The UK Government has published draft strike prices for renewable technologies. These are the prices that will apply to the new subsidy regime under the Energy Bill, FiT CfDs (Feed in Tariffs with Contracts for Difference).
The Government believes that the draft prices are broadly comparable to the support levels available under the Renewables Obligation. However, they also include adjustments to account for the increased certainty generators have, from not bearing wholesale price risk. This means that they offer a better deal to consumers (the Government anticipates that this will deliver savings to consumers of around £5 billion to 2030, relative to the current regime).
Strike prices represent the “guaranteed” subsidy level from renewables. Under FiT CfDs, the generator sells electricity in the market in the normal way (through long-term contracts with suppliers or by selling through electricity markets). The generator then either receives or makes a payment under the CfD, depending on whether the electricity price in the reference market is below or above the strike price. The mechanism is intended to ensure that generators receive (broadly speaking) the strike price for electricity and therefore can plan for reasonably certain revenue flows without suffering dips in wholesale prices, but at the same time without benefitting from spikes in wholesale prices.
The Government announcement comes in the same week Shaun Kingsbury, the Chief Executive of the Green Investment Bank, warns that this year is “critical” for the renewables industry, with the appetite of institutional investors waning. The draft strike prices will not affect market performance this year, as the detail around the new Contracts for Difference still needs to be worked out after the Energy Bill passes through Parliament. It remains to be seen whether the industry will respond favourably to the strike prices when it becomes possible to apply for CfDs.