Has The CfD Scheme Reduced Electricity Bills?
By Paul Homewood
https://www.gov.uk/government/publications/contracts-for-difference/contract-for-difference
We keep being told that the CfD scheme is in the consumers’ interests. And, to be fair, it has helped to partially protect consumers from recent market prices rises.
However, the reality is that this has made little difference to our electricity bills.
Figures for last month, up to the 25th, from the Low Carbon Contracts Company show that renewable generators have handed back just £19.5 million to the government. This represents the amount by which their actual revenue has exceeded what the strike prices would have yielded, and is returned to bill payers.
Average market prices have worked out at £173/MWh, versus an average strike price of £159/MWh.
Strike prices for offshore wind have averaged £170/MWh.
OK, £19 million a month is better than a kick up the Khyber! But since the CfD scheme began in 2016, SUBSIDIES to renewables have totalled £5966 million, all of course paid for in our electricity bills.
Hardly the Deal of the Century!
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NOT A LOT OF PEOPLE KNOW THAT 
“Hardly the Deal of the Century! ”
It is if you are on the receving end of the subsidies !!!
I’m not sure they are subsidies, just a very badly designed and priced fixed price scheme. I’m not wholly against a fixed price but with wind we remain exposed to high prices caused by a lack of wind and made higher than otherwise by renewables. So it’s not fixed when we really care!
Head they win, tails we lose.
Would have been more had there been more wind of course so that 19m won’t it cover a couple of hours of all the extra gas that has been on the system
As far as I can tell they seem to be hanging on to most of the money themselves at LCCC. On Jan 12th they announced the reconciliation payment for Q4 in the following terms:
At the end of a quarter, the amount collected from generators is reconciled with suppliers. Any surplus funds are put toward the Total Reserve Amount (TRA) to be paid to LCCC for the next quarter, effectively reducing the amount suppliers have to pay. If the sum of the overcollection and the current TRA is higher than the next quarter’s TRA, the difference is returned to suppliers.
As of today (12 January 2022), the expected net payments from generators over the quarter total £133,667,990, whilst the TRA for Q4 2021 was £208,986,765. The TRA for Q1 2022, which is set at £303,432,348, is netted off against the Q4 2021 numbers, which means LCCC’s forecast total reconciliation payment is £39,222,407.
Given the ongoing high wholesale prices, the ILR has also been set at £0/MWh for the current quarter, and LCCC is currently forecasting another net payment to suppliers in the next quarterly reconciliation.
There has been no similar announcement for Q1 this year – perhaps they need a nudge?
It also seems to me that the scheme is in need of serious revision anyway. It is set up so that effectively suppliers are treated as the only possible bad credit risk, with funds retained against them failing to pay any CFD subsidies due to generators. Now we have generators being a serious credit risk, perhaps not able to fund the CFD repayments. The way in which this is handled is opaque to say the least, and the underlying legislation appears not even to consider the possibility. By law the lowest payment on account by suppliers is £0/MWh, so they only ever get refunds in arrears as “reconciliation” – which seems to be set to withhold large sums in reserves.
I decided to write to them.
On January 12th you published an account of the reconciliation payment due to suppliers for Q4 2021. Although it is now more than a month beyond the end of Q1 2022, there has been no similar announcement for that quarter. When are you going to make one? Why is there no dashboard with this information for historical periods?
Given that your reserve provisions swallowed up most of the £133m that should have otherwise been repaid to suppliers, leaving them with just £39m, are you going to continue to hang on to cash and make suppliers and therefore their customers wait months and months for repayment? With CFDs now on average paying out to suppliers, what measures have you adopted to ensure that generators do not default on their payments? It seems that the legislation only provides for suppliers being a credit risk, which is inequitable.
What adjustments are you making to your forecasts for the fact that Moray East, Hornsea 2 and Triton Knoll 3rd phase have not commenced their CFDs, nor seem likely to while market prices remain far above inflation adjusted strike prices? Do you have any comment to make on whether low strike price CFDs have any value to consumers in the future, since they appear to be optional from the point of view of generators?
I shall be communicating with various MPs once I have your answers (or should you fail to provide them) in order to persuade them to press BEIS and OFGEM for revisions to regulation in the consumer interest.
This is a piece from the civil servants who run this CFD. How you, Paul Homewood, me or anyone else can understand these people is a miracle:-
The government response confirms that the CfD contract has been amended to allow generators who are awarded contracts in AR4 up to 20 business days (formerly 10) to fulfil their Initial Conditions Precedent following contract signature. The additional time allotted reflects the larger number of applicants expected to apply to participate in the forthcoming allocation round.
The response confirms that an alternative strike price adjustment formula will be inserted into the CfD contract to account for the possible decision by Ofgem that generators should no longer pay Balancing Services Use of System (BSUoS) charges. If Ofgem decides that generators should no longer pay these charges, then after AR4 closes, the strike prices of those successful projects liable to pay BSUoS charges will be adjusted downwards through the annual strike price adjustment undertaken by LCCC to account for the fact that BSUoS is no longer due to be paid.
This is of course a further move away from the recommendations made by Dieter Helm that renewables should pay for the consequences of their intermittency. Instead, the cost will be lumped onto standing charges under current OFGEM plans. This is no small beer: Andrew Mountford reported the latest running 12 months have seen over £3bn in balancing charges, and that is only going to get a lot worse as the proportion of renewables increases.
The simple fact is that they set the strike price too high versus outturn market prices. And then ignored the fact that we have been overpaying as a consequence for years because its an invisible cost.
The absurdity is that when there’s lots of wind we get no benefit as we pay the fixed price, when there’s none, we largely pay market, which is higher than it would have been without renewables. The consumer cannot win.
OT
rilly?
“But since the CfD scheme began in 2016, SUBSIDIES to renewables have totalled £5966 million” This figure looks more realistic if written out in full – £5,966,000,000,000. If spoken, never say ‘billion’, always say ‘thousand million’.
JF
Actually it’s not quite as bad as you wrote: £5,966,000,000.
The Mail came out with a somewhat garbled story about wind surpluses in 2030 and the need for storage.
https://www.dailymail.co.uk/news/article-10792271/Boom-wind-solar-power-huge-surplus-electricity-waste-2030.html
It turns out that it is based on this from consultants LCP:
https://www.lcp.uk.com/media-centre/2021/01/additional-20gwh-of-battery-storage-could-cut-volume-of-wasted-wind-power-by-50-predicts-lcp/
But note the weasel words:
Based on current wind power capacity, LCP estimates an extra 20GWh of battery storage could reduce the amount of wind power wasted by up to 50%.
…
Analysis from LCP shows Great Britain curtailed wind power on 75% of days in 2020, with over 3.6TWh of wind power being turned off in total, mainly due to network constraints.
So that’s 20GWh of batteries at say $400/kWh installed cost, or $8bn to save 1.8TWh, or $800m per year amortising the batteries over a 10 year life, which is $444/MWh saved, plus round trip losses which take the margin required to well over $500/MWh for the ~90 times a year they might make a round trip if their analysis is correct. Of course, 3.6TWh is only at the base of the curve for curtailment which is likely to grow quadratically as the size of surpluses grows with the increased wind capacity, and the frequency with which they occur also increases – all while failing to solve the problems of Dunkelflaute, since the batteries would be completely discharged in a couple of hours at most when the wind drops. Of course, this wouldn’t be the only battery revenue source: LCP have quite an interesting analysis here:
Click to access Battery%20Storage%20Report%202022.pdf
But it’s only going to scratch the surface when required curtailment starts going through 50TWh a year and more as capacity increases – and when the required duration increases, while the frequency of larger storage round trips falls away, hitting profitability from two angles at once.
20 gwh is about 100 Australian Teslas
I can’t understand this. I’m literate, can do sums, not all that stupid, but this envelope of abbreviations, numbers, jargon words defeats me completely. The electricity bill payer is in the dark. Is there a massive fraud against him/her going on? How does he/she know? I feel myself getting slightly enraged, not for myself because I’m rich enough to get by, but for the impending Excess Winter Deaths.