The proposal to stop low-carbon generators from collecting Contracts for Difference top-up payments during periods of negative power prices will add a new risk to the agreements and put upward pressure on strike prices.
Yet this risk is likely to be limited as the expiry of earlier subsidies will reduce the likelihood of negative prices occurring, according to Martin Anderson, head of GB renewables at Aurora Energy Research.
He made the comments to Utility Week after the government proposed a series of changes to the scheme, whilst announcing plans to hold in an auction for onshore wind and solar in 2021 – the first in more than half a decade.
In a consultation released on Monday evening, the Department for Business for Business, Energy and Industrial Strategy (BEIS) proposed to end generators’ eligibility to receive top-up periods during periods of negative power prices. They are currently able to collect the payments so long as the period lasts for no longer than six hours, although they are capped at the value of the strike price.
The consultation said generators should not be encouraged to “generate in ways that are unhelpful to the overall system” and that the proposal would seek to “strengthen the incentives for generators to be responsive and flexible”, for example by utilising storage.
“It adds a bit of risk to the projects because it means you’re exposed to many more of those negative prices,” said Anderson. “You’re probably going to be having to curtail a bit more.
“It’s not going to be a case of the previous round of just produce as much as you can and you’ll get paid. Now you’re going to have to take a view on how much curtailment you’re expecting.”
He said developers would factor this risk into their strike price bids, creating “a bit of upward pressure”.
However, the expiry of earlier subsidies will remove the incentive of other generators’ to continue producing power when prices fall below zero: “If you think about onshore wind, which have got ROCs – some of those are very old and they’re going to be expiring from their ROCs in the late 2020s.
“That’s when a lot of these CfD projects would be coming online anyway. Because of that, we never saw negative prices getting too severe anyway.”
BEIS’s own analysis suggests the day-ahead market would see negative prices during one in every hundred hours during 2030 if offshore wind capacity reached 30GW as agreed last year as part of the sector deal. They would cover two periods in which negative prices persisted for more than six hours.
If offshore wind capacity reached 40GW, as pledged in the Conservatives’ election manifesto, then periods with negative prices would account for four and a half in every hundred hours and there would be 13 occasions on which they last for more than six hours.
Curtailment payments to wind generators reached a new monthly high in January after outages on the new 2.2GW Western Link power line between Scotland and North Wales coincided with record wind output across Great Britain. According to Cornwall Insight, the electricity system operator spent almost £31 million to curtail 430GWh of generation.