Clair Perry urged to re-examine renewable energies policy

renewable energies policy
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Gareth Miller, CEO of Cornwall Insight, has sent Claire Perry the MP Minister of State Department of Business, Energy and Industrial Strategy, a letter calling for the government to urgently re-examine its renewable energies policy

The letter and the accompanying report are signed by key industry organisations who not only recognise the need for change, but support Cornwall Insights proposed recommendation of a Contract for Difference (CfD) floor.

Gareth Miller, CEO of Cornwall Insight, said: “It is imperative that an adequate new entry and repowering investment signal is sent to established onshore renewable technologies. Our recommendation of a CfD floor will allow the government to bridge the gap between their policy goals and what is being asked of the market. Crucially, it will do so with only a negligible risk of subsidy payments.

“The support for our proposal from a wide range of leading companies in the renewable energy sector demonstrates the real concern with the policy status quo, but also the creative mindset of a sector always searching for solutions to meet legitimate policy challenges.”

In the letter Gareth wrote:

Dear Minister,

We, the undersigned, congratulate you on the publication on November 19th, 2018 of the draft budget notice for the third CfD allocation round for “Less Established” technologies.

In combination with your commitment to hold CfD auctions every two years during the 2020s, the progression of the third allocation round brings a degree of welcome certainty to the vibrant and successful renewable energy sector in the United Kingdom.  

As major actors in creating this success story we recognise the significance of clear policy and strong investment signals. Consistent policy frameworks have been critical in building and then maintaining our global position as an attractive market for investment.

We also recognise that the bar is being raised on the pace and scale of decarbonisation, with steepening demands imposed by the carbon budgets. Meeting these budgets now becomes more challenging given the backdrop of rapidly changing macro political and economic circumstances. In that context, we ask the government to urgently re-examine its policy for mature and established renewable technologies, and to consider reopening support for grid-scale onshore wind and solar PV through a revised CfD Floor structure.

Projections show that significant capacity needs to be delivered from these technologies if we are to achieve the decarbonisation pathway to 2050. Currently, the government assumes that this can be delivered at scale without material policy support. Whilst there have been significant reductions in costs in onshore renewable technologies, this does not make investments credible in projects if they are to rely predominantly on wholesale power price signals.

As costs fall, modelling may show that long-term wholesale power revenues over the life of an asset will deliver a positive return on investment. However, project funding from banks and other risk-averse investors still requires insulation against short-term, substantial swings in wholesale power prices.

Appetite for this wholesale power price risk amongst debt investors has, if anything, reduced rather than increased. With greater deployment of renewables, the outlook for the captured price of wind and solar gets more pessimistic over time, and this is now feeding through into long-term price projections used in financial models. In addition, the wholesale markets are becoming ever more volatile. From our experience of working with major providers of capital, such as banks and other risk-averse investors, they are unlikely to invest large amounts of capital in projects which face these kinds of risks.

The lack of revenue stabilisation will significantly reduce the bankability of grid-scale onshore wind and solar PV and make it inconceivable that our power sector decarbonisation objectives can be achieved.

We see a way through the impasse. We have developed the idea of a CfD Floor as an alternative policy pathway to support onshore renewables. This is an elegant solution that will deliver very low costs to the consumer (if any at all) and will create a bankable pathway to power sector decarbonisation.

The enclosed paper accompanying this letter explains the necessity of adopting such a model, how it would work, and the benefits it will deliver. Representatives of our group would welcome the opportunity to discuss our proposals with you or senior officials at the earliest opportunity, noting the relevance to the ongoing five-year Electricity Market Reform review and the anticipated white paper during 2019.


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