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Govt to unveil details on renewable energy contracts

Shorter contracts for renewables than for nuclear.

Further details on the government’s intention to offer shorter contracts to renewable energy projects compared to nuclear power initiatives are set to be unveiled by the coalition.

Concerns have been raised about the viability of offering contracts that may only be 15 years, when nuclear power contracts, such as the ones reportedly offered to EDF concerning the Hinkley Point development, could last 40 years or more.

At the moment, the Renewables Obligation legislates that large wind farm projects receive 20-year payments to cover the the lifetime of the project; however, the new price guarantees may only last 15 years.

The government is now set to divulge further details following a Freedom of Information request made by BusinessGreen, which noted that other reports suggest the government is considering awarding CfD contracts for nuclear power plants that will last up to 40 years and cover the entire lifetime of the plants in question.

40/20 divide

“If EDF is getting 40 years, then we’ll definitely be pushing for 20 years,” one source told BusinessGreen, adding that concern is rife among renewable energy developers that shorter financial guarantees may dissuade potential investors.

The DECC says 15-year contracts would even out the impact of securing investment and the impact of the CfD programme on consumer energy bills and may even be more attractive to investors due to the higher guaranteed price of energy.

Developers, however, argue that the £7.6 billion levy control framework pot of available subsidies will not be divided evenly by the government if contracts differ in length.

One source told BusinessGreen that a 15 per cent higher strike price that is designed to compensate for the shorter contract period could result in a 30 per cent greater draw on lower carbon futures,” explained one industry source.

“As that additional 10-15 per cent is all draw on the pot, the reference price will not likely rise above the 20-year strike price level. This gives you a much greater allocation problem and an issue over whether the £7.6 billion settlement is enough. It is a big headache, which government could avoid,” the source added.

The government is now set to elaborate on the contracts and seek to assure investors and consumers alike that the impact on funding and energy bills will not be detrimental should shorter contract lengths be introduced.