Government mulls clamp down on wind farm CfD delays

The government is examining changes to the rules governing Contracts for Difference (CfD) projects to prevent developers delaying their participation in the support scheme in order to take advantage of soaring wholesale market electricity prices.

During a debate in the House of Lords last week, energy minister Lord Callanan was pressed by former trade and industry secretary of state Lord Lilley to confirm whether some generators have pushed back the start dates for their CfD contracts.

Lord Lilley said: “Although the newest offshore fields won the bidding process with low prices, they have not yet activated their contracts so they are able to sell their electricity at the very high prices now prevailing, making what most people might call a windfall profit.”

The government is aware of a “small number” of projects, which have delayed their contract start dates in order to benefit from current high wholesale electricity prices, Lord Callanan said: “Legally, CfDs are private law contracts between the Low Carbon Contracts Company, the CfD counterparty and generators.

“The government are not legally a counterparty to those contracts. However, we have raised the matter with the industry and made it clear that, in our view, this practice is not within the spirit of the scheme, which is intended to deliver benefits to both consumers and developers.”

He added that the government is examining “possible changes to the scheme to prevent future CfD projects acting in this way”.

But while describing the the delays as “regrettable”, Lord Callanan said it is “important to remember that CfDs have played a significant role in massively bringing down the cost of offshore wind in recent years”.

He said the “vast majority” of operational CfD projects are “happily” paying back into the system, due to the current high energy prices.

In April this year, the minister said the system’s administrator at the Low Carbon Contracts Company had been responsible for returning £108.3 million to suppliers in respect of payments made by generators since last autumn.

The minister made his comments during a debate on updating CfD regulations, which were approved by the House of Lords.

The main change toughens up the rules designed to discourage developers from not signing or terminating CFD contracts, which they have been offered or entered into.

Under the existing regulations, such developers would be excluded from just the next CfD allocation round, which generally happens once every two years.

However, under the new regulations, they would be barred from the next two rounds in line with the government’s move to hold CfD auctions on an annual basis.

Lord Callanan said that the rule changes are designed to help “accelerate” the roll out of renewable power.

They were backed by Lord Teverson, the Liberal Democrat upper house spokesperson on energy and climate change, who said: “Development timescales are still long—we all want to make them shorter while not prejudicing the environmental concerns and so on—but it seems absolutely vital that, once companies are awarded contracts, they deliver on time and we get that energy into the system.”