more regular and predictable for investors, Lords have been told.

The problem with the auctions is that they are still “politically determined” meaning investors face great uncertainty over when they will take place and what technologies will be eligible.

“When are we going to find out whether we going to have an auction?”, questioned RenewableUK chief executive Hugh McNeal.  “Well, we’ll find out when we’re going to have an auction when the politics allows us.”

Giving evidence before the House of Lords Economic Affairs Committee, he continued: “When might we have some form of route to market for onshore wind? …Right now we de facto have a freeze.”

When asked by the committee how this issue could be resolved, he said politicians would have to be persuaded to “give up” some of their control over the auctions: “It would be wise given the amounts of investment involved, if we were to hand over some of the political control and power for that to some other body, a system operator or whoever … that provides, not certainty, but regularity for investment.”

In his last budget as chancellor in March, George Osborne announced that £730 million of annual subsidies would be made available across three auctions during the current parliament. He said £290 million of annual funding would be up for grabs in the first auction, which would be dedicated to ‘less established’ technologies such as offshore wind.

Last week the government reconfirmed those figures and published the administrative strike prices for the first auction, which place caps on the strike prices which can be secured by different technologies. It announced that the allocation round will open in April 2017.

However, it has still given no indication of how much funding will be allocated to each of the other two auctions, or whether either of them will be open to ‘established’ technologies, which include onshore wind.

McNeal told Lords he thought onshore wind can already outcompete gas generation on cost: “If you were for example to run and CfD auction for onshore wind I would expect that to clear in the fifties, which would give you a levelised cost of energy in the forties probably.”

Noting the flaws of the levelised cost of energy as a metric for comparing technologies, he said onshore wind could undercut gas plants when compared on whole system costs as well. He said it is the lack of route to market through the CfD auctions which is holding up investment in onshore wind: “The government figures last week suggest that they recognise that onshore wind at the best sites is cheaper than any other form of new generation.”

Alongside details of the next CfD auction, the government also published updated estimates of the levelised cost of energy for various technologies. Its projections for wind and solar were down significantly when compared to the last estimates it made in 2013.