Thursday, 12 May 2016

UK renewable energy auctions system discredited by offshore windfarm contract fiasco

The Government's much vaunted 'contracts for difference' (CfD) auction system for funding renewable energy has been thrown into disrepute after a key project awarded a contract has had its contract cancelled by a government agency. This is because of a delay in a court appeal against the (Scottish) Government's own planning consent for the project. There is no procedure for allowing more time for the project or for awarding a contract to one or more runners up in the auction contest.

The RSPB lodged a judicial review case which began hearings almost a year ago against planning consent given to four Scottish offshore windfarms on the grounds that they damaged bird species. Meanwhile the Government which had awarded a CfD contract in early 2015 to one of them, to Mainstream power for the 448 MW Neart na Gaoithe project near the Forth Estuary, has allowed the contract to be cancelled by the Low Carbon Contracts Company (a government agency). This is on the grounds that the project has failed to meet its milestones to ensure the project begins operation in 2018. Mainstream says that the only thing holding it up before its contract was cancelled was the court procedure.

The apparent failure to deliver this project, in addition to the failure to deliver solar pv projects awarded contract means that so far it is all but certain that at least nearly a quarter of the renewable energy capacity awarded contracts will not be delivered. We do not know how many more projects will not now be delivered. This is an indictment of the auction system in general and in particular the British version of it which fails to pick up on the experience of auction systems organised elsewhere in the world, especially in nearby Denmark for its offshore wind schemes.
There are a lot of claims permeating the web these days about how auction systems are driving down the cost of renewable energy (RE). There is no evidence for this, as my own research demonstrates. See my paper on renewable energy auctions at 
Auction systems have been introduced in a period of rapid decline in renewable energy costs and it is the technology that is driving costs down, and the competition among manufacturers to supply it to the developers, not the contract procurement process.

I comment in this paper that, amongst various other things, for RE auction systems to work, Governments have to give certainty of grid connection and planning consent to projects that are awarded contracts. The UK Government has lamentably failed to do this. Of course the RSPB (or anyone else) is perfectly entitled to seek judicial review, but in that case the Government has to take action to ensure that the project can still go ahead if its planning consent is confirmed or ensure that somebody else can build the capacity. The Government has done neither. Of course in Denmark the Government ensures that all of the planning issues are resolved before asking for bids to develop offshore wind projects in sites that have been carefully researched and planned in advance.

So now future renewable CfD contracts are liable to challenged by well resourced groups who know that all they have to do is to get permission for a judicial review to be held to kill the project. This makes the auction scheme into a shambles. In the UK in the 1990s the last time we had an auction system three-quarters of the projects never got implemented, a lot of the time because of planning failure. Also a big cause of failure to implement the projects is that the developers themselves bid unrealistically low prices in an effort to secure the contracts, and many schemes were not carried out as a result. This has already been seen to be the case with a couple of projects in the first CfD auction. So here we are again, 20 years later, and we've learned very little!

One of the most outrageous aspects of all of this is the fact that offshore wind schemes can get their contracts withdrawn for flimsy reasons while Hinkley C, now at least 8 years behind schedule, is kept on the government books!

Amber Rudd's claims that we have lots of renewable energy investment is a shambles. Confidence in RE investment in the UK has crashed, and it seems the Minister is unable even to deliver the capacity that it claims to have awarded contracts. The UK has crashed down the attractiveness list of countries for RE investment. See

Altogether the UK Government is developing a reputation of issuing press releases about fantasy power schemes. Maybe the Ministry should be renamed the 'Department of Fantasy Energy and Climate Change'. Of course Amber Rudd is only the monkey, with George Osborne being the organ grinder as far as the messages are concerned. The Treasury's determination about  ensuring renewable energy projects go ahead is about as strong as the alcohol content in orange juice.

See also references:

1 comment:

  1. I found this post interesting as it exactly matched the theory from my renewable energy policy modules at university about 10 years ago.

    Interestingly, the same is true of the winning solar bids in the CFD auction - of the 5 "winners" it looks like only one may actually proceed.