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  • February 27th, 2015

UK Awards £315m of Renewables Contracts

The Department of Energy & Climate Change awarded contracts worth more than 315 million pounds to 27 projects, according to a statement released Thursday. The companies were vying for a maximum of 325 million pounds of annual funding as part of Britain’s effort to cut carbon emissions and boost cleaner forms of energy.

They have won so-called contracts for difference, which guarantee for 15 years the amount generators are paid for each megawatt-hour of power produced, regardless of prevailing market prices. ScottishPower got a contract to build a 714-megawatt offshore wind farm, RWE Innogy GmbH won for three onshore wind projects totaling 166 megawatts, and Lightsource will build a 14.67-megawatt solar facility.

“The auction has driven down prices and secured the best possible deal for this new clean, green energy,” Energy Secretary Ed Davey said in a statement from his office in London on Thursday. “These projects could power 1.4 million homes, create thousands of green jobs and give a massive boost to home-grown energy while reducing our reliance on volatile foreign markets.”

Two offshore wind farms obtained contracts, with the other going to Mainstream Renewable Power Ltd. In addition, 15 onshore wind farms were successful in the auction along with five solar farms, two energy-from-waste facilities and three so-called advanced conversion technologies.

Renewables Support

The government intends that by 2017 the contracts will replace the current method of supporting renewables, known as the Renewables Obligations program. The contracts were awarded by the Department of Energy & Climate Change and announced on its website in London.

Britain is relying on the power industry for the bulk of the country’s effort to meet a European Union target of deriving 15 percent of all energy from renewables by 2020. That’s because it’s making slower progress on reducing emissions from heat and transportation. Ministers intend to get at least 30 percent of U.K. power from clean sources by the end of the decade, up from 15 percent in 2013.

The auction was split into two pots. The first awards 65 million pounds a year to established technologies including onshore wind and solar power. The second pot with an annual 235 million pounds is granted to less-established technologies, such as offshore wind, wave and tidal power.

Market Reforms

The contracts, known as CfDs, are the centerpiece of the government’s energy market reforms. They fix the price of power the generator receives. If prevailing prices are lower than the fixed rate, the generator receives a top-up from consumers. If the current price exceeds the tariff, producers must return money to consumers.

The budget for the auction was raised in October from an initially-announced 205 million pounds in July, after renewable energy lobby groups said the available cash fell short of what’s needed to drive down renewables costs in the longer run.

At that time, no funding was allocated to a third pot of the contract mechanism. Those funds would have gone for projects that seek to convert to burning biomass from coal, as Drax Group Plc is doing at its plants. As a result, Drax had no projects seeking funds in the program announced today.

The government last April awarded eight projects preliminary money under another program, which was designed to bridge the gap between the end of the old support mechanism and the beginning of the CfDs. Then, the power price was set by the government, rather than by competitive auction. Five of those projects were for offshore wind, including three from Dong Energy.

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