The ongoing EMR process has moved further forward in recent months. The Energy Act gained Royal Assent before Christmas 2013, and now the Government has published its delivery plan, covering the next five years. The new plan shows some changes made as a result of the near-constant consultation process which has been one of the notable features of the EMR process.
To re-cap, the EMR process is intended as a means of securing the investment in generation technology needed to deliver a reliable diverse low carbon technology mix. EMR is intended to achieve the transition from the traditional over-reliance on carbon-heavy technologies to a more diverse energy mix, with the result of achieving a more stable energy price for consumers.
More detail and clear timetables are now available for one of the main elements of the transition – the phased removal of the Renewables Obligation and the introduction of Contracts for Difference (CfDs). The Government has also now published the proposed levels of payment per Megawatt Hour (the"strike price") for different technologies up to and including 2018/19. Although up to 31st March 2017, developers have a choice over whether their project seeks benefits through the ROC or CfD schemes, the greater price certainty for CfDs may indicate that ROC schemes may become less popular reasonably quickly once the first CfDs are awarded (expected to be in late 2014).
Additionally, the Government has also confirmed the overall aggregate amount recoverable by electricity suppliers from customers for renewables projects (known as the"Levy Control Framework"). Although the levy rises each year – to £7.6bn by 2021, in today's money – the levy is intended to give comfort to electricity customers (you and me) that our bills will not increase disproportionately with regard to the component related to investment in renewables.
Most recently, the Government has published their response to the most recent focus for discussion – the competitive allocation of Contracts for Difference. Early consultation on this process had raised fears that developers would be at risk – requiring to invest significant funds in developing projects without the certainty of a Contract for Difference at the end of it.
What does this mean for developers and landowners with renewables projects being developed in the near future? There are a number of key points:
- the first CfD contracts have now been awarded, and will be negotiated and finalised over the coming months. These contracts will be watched closely in the industry to see how they are negotiated, and to assess funders' reactions.
- the first negotiated PPAs for CfD projects will start to circulate, with the PPA market no doubt maturing very quickly as more and more CfD projects reach"financial close".
- as a result of the most recent consultation, while the competitive"reverse auction" process will remain, there will be a separation into two groups who will compete separately – the first group of"established" technologies (Onshore Wind (>5 MW), Solar Photovoltaic (PV) (>5 MW), Energy from Waste with CHP, Hydro (>5 MW and
- there is a separate strike price for projects on the Scottish Islands (the first time a geographical distinction has been included), reflecting higher development costs.
- the possible extension of the Feed-In Tariff scheme to community and a range of other projects up to 10MW.
We will continue to provide updates on the introduction of the CfD scheme as the EMR process moves forward over the coming months and years.
The proposed strike prices from 2014/15 to 2018/19 can be found here.