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The problem is that the extra payments to renewable energy providers under the non-CfD model are a pure windfall for them that doesn't help to incentivise incre
by makomk 4y ago
The problem is that the extra payments to renewable energy providers under the non-CfD model are a pure windfall for them that doesn't help to incentivise increased supply, since they're not likely to be there in a few years - consumers can't afford those energy prices and they go away once we have either a sufficiently big recession or sufficiently large amounts of renewable energy. Also, governments needed to subsidise the current renewable suppliers that are benefiting from the high prices in order to get them to build in the first place, so it made sense to structure that subsidy as a two-way CfD since letting them keep the extra has no real economic benefits and a whole bunch of extra potential cost for energy users and the rest of the economy.
- tomatocracy 4y agoThere is some effect on incentivising more supply to be built, but it's limited. Current higher prices are encouraging renewables developers to seek a smaller portion of generation to be covered by long-term PPAs/CfDs than they previously would have done. They are also making it easier to finance on that basis. The quantity of commercial PPAs available is limited by how much appetite there is for power from companies which are in a position to sign PPAs and how much downside power price risk they are willing to take. So this means that the limited "resource" of PPA counterparties can be used to cover more generation being built. This is relevant for projects which would not otherwise expect to secure CfDs. There's not really any similar constraint on government-backed CfDs though. I guess theoretically the quantity available could be limited by how much government appetite there is for taking downside power price risk but in reality CfDs are artificially constrained in each auction round to ensure that there is price competition.