A report commissioned by Scottish Renewables from Baringa Partners, a business and technology consultancy, has identified that an additional 1GW (equivalent to 20 large windfarms) of onshore wind could be delivered under the Contracts for Difference (CFD) mechanism with no net subsidy.
Under the CFD regime, projects are paid by the Low Carbon Contracts Company (LCCC) – the difference between an auction strike price and the day-ahead wholesale price at the time of generation. If the wholesale price exceeds the auction strike price, a payback is required by the operator of the windfarm. The report calculates that pay-outs by the LCCC of £8 million per annum in the first five years would be more than offset by £7 million per annum of payback in the remaining 12 years of CFD’s, all on the basis that wholesale prices for electricity rise and that the strike price is set at £49.40 per MW hour in real 2017 terms.
The Conservative Party Manifesto of 2015 stated that:
“Onshore wind now makes a meaningful contribution to our energy mix and has been part of the necessary increase in renewable capacity. Onshore windfarms often fail to win public support, however, and are unable by themselves to provide the firm capacity that a stable energy system requires. As a result, we will end any new public subsidy for them...”
According to Scottish Renewables, “This demonstrates that Government could now allocate budget to Pot 1 without breaching the Conservative Party Manifesto commitment to end any new subsidies to the technology”. Whether this is correct will depend on the accuracy of the assumptions made in the Report and also whether a subsidy is a subsidy even where over the full period of the subsidy scheme the overall effect is the reverse.