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Contracts for Difference Competition Structure Announced

The United Kingdom Department of Energy and Climate Change (DECC) recently released Electricity Market Reform: Allocation of Contracts for Difference, a report that outlines support for biomass and other renewable energy technologies.

Electricity Market Reform incents investment in a range of low-carbon energy alternatives as dated UK electricity infrastructure is replaced. Under the program, Contracts for Difference will be allocated through separate rounds and divided across two groups.

Group 1 one includes established technologies: onshore wind, solar, hydro, energy from waste with combined heat and power (CHP), and landfill and sewage gases. Less established technologies, including dedicated biomass with CHP, fall under Group 2. Offshore wind, wave, tidal stream, anaerobic digestion, geothermal, and advanced conversion technologies round out the second group.

According to the publication, “Group 2 technologies will not automatically move to competition and will not compete directly with Group 1 (established) technologies. If all the projects seeking support within Group 2 can be accommodated within the allocated budget, they will receive support at the administrative strike price.”

The DECC has also proposed a consultation to consider biomass conversion plants as an established technology separate from Group 1, in effect creating a Group 3. Based on information in the report that approximately 1.3 GW of biomass conversion is on line in the UK with an additional 1 GW of conversion anticipated, the government proposed, “biomass conversion is an established technology but should be in a separate grouping and subject to immediate competition through a constrained allocation process if budget is available.”

The report goes on to explain why Group 3 is necessary. Including biomass in Group 1 would reduce competition among other group technologies that, for the most part, have lower strike prices. On the other hand, a limited number of biomass conversions throughout Europe lends credence to the argument that the conversion technology is “less established” like those of Group 2.

Comments from stakeholders will be accepted until June 10. (Instructions on how to respond are found in the full report). The DECC is expected to release the final framework for CfD allocation later in June.

For additional information, refer to Suz-Anne Kinney’s piece Contracts for Difference and UK Electricity Market Reform.