Originally published on RenewEconomy.
The first renewable energy auction held in the UK under its new “contract for difference” pricing mechanism has pulled the rug from underneath the nuclear advocate argument that it is the cheapest form of clean energy. It has also surprised the UK government, and some of the renewable developers themselves.
We publish a more in-depth look from Simon Evans at Carbon Brief here, but the striking result of the renewable energy auction was how both wind and solar came substantially below the price budgeted by the government.
Ignoring a couple of outlying bids, both wind energy and solar came in at around £80/MWh, which is well below the £120/MWh budget for solar, and the £95/MWh by the UK government, and the £92.50/MWh negotiated for the proposed £42 billion Hinkley C nuclear reactor. The strike prices for these wind and solar technologies will be progressively scaled down in coming years. The UK government hopes they will require no subsidies post 2020.
Offshore wind remains above the cost of nuclear, although recent experience in Denmark suggests that those costs are also coming down more quickly than imagined.
We should be cautious about some of the prices though. The £50/MWh price bid by a couple of parties appears to have been an accident, a result of them not quite understanding the bidding process.
“We got our CfD … oh Dear,” was the title of a brief blog written by James Rowe, director of Hadstone Energy, which is the promoter of the 19MW Wicks solar farm. Rowe lamented that the result is barely above the market price for electricity, meaning virtually no subsidy. At around £79, it would have been doable, but at a squeeze, he says. This was confirmed by another developer, Lightsource, which bid £79/MWh for its 15MW solar farm, but said it would result in wafer-thin margins.
“The Solar Trade Association will no doubt welcome this as another great leap towards subsidy-free solar. Wick Farm just got there a couple of years before anyone else!” Rowe quipped. Both solar developers said solar should be added more capacity in the next options.
This is a more detailed breakdown of the bidding.
There is often disbelief in the ranks of project developers at the results of such auctions. This occurred in the Dubai auction that obtained a price of US5.84c/kWh for a 200MW solar plant, and at both the recent wind and solar auctions held by the ACT government in Australia.
Still, the results of the bids underline that wind and solar are cheaper than the nuclear option, and require prices for just 15 years, after which they will get the market price. The Hinkley contract increases with inflation for 35 years, by which time it will be something around £320/MWh, according to a recent Austrian study. (Austria is outraged by the scale of state subsidies for Hinkley and is seeking to have them reversed).
And before anyone starts posting comments about the “grid” costs of solar or wind, let’s not forget that UK’s National Grid said that upgrades to cope for Hinkley C would result in additional grid costs of £160 million a year, which will be passed on to consumers. That’s about $12 billion over the first 35-year lift of the project.
Reprinted with permission.