Whitehall rules out changing CfD rules

The government is not proposing to change the rules of the Contracts for Difference ahead of the next year’s round of the auction, a senior BEIS (business, energy and industrial strategy) civil servant has said.

Speaking at an event this morning to launch an Energy UK paper outlining the industry body’s vision for the upcoming five yearly review of the Electricity Market Reform (EMR), Jane Walker said that the department was due appoint external consultant to carry out a long-term evaluation of the scheme.

This work, which will cover whether the auction programme has met its design objectives, whether they are still appropriate and if it provides value for money will feed into the process of reviewing the EMR.

But the review would not have an impact on the third round of the CfD which is pencilled in for next autumn, said Walker, who ran the 2016 CfD auction.

“This review isn’t proposing to change anything ahead of round three.”

Walker also said that the department had ‘no plans’ to change the structure of the bidding process, which was identified by the National Audit Office as the cause of an estimated £1.5bn overpayment as a result of the scheme’s second round last year.

She said that there were “no plans at the moment to change the approach to the bidding structures for CfD auctions”.

The “pay as claim” rule enabled the successful bidders for large offshore wind farms in one year to be paid the higher rates sought by much smaller fuelled technology plant.

Gary Keane, principal consultant at Poyry, said while the overpayment was an ‘unintended consequence’ of changes to the rules in the run up to last year’s auction, he was ‘surprised’ that BEIS had not tested them more thoroughly.

The Energy UK report recommends allowing renewables to participate in future rounds of the Capacity Market as well innovative models using multiple technologies and aggregated sites

The report also contains a call for greater clarity on the timing and rules for future CfD auctions in order to help generators develop supply chains and plan more effectively for future investment.

And the rules and governance of the Capacity Market, including penalties and fees, should be reviewed to ensure they remain fit for purpose.

Lawrence Slade, chief executive of Energy UK, said: “It is essential that we not only keep up the pace of decarbonisation in future but go further and faster. That’s why we are making recommendations which can make EMR deliver even more effectively in future.”