A review being carried out by Ofgem, the government regulator for gas and electricity markets in Great Britain, could have an adverse impact on the UK’s offshore wind market and on upcoming contracts for difference.
RenewableUK senior policy manager Rebecca Williams told the 2019 Offshore Wind Journal Conference that changes proposed by Ofgem as part of its Targeted Charging Review (TCR), a process launched late in 2018, could have a significant potential impact on the deployment of renewable energy and run counter to the government’s clean growth and decarbonisation goals.
The TCR will have a number of effects on the energy market but particularly of concern to RenewableUK is the admission by Ofgem that “there is a risk that these changes could lead to the cancellation of some projects, including renewable generators which have been awarded CfD contracts.”
Ms Williams told the conference that the TCR could see the removal of credits that reduce the cost of offshore wind. That would make offshore wind projects more expensive. She said RenewableUK had been surprised by number of projects that might be affected and said developers would need to factor in the extra costs in the next CfD auction.
Placing extra costs on projects would be especially unwelcome as the UK approaches the transition from subsidised to zero-subsidy ‘merchant risk’ offshore wind projects. She said it was possible that some CfD projects might not go forward as a result.
RenewableUK said it understands why Ofgem is carrying out the review, because the nature of generation has changed so much in recent years, but believes that the TCR could hinder the deployment of renewables. It believes that Ofgem “does not appear to understand” the financial landscape in which renewables operate.
Ms Williams said the CfD auctions used by the government for offshore windfarms are very competitive and there is “little or no room” to absorb additional costs or to renegotiate contracts for projects that have already commissioned. She said that if the TCR did lead to extra costs being imposed on renewables, those costs would inevitably be passed on to consumers.