BEIS Look To Closing CfD Loophole
By Paul Homewood
Net Zero Watch has been warning for months now of how newly commissioned wind farms are refusing to take up their Contracts for Difference, and are instead selling power at much higher market prices.
Finally BEIS seems to have woken up:
From Current +:
On Monday, the Department of Business, Energy and Industrial Strategy (BEIS) launched a new consultation into key changes to the upcoming Contracts for Difference (CfD) Allocation Round 5 (AR5).
Key to this consultation, is looking to clarify how the flexibility in the contract for generator to delay their CfD start date should and shouldn’t be used.
This follows reports that the Moray East Offshore Wind Farm delayed taking up its CfD – which it won in the 2017 auction – earlier this year in order to benefit from the high wholesale electricity prices.
At the time, research from Cornwall Insight suggested there was a "significant commercial incentive" for delaying the CfD, with strike prices for offshore wind in 2017’s Allocation Round 2 being set at £73.71/MWh and £94.81/MWh (both prices in current money).
By comparison, the Intermittent Market Reference Price (IMRP), which is used to determine CfD payments in each hour for offshore wind farms, averaged £187.42/MWh since the start of 2022 up to 14 May.
Of the 3,190 hourly periods from the start of the year to 14 May, the IMRP has been higher than £73.71/MWh in 3,072 (96%) and higher than £94.81/MWh in 2,892 (91%) of them, highlighting the opportunity of delaying a CfD.
BEIS called on generators to act “fairly” in response to Moray East Offshore Wind’s decision to wait to take up its CfD in order to benefit from high wholesale prices in the short term.
The first point in the new consultation seems to look to alter the regulation of the CfD’s to avoid similar situations going forwards.
https://www.gov.uk/government/consultations/cfd-contract-changes-for-allocation-round-5
This is the key part of the consultation:
It’s called shutting the stable door after the horse has bolted, as there are many more wind farms on the old contracts which are still under construction. It will be several years before any new applicants under the new contract conditions will come to market.
BEIS now want the new contracts to stipulate that the CfD start date must be no later than 10 days after the start of commercial operation, instead of anytime up to the Longstop Date, the legal term for the date when a contract must be completed. But it remains to be seen whether generators can be forced to take up their options even then, which is the real issue.
Comments are closed.
NOT A LOT OF PEOPLE KNOW THAT 
So not only do we have the fiction that mankinds’ activities are warming the climate, adding insult to injury, we are being ripped off with higher energy bills too?
Merry Christmas!
” Department of Business, Energy and Industrial Strategy ”
The UK has an industrial strategy?
They like to drop the “D” because they are worried that their acronym sounds a lot like “Debase”. Hence they prefer “Bays”.
I have several other names for them.
Business Elimination and Industrial Suppression.
Thankfully not as it would be idiotic to do so.
‘act fairly’ is the root cause of the continuous cock ups created by BEIS, ‘just business’ as every Mafia capo would no doubt say
So , in an ideal world , this sharp practice would have been stamped on . In the world in which we exist , it is probably just blah , blah, blah from The BEIS and we will continue to be stung. Call this a government !
It’s not sharp practice. Why woukd any business not choose a higher price for its goods and services if available? Do you turn pay rises? And on what basis would a government “stamp on it”? It was a choice in the contract.
In my view, if the option on the table is not taken up then the option no longer exists.
The legal boys will make a mint out of this.
There should never be a “BEIS” in any sensible country. Govt. employees can never make the correct decision because they have no penalty for screwing it up.
Why do they need another consultation ? – the facts are clear.
Private businesses make money. In fact, private business managers have a duty to make money for their owners.
Welcome to life in the private sector.
There is nothing new here. This kind of adaptation of industry documents goes on all the time with the benefit of experience and with growing knowledge of their performance.
I wouldn’t agree that BEIS should be seen as incompetent. They are doing the right thing as part of a deal which needs to be managed between the private sector providers of services. If the contract doesn’t work as they had intended, it is right for them to change it – the alternative would be to not change it.
Despite the ideology of the free market, the practical reality is that the Government represents consumers. In this role, the Government has chosen to invest in renewable energy in a big way, and we can comment (and vote) on whether we believe that’s a good thing or a bad thing.
The same practical reality gives us Hinkley Point C, Sizewell C, and the state-owned Great British Nuclear Vehicle. We can be pretty confident there will be similar “adaptations” in the public deal for these.
” the practical reality is that the Government represents consumers.”
No. The government represents the Establishment. UK consumers of domestic energy have no meaningful representation.
Ever since Ed Miliband’s 2010 Energy Act it has been determined that consumer interest is identical to green interest, which takes precedence.
It’s representing the political agenda of a small group of activists who couldn’t care less about the consumer.
“the Government represents consumers”
Really?
They’re making a piss poor job of it then.
This is nonsense. The government is not representing consumers, it is enacting a political ideology that few actually want when asked in detail about the consequences. Free markets aren’t an ideology, simply people being free to trade as they wish. If you think freedom is an ideology, you are starting from a very strange place. As for unilaterally changing contracts, that would breach contract law and be reversed in court – unless you think governments shouldn’t be subject to the law?
Thanks for the responses and interesting views. I’d like to reply.
We all need to acknowledge how the game changed around 2012/2013 with EMR (Electricity Market Reform) introducing CfDs and Capacity Auctions. (And – no coincidence – Hinkley Point C.)
There was once an attempt at free market economics in the UK power industry, where private investors would take risk in development and market entry. There were some special support mechanisms like ROCs (for renewables) and the NFFO (for nuclear), but at a smaller scale.
There is nothing like free market entry the UK power industry today, and hasn’t existed for at least 10 years. The Government pulls all the strings through CfD allocation rounds and Capacity Market auctions. The Government dictates who may participate in these schemes, and has shown (in the case of reciprocating engines) that it will change the rules if it doesn’t like the results.
The role of the private sector now diminishes to something akin to Government outsourcing. There isn’t a market worth talking about since market entry is so heavily controlled.
A significant driver for the Government’s approach is its desire to see new nuclear build. It spent 20 years trying to encourage the private sector to do this, but concluded this wasn’t going to happen. The reasons are fairly simple: nuclear development risks and costs are too great for private appetites. To be in the nuclear game, it takes an army of scientists, engineers and other specialists. And a huge source of cash to cope with some of the risks A nuclear capability is limited to the VERY BIG, and that means the VERY FEW. The only people with the capability and interest in new UK nuclear build were other Governments, and we decided we don’t trust them enough to rely upon them.
It is then a small step to conclude that the state-owned Great British Nuclear Vehicle is the answer. So that’s what we have and its the direction we are going in for the next few decades. CEGB MkII.
If you are hoping for more private sector, you are going to be disappointed.
I see various comments about “the Establishment” and “interest groups” in the responses to my comment. Does this include the nuclear lobby?
Some might think the Government is making a “piss poor job” of protecting the consumer. That’s maybe true, but higher power prices and making electricity scarce is a necessary part of preparing the ground for new nuclear build. If there was a free market where coal- and gas-fired generation were free to enter, nuclear would not be able to compete on grounds of development risk and total operating costs.
If you recognise the Government’s game, you will have a better chance at understanding what’s going on. Sizewell C has just been (partially) announced.
O/T but “The Bureau” (as the B of Meteorology wants us to use) has predicted a ‘hot’ Christmas Day for Adelaide. Originally it was claiming 37℃ maximum but last night reduced this to 32℃.
Strange that they cannot predict the temperature 2 days in advance but know what it could be in 28 years.
Anyway best wishes for all this Christmas and I wish you a better time in the New Year.
If they can repeatedly stick windfall taxes on gas and oil, i can see no reason why they can’t just eliminate this obvious lacuna immediately.
Indeed, retrospectively.
Snag is Big Wind would cut down on the brown envelopes.
The contracts contain a “change of law” compensation clause.
Contracts are different from taxes. The government would lose in court any unilateral change to a contract. I don’t believe any corruption is involved just incompetence driven by a lack of care towards taxpayers/consumers.
The change of law provisions also cover tax, which is why there has been no attempt at a windfall profits tax on CFD generators. A universal change in CT is allowable.
Meanwhile:
https://www.msn.com/en-gb/money/other/uk-joins-international-backlash-against-us-president-joe-biden-s-huge-package-of-green-subsidies/ar-AA15BcnN?cvid=a7d2733e161642b4e17df4e2b586cc44&ocid=winp2fptaskbarhover
“At the time, research from Cornwall Insight suggested there was a “significant commercial incentive” for delaying the CfD…”
Research? You need to do research to know that?
Typical long stop delay? A month, year ? And are the dates published? Happy Christmas to all!
It is not a retrospective change that is being proposed. The Government is planning to change the terms for contracts awarded under future CfD Allocation Rounds.
“BEIS called on generators to act fairly”. This is a thinly veiled threat and contract law is an irrelevance. They are dealing with a monopsony, they will pay attention if they know what’s good for them.
“Free markets aren’t an ideology, simply people being free to trade as they wish.” Power supply is nothing remotely approaching a free market. It never has in the past, and it never will. Pining for free markets in power supply is being ideological.