As Scotland continues to move towards sustainable energy generation, a new economic analysis of the potential auction price and related costs by Baringa Partners has concluded that – with no additional cost to consumers from renewables – an additional potential 1 GW of capacity over and above the wholesale cost of power could be developed over the next five years.
The new capacity, which would be auctioned in 2018-19, would come online between 2021 and 2023, with a project being contracted under the Contract for Difference* (CfD) scheme from the Low Carbon Contracts Company (LCCC) for the first 15 years after their commissioning.
The London-based energy consultancy analysed recent trends in auctions prices for renewable projects across the globe, and the report ultimately shows notable variation of auction prices for the different types of generation, solar PV and onshore wind, in 2013.
As part of the transition to a sustainable energy network, in line with targets set out in the Paris Agreement which aims to limit average global temperature increases to below 2.0C, a range of renewable energy generation stock is being installed. On the back of technological advances, the investment price for renewables begun to fall significantly.
When it comes to solar PV projects, the lowest price per MWh was produced in Chile, at $29, followed closely by the UAE, at $30. Mexico and Peru too offer relatively low price solar PV auction prices, at $32 and $48 respectively. The highest cost projects were found to be Brazil, at $122 per MWh, and France, at $120 per MWh. Onshore wind projects too were found to have a relatively broad spread for costs, at $30 per MWh in Morocco and $38 per MWh in Peru, to $90 per MWh in the UK.
To understand the changes in pricing for onshore wind projects, as well as current pricing for Solar PV, the firm analysed an internal database of consented GB onshore wind and solar PV projects, which totals around 5 GW in capacity.
The vast majority of the onshore wind projects in the analysis (70%) are located in Scotland, while the vast majority (95%) of solar PV projects are based in England and Wales.
Using a range of metrics the firm estimated the levelised costs of energy (LCOE) for onshore wind and solar PV projects in the space. The LCOE for the 1 GW – assuming that developers bid their LCOE into the auction – is estimated at £49.4/MWh.
The result is in line with auctions across the world, which go at between $40-60/MWh, and well below the £80/MWh for the most recent UK CfD auction from early 2015. The analysis, in addition, found that the cheapest solar PV project would auction at around $60/MWh.
The authors also considered the wider effect of rules surrounding CfDs. The study concludes that, “under the CfD regime, projects are paid the difference between the auction clearing price and the day-ahead hourly wholesale price at the time of generation (known as the ‘capture price’).”
Researcher’s projections stated that for the first five years of production, the LCCC would need to pay out an average £8 million per annum (£42 million in total), to support the projects under the current CfD regime. However, an increase in wholesale prices, in line with projected commodity price increases, will see the LCCC receive a total net payback of about £85 million of the 12 preceding years.
Over the project as a whole, the firm estimates that the LCCC gains £43 million in net payback for 1 GW in onshore wind capacity in 2017 terms. With the public sector WACC discount rate of 3.5% taken into account, the firm finds that the LCCC would receive a payback of £18 million in real 2017 terms.
- According to the figures in the EY 2016 Renewable Energy Country Attractiveness Index , the UK ranked 13th in the world’s top 40 nations for green and renewable energy, and these further findings from Baringa suggest potential for the UK and Scotland to further improve their standing in the future.
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A spokesman for Scottish Renewables said: “The study’s findings reinforce that onshore wind can make a significant contribution to ministers’ ambitions for the industrial strategy.
“At these kinds of prices, the technology can continue to play a key role in cutting carbon emissions whilst keeping bills down for businesses and households – an important priority for Government. It can also secure inward investment and jobs across the country and drive the renewal of our ageing energy infrastructure.”
* A Contract for Difference (CfD) is a contract between an RES-E generator and a CfD Counterparty. Low Carbon Contracts Companies (LCCC) are wholly owned by the UK Government. The CfD is based on a difference between the market price and an agreed “strike price”, which could see the LCCC payout the generator or vice versa, based on market energy prices.