UK DECC publishes draft of Contract for Difference

By Erin Voegele | August 15, 2013

The U.K. Department of Energy and Climate Change recently published a detailed draft of a long-term Contract for Difference, which is a new support mechanism that is being introduced to help incentivize up to £110 billion ($170.83 billion) in private sector investment to update the U.K.’s energy infrastructure by 2020.

According to the DECC, Contracts for Difference will give investors in low-carbon generation the confidence they need to pay the up-front costs of major new energy infrastructure projects.

“Contracts for Difference are the most efficient way to provide long-term support for all forms of low carbon generation – including nuclear, renewables and Carbon Capture & Storage,” said Business and Energy Minister Michael Fallon. “They give greater certainty and stability of revenues by removing exposure to volatile wholesale prices, and protect consumers from paying for support when electricity prices are high. They therefore make the development of low carbon generation cheaper for both investors and consumers.”

The draft terms for the contracts were published Aug. 7, along with the methodology through which contracts will be allocated. On July 17, the DECC published its draft Electricity Market Reform Delivery Plan, which provided detail on the long-term Contracts for Difference and draft strike prices for renewables investors. According to the DECC, the strike prices effective remove price volatility risk for electricity generated from low-carbon sources under the Contracts for Difference. Documentation published by the DECC illustrates the strike price for biomass conversion has been proposed at the level of £105 per megawatt hour (MWh) from 2014 through 2019.

The EMR Draft Delivery Plan is open for consultation through Sept. 25. The final version is scheduled to be published in December.