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Grant Thornton comparison of CfDs with RO, following the release of the policy paper Ele.....

Charles Yates, Associate Director, Government Infrastructure and Advisory at Grant Thornton UK LLP, comments on today's Department for Energy & Climate Change policy paper Electricity Market Reform: Delivering UK Investment:

"Looking at a comparison for selected technologies [table] of Contracts for Differences (CfDs), which are replacing the Renewables Obligation (RO) a quick comparison shows that, other than solar, the CfD is about 17% more than the equivalent RO. The uplift is to compensate for the differences between the two systems, which is principally that RO payments are made for 20 years vs. only 15 years for CfD. So it's not unreasonable to say that they're equable although the comparison depends on the discount rate.

Table: comparison of RO vs. CfD per MWh (for 2014/15 but in 2012 prices)

 

Technology 

# ROCs

value of ROCs

Base price

Total

CfD strike price

CfD/ROC total

 

1

2

3

4 = 2+3

5

6 = 5/4

onshore wind

0.9

£37.80

£47

£85.7

£100

117%

offshore wind

2

£84.00

£47

£133

£155

117%

Solar

1.6

£67.20

£47

£115.8

£125

108%

biomass conversion

1

£42.00

£47

£90

£105

117%

wave

5

£210.00

£47

£262

£305

116%

tidal

5

£210.00

£47

£262

£305

116%

             

Estimated value of ROC in 2014 (2012 prices)

£42

         

3.  Estimated wholesale power price /MWh 2014 (2012 prices)

£47

         

Note 2 = 1 * Value of a ROC

           

"One other point from today's announcement (27 June 2013) that is worth noting is the fact that the government is "minded to allow renewable electricity to be imported to the British Grid from abroad". This could lead to the import of large volumes of Irish wind power (on and off shore) in to Britain – a memorandum of understanding regarding power imports has already been signed between the two Prime Ministers. Imported power would earn RO / CfD and under the levy control framework could take subsidies from British projects and so reduce UK job creation. However, the positive is that imports could reduce the cost of hitting our 2020 renewables targets and it will also increase the certainty of hitting these targets."