Auction results on Monday are expected to deliver major cost reductions for offshore wind
‘If it ain’t broke, don’t fix it’ pleads Dong Energy UK managing director Matthew Wright, backing continuation of Contracts for Difference scheme ahead of Monday auction results
DONG Energy has urged the government to clarify its plans for the future of the Contracts for Difference (CfD) scheme post-2020, as the offshore wind industry prepares for the results of the latest auction on Monday.
Speaking to BusinessGreen, DONG Energy UK’s managing director Matthew Wright said the sector will soon need clarity over the long term plans for the CfD scheme, which has an uncertain future post-2020 when its underlying funding pot, the Levy Control Framework (LCF), is due to expire.
The government is set to replace the LCF with a “new set of controls” in the Autumn budget.
However, Wright said he sees no reason the Contracts for Difference (CfD) regime can’t continue. “What we are saying is that we have got a successful recipe here of a mechanism that allows investment certainty that drives economies of scale, scope, a big experience curve, so why would you quit now? Let’s keep that going, it’s a successful formula,” he said.
Monday’s auction results are expected to deliver proof of a stunning cost reduction in the offshore wind industry over the last two years, with some analysts expecting the average strike price to come in below the £70 per MWh mark. That previous auction in 2015 delivered an average strike price of £117 per MWh.
But Wright warned that further cost reductions will be contingent on there being a stable policy mechanism in place to give investors certainty over the industry’s future.
“We need a continuation of a mechanism, like the CfD or something similar, to allow projects to continue to come forward,” he said. “And if that’s the case, of course costs will continue to come down. Because that provides the virtuous circle around the certainty of investment that will bring new generations of turbine, that will bring ever greater economies of scale and scope and efficiency in terms of operation that will continue to drive the costs down.”
He had a simple message for the government: “We would say, ‘if it ain’t broke, don’t fix it’. Stay the course.”
Industry insiders are confident the CfD regime will be maintained beyond 2020, but concerns remain about the level of funding that will be made available through the replacement for the LCF and how it will be shared between different technologies.
While the offshore wind industry is expected to emerge as the big winner from Monday’s auction it is unclear if other technologies, such as new marine energy projects, will be able to compete with the sharp cost reductions offered by offshore wind developers.
In addition, developers of onshore wind and solar farms remain frustrated at the government’s failure to allow them to compete for contracts, an issue industry insiders hope to see addressed through the reformed LCF.