Renewable energy SMEs and independents will struggle to compete under new Contracts for Difference scheme

‘REA urges political parties to commit to making CfD scheme deliver value for money and help new entrants into the market’

This government has missed its last chance to make the new Contracts for Difference (CfD) scheme a major driver of jobs and growth for the UK’s independent renewable power generators.

REA LOGOWhilst the additional budget announced today [1] is welcome, by allocating three and a half times as much budget to more expensive technologies in the first CfD auction, Ministers have also failed to deliver value for money for consumers, despite Energy Minister Matt Hancock telling the Conservative Party Conference this week: “we must ensure that the renewables we support are the best value for billpayers” [2].

The CfD budget and allocation process confirmed today will disadvantage the SMEs that are prevalent in the renewable power sector, and will favour the vertically integrated utilities that are much better equipped to launch successful auction bids under these arrangements.

The measures outlined below would significantly improve the accessibility of the scheme for renewable energy SMEs and independents and deliver better value for money for billpayers:

• Minimal for all renewable technologies in the CfD scheme (currently only available for wave and tidal stream projects) so that every technology sector has the opportunity to invest in job creation, innovation, supply chains, skills development and cost reduction,

• Quarterly rather than annual allocation rounds, so that unsuccessful bidders do not face an investment hiatus that could lead to closures and job losses,

• Workable proposals for biomass CHP projects, to allow projects to continue without unpractical and burdensome regulations regarding heat markets,

• Reasonable budget allocation for biomass power and the more established technologies (such as onshore wind, solar power and waste to energy) to ensure value-for-money for the consumer.

The REA has been urging this government to implement these measures for several months, but Ministers have not listened, so we are now encouraging political parties seeking a renewable future to commit to these reforms in their manifestos.

Dr Nina SkorupskaREA Chief Executive Dr Nina Skorupska said:

“Coalition Ministers have talked endlessly about cracking open the energy market and growing the renewable energy economy, but they haven’t put their money where their mouth is with this new CfD scheme.

“Firstly, the allocation process is still too risky and complicated for most of the renewable energy independents and SMEs that are trying to break into the UK’s consolidated energy market, further entrenching the dominance of the vertically integrated utilities. Biomass developers in particular are struggling with flawed rules on implementing combined heat and power.

“Secondly, in both the short term and the long term, Ministers have failed to deliver value for money. In the short term, the cheaper, more established technologies have been given less than a quarter of the available budget in the first round, with the rest going to the less established technologies. In the longer term, these younger, less established technologies will struggle to achieve cost reductions without minima to guarantee their continued growth.”


Pictured is REA Chief Executive Dr Nina Skorupska


Pixie Energy

Pixie logo Pixie Energy is an incubator and a facilitator of strategic research and project work, focusing on energy regulation, policy and markets at the local and national level. Find out more about Pixie Energy here.

Local Energy Matters: Scotland

Local Energy Matters: Scotland is a free-to-download brochure with a focus on energy tariffs in the two Scottish electricity distribution regions, as well news on local energy and low-carbon schemes.

Previous editions can be download here.

Scottish energy market overview

You can read an overview of the Scottish energy market here.

Scottish Government energy feed