DECC gives high guaranteed prices for large scale renewables. But the total amount of money available is unchanged.

Energy announcement piled upon announcement today. Alongside the expected news that zero (that’s a nought with a large number of noughts after it) households had completed the process of getting a Green Deal loan, DECC announced financial support for nuclear funding and, once again, denied this support was a 'subsidy'. More interestingly, it also unexpectedly gave us the proposed new guaranteed prices for electricity delivered from large scale renewables. The biggest surprise, not yet noticed by commentators, was that these prices are higher, in some cases substantially so, than current ROC or Feed In Tariff rates. Without flagging it too obviously, DECC has won more short-term support for renewables. Is this good news for the industry? Yes and no. The scramble to build new PV and wind farms to capture the early years of the new rates will bring rapid expansion from April 2014 onwards. But this surge in investment will mean that the available funds will be rapidly exhausted and we’ll see another collapse in renewable investment sometime in 2015. Cynics will notice that the next General Election will occur in May 2015. The Coalition parties will be able to trumpet the burgeoning wind and other renewable industries only for the money to dry up when the new government is installed.

The table below lists my estimate of the revenues to be gained under the Feed In Tariff or ROCs for the main renewable technologies. The FIT rates are for this year, the ROC calculations (for which we already know the banding decisions) are for 2014/15. I've also estimate the revenue from the sale of the power. The last row shows the new guaranteed rates for 2014/15. (These rates are called Contracts for Difference, or CfDs)






FIT 2013/14






(Size band for FIT)





ROC 2014/15






CfD 2014/15







(Key assumptions. A ROC is worth £45. The typical power purchase agreement for an intermittent renewable is also (by coincidence) worth £45 per MWh.  Please send me corrections if you think these assumptions are wrong. AD is anaerobic digestion)

Payments made under CfDs will therefore be as much as 15% higher than under the ROC scheme. In the case of large PV projects this means that the owner will get a guaranteed £125 per megawatt hour, linked to the CPI for 15 years. The ROC scheme provides returns for longer (20 years) but the price fluctuates and isn't necessarily inflated by consumer price increases. If I’ve done the numbers correctly, the generous people at the Treasury have just made PV developers even keener to get their projects on the ground in Cornwall.

Strikingly, it’s not just 2014/15 prices that are better but the greater support persists into future years. For example, a PV farm installed in 2014/15 gets £125/MWh falling to £115 pounds in 2016/17. But the revenue from ROCs and power sales would be cut to £99 by that time. More importantly, offshore gets better protection as well with the proposed new rates. The income will be £20 better per MWh in 2014/15 but £24 greater than ROCs in 2016/17.

The problem is that the subsidiy cap is still going to be £7bn in 2020. So the increased rates proposed today will more quickly exhaust the available funds (meaning the door will be shut to new projects sooner) and the total amount of capacity installed will be slightly smaller (because payments per megawatt hour are greater).