Decc sets CfD budget at £200 million

The Department of Energy and Climate Change (Decc) on Thursday morning set a budget of more than £200 million a year for the contracts for difference (CfD) funding round due to begin this October.

A further £50 million is planned for an auction round in 2015, with a total of around £1 billion potentially available later for further projects, including Carbon Capture and Storage, up to 2020-21.

Decc explained that the budget, managed through the Levy Control Framework (LCF), will be split between up to three technology groups – one for more established technologies such as onshore wind and solar, and one for less established technologies like offshore wind, with a third for biomass conversions.

Within each group, contracts will be allocated competitively, Decc said, adding that this should help to drive down the costs of supporting renewable technologies and deliver better value for consumers.

“Our plan is powering growth and jobs as we build clean, secure electricity infrastructure for the future. By radically reforming the electricity markets, we’re making sure that decarbonising the power sector will come at the lowest possible cost to consumers,” energy secretary Ed Davey said.

The budget estimate comes after the European Commission confirmed yesterday that the CfD, capacity market schemes, and five offshore wind projects supported by early CfDs, are in line with its rules on state aid.

The CfDs offer generators a guaranteed revenue stream for their generation by topping up the difference between wholesale market costs and a pre-determined ‘strike price’ through the LCF. Should wholesale market costs exceed the srike price the generator would need to pay back to difference.

The certainty over investment returns is expected to bring forward much-needed private sector investment in the UK energy sector estimate at £110 billion.