Decisions, decisions – contracts for difference, the renewables obligation or both?

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August 2014 will see the launch of contracts for difference under the Electricity Market Reform programme and the Energy Act 2013. Most of the key regulations in this area have been laid before parliament and now they just need to be made.  August 2014 should therefore also be the start of the transition period between the renewables obligation and contracts for difference.

Up until the introduction of contracts for difference, the renewables obligation was the main support mechanism for large scale renewable energy projects in the UK and it works by placing an obligation on licensed electricity suppliers to source an increasing proportion of electricity from renewable sources. Contracts for difference will take over as the key support mechanism for low carbon energy generation by paying the low carbon electricity generator the difference between the 'strike price' and a 'reference price'. The 'strike price' is the price for electricity reflecting the cost of investing in a particular low carbon technology, while the 'reference price' is the measure of the average market price for electricity in the market.

So, from August 2014 until the 31 March 2017 when the renewables obligation will close for new capacity, there will be a transition period where operators can choose which scheme to join.  Operators must make sure they only sign their station up to one scheme, but there might be circumstances where stations already accredited under the renewables obligation and wishing to add new capacity, can have this new capacity supported under contracts for difference and so become ‘dual scheme facilities’.

There are some situations which allow for grace periods, in relation to the renewables obligation closure period, of between 12 – 18 months, which may be of interest to those operators wishing to make the most out of the renewables obligation.

Operators wishing to take advantage of the support available under these schemes will need to make sure they start weighing up their options now to ensure they understand their own obligations and get the best support possible.

Filed Under: Environment

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