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Birmingham Post
Birmingham Post
Business
David Laister

Fixed prices for older offshore wind backed by industry to reduce exposure to gas-led cost hikes

Proposals to develop new fixed price contracts for early offshore wind farms have been backed by RenewableUK, the trade body behind the sector.

The move to long-term deals are seen as a way to cut bills for consumers and reduce exposure to volatile gas prices.

Renewables obligations were in place prior to the new Contracts for Difference regime. The largely-heralded scheme has helped the UK procure large amounts of cheap renewable capacity, generating power at fixed prices. Any revenues above are paid back to aid consumers.

Read more: World's largest offshore wind farm Hornsea Two is now fully operational

Prices secured under the CfD system are so low that these projects are expected to pay back more than £3 billion this winter, as scale and de-risking of industry has seen project costs drop at rates that have astounded industry observers.

Subsequent allocations have seen the strike price fall from £140 to £119 then £57.50. Hornsea Three, the next to be built, and allocated this summer, came in at £37.35.

RenewableUK chief executive Dan McGrail, pictured addressing the Global Offshore Wind conference. (RenewableUK / Fotowales)

RenewableUK's chief executive, Dan McGrail, said: "We’ve been discussing these proposals with our member companies in detail to ensure that the changes are designed in the right way and are fully deliverable, so that we can maximise savings for bill payers.

“We’re keen to work collaboratively with the Government and a wide range of other organisations to explore how we can put a new scheme in place in an expedient way. The proposals put forward so far have widespread support among our members and further discussions are taking place.

“It makes no sense to allow the exorbitantly expensive cost of gas to set the price for the whole of the electricity market. This proposal is a step forward towards breaking that outdated link. It will enable bill payers to benefit more from the vast amounts of low-cost electricity being generated by wind and other renewables, which are our cheapest new power sources.”

This approach, originally put forward by the UK Energy Research Centre, has also been backed by Energy UK, and industry wants to work with ministers to move forward with detailed design of a scheme to be implemented in the new year. Under the RO, which closed to new renewables projects in 2017, generators trade their power on the market and receive a fixed amount of subsidy to cover the investment cost of more expensive early projects.

All projects off the Humber prior to the Hornsea zone were under the regime. The new method would see the market power price – which is set by gas – replaced by a fixed price contract. This would ensure that the long-term costs of keeping these renewables running would be met, but consumers would be shielded from market prices set by expensive gas.

In 2020/21, RO generators produced more than 80 terawatt hours of electricity, or about 25 per cent of the UK demand. Contributing were Lynn and Inner Dowsing, Lincs, Humber Gateway, Race Bank and Westermost Rough.

Renewable UK said as most power generated under the RO is sold a year or more in advance, generators under the scheme are not directly receiving prices reflecting wholesale costs. The proposal for new contracts would reduce the risk of rising costs as future trading arrangements expire and gas prices continue to increase.

Read next:

Rough's return for gas storage gets go-ahead as steps are taken to ease energy crisis

North Sea gas platform could become designated nesting site to aid offshore wind development

Wind farm industry expansion plotted for Port of Grimsby East

RWE outlines the path to Dogger Bank South offshore wind farms after latest government go-ahead

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