WindEurope 2017: the European significance of Contracts for Difference

Continuing our coverage of WindEurope 2017, A Word About Wind considers whether the UK's Contracts for Difference model may have a wider application in Europe.

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Richard Heap
November 29, 2017
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WindEurope 2017: the European significance of Contracts for Difference

One of the central themes to emerge from the opening day of WindEurope 2017 was the notion that European nations should follow the model of the UK’s Contracts for Difference regime: this could support the wind industry as power prices fall.

WindEurope-logo-sm.gif

Speakers at the conference have welcomed the record-low prices with which wind firms are winning support for wind farms in competitive tenders around the world. Just last week, we saw that Italian utility Enel won support for four projects totalling 593MW in a tender in Mexico, with a winning bid of $17.70/MWh. However, these mean that projects owners are more exposed to fluctuating power prices on the open market.

Gunnar Groebler, head of wind at Swedish utility Vattenfall, told the opening session of the conference on Tuesday that the falling cost of energy from wind farms shows that the industry is delivering on its promises to reduce costs. But, he argued, the wind sector still needs politicians’ support, even if it is not in the form of subsidies.

“We don’t have an open field yet. The support for the energy transition has to remain for some time,” he said. Groebler argued that more countries should look to support wind by using systems like the Contracts for Difference regime used for UK offshore.

Under CfDs, governments award support for projects at a certain strike price. If the wholesale power price is lower than that strike price, the government pays the wind farm owner the difference between the two prices. If the wholesale price is higher than the strike price, the owner pays the difference to the government. This gives long-term price certainty to both the project owner and the government.

Groebler said this certainty would enable wind companies to continue investing to drive down the cost of wind energy, while still being a competitive model. Potentially, these could replace centrally-fixed feed-in tariffs across Europe and beyond.

Similarly, Luca Bettonte, chief executive of Italian developer ERG Renew, said he would welcome any move to make tendering regimes more compatible between countries. He said it was problematic for developers in the European Union to have to deal with conflicting tendering regimes in different nations.

“We could accept these differences [in tendering systems] if they represent a move to a more homogenous situation across Europe,” he said. Bettonte added that the European Union should encourage member states to align behind standardised tendering models. This could open the door for a wider rollout of CfDs.

Joao Manso Neto, chief executive of EDP Renovaveis, agreed government CfDs are necessary to ensure that the cost of wind power continues to fall: “We need state CfDs for the time being. Without these, we will not reach the objectives,” he said. While corporate power purchase agreements will play a key role, we cannot rely on them in Europe.

The UK may be in the process of giving up its place in the European Union – but, on wind tendering at least, we see the influence and collective importance of the UK's approach. Now wind firms just need the EU to pay attention.

One of the central themes to emerge from the opening day of WindEurope 2017 was the notion that European nations should follow the model of the UK’s Contracts for Difference regime: this could support the wind industry as power prices fall.

WindEurope-logo-sm.gif

Speakers at the conference have welcomed the record-low prices with which wind firms are winning support for wind farms in competitive tenders around the world. Just last week, we saw that Italian utility Enel won support for four projects totalling 593MW in a tender in Mexico, with a winning bid of $17.70/MWh. However, these mean that projects owners are more exposed to fluctuating power prices on the open market.

Gunnar Groebler, head of wind at Swedish utility Vattenfall, told the opening session of the conference on Tuesday that the falling cost of energy from wind farms shows that the industry is delivering on its promises to reduce costs. But, he argued, the wind sector still needs politicians’ support, even if it is not in the form of subsidies.

“We don’t have an open field yet. The support for the energy transition has to remain for some time,” he said. Groebler argued that more countries should look to support wind by using systems like the Contracts for Difference regime used for UK offshore.

Under CfDs, governments award support for projects at a certain strike price. If the wholesale power price is lower than that strike price, the government pays the wind farm owner the difference between the two prices. If the wholesale price is higher than the strike price, the owner pays the difference to the government. This gives long-term price certainty to both the project owner and the government.

Groebler said this certainty would enable wind companies to continue investing to drive down the cost of wind energy, while still being a competitive model. Potentially, these could replace centrally-fixed feed-in tariffs across Europe and beyond.

Similarly, Luca Bettonte, chief executive of Italian developer ERG Renew, said he would welcome any move to make tendering regimes more compatible between countries. He said it was problematic for developers in the European Union to have to deal with conflicting tendering regimes in different nations.

“We could accept these differences [in tendering systems] if they represent a move to a more homogenous situation across Europe,” he said. Bettonte added that the European Union should encourage member states to align behind standardised tendering models. This could open the door for a wider rollout of CfDs.

Joao Manso Neto, chief executive of EDP Renovaveis, agreed government CfDs are necessary to ensure that the cost of wind power continues to fall: “We need state CfDs for the time being. Without these, we will not reach the objectives,” he said. While corporate power purchase agreements will play a key role, we cannot rely on them in Europe.

The UK may be in the process of giving up its place in the European Union – but, on wind tendering at least, we see the influence and collective importance of the UK's approach. Now wind firms just need the EU to pay attention.

One of the central themes to emerge from the opening day of WindEurope 2017 was the notion that European nations should follow the model of the UK’s Contracts for Difference regime: this could support the wind industry as power prices fall.

WindEurope-logo-sm.gif

Speakers at the conference have welcomed the record-low prices with which wind firms are winning support for wind farms in competitive tenders around the world. Just last week, we saw that Italian utility Enel won support for four projects totalling 593MW in a tender in Mexico, with a winning bid of $17.70/MWh. However, these mean that projects owners are more exposed to fluctuating power prices on the open market.

Gunnar Groebler, head of wind at Swedish utility Vattenfall, told the opening session of the conference on Tuesday that the falling cost of energy from wind farms shows that the industry is delivering on its promises to reduce costs. But, he argued, the wind sector still needs politicians’ support, even if it is not in the form of subsidies.

“We don’t have an open field yet. The support for the energy transition has to remain for some time,” he said. Groebler argued that more countries should look to support wind by using systems like the Contracts for Difference regime used for UK offshore.

Under CfDs, governments award support for projects at a certain strike price. If the wholesale power price is lower than that strike price, the government pays the wind farm owner the difference between the two prices. If the wholesale price is higher than the strike price, the owner pays the difference to the government. This gives long-term price certainty to both the project owner and the government.

Groebler said this certainty would enable wind companies to continue investing to drive down the cost of wind energy, while still being a competitive model. Potentially, these could replace centrally-fixed feed-in tariffs across Europe and beyond.

Similarly, Luca Bettonte, chief executive of Italian developer ERG Renew, said he would welcome any move to make tendering regimes more compatible between countries. He said it was problematic for developers in the European Union to have to deal with conflicting tendering regimes in different nations.

“We could accept these differences [in tendering systems] if they represent a move to a more homogenous situation across Europe,” he said. Bettonte added that the European Union should encourage member states to align behind standardised tendering models. This could open the door for a wider rollout of CfDs.

Joao Manso Neto, chief executive of EDP Renovaveis, agreed government CfDs are necessary to ensure that the cost of wind power continues to fall: “We need state CfDs for the time being. Without these, we will not reach the objectives,” he said. While corporate power purchase agreements will play a key role, we cannot rely on them in Europe.

The UK may be in the process of giving up its place in the European Union – but, on wind tendering at least, we see the influence and collective importance of the UK's approach. Now wind firms just need the EU to pay attention.

One of the central themes to emerge from the opening day of WindEurope 2017 was the notion that European nations should follow the model of the UK’s Contracts for Difference regime: this could support the wind industry as power prices fall.

WindEurope-logo-sm.gif

Speakers at the conference have welcomed the record-low prices with which wind firms are winning support for wind farms in competitive tenders around the world. Just last week, we saw that Italian utility Enel won support for four projects totalling 593MW in a tender in Mexico, with a winning bid of $17.70/MWh. However, these mean that projects owners are more exposed to fluctuating power prices on the open market.

Gunnar Groebler, head of wind at Swedish utility Vattenfall, told the opening session of the conference on Tuesday that the falling cost of energy from wind farms shows that the industry is delivering on its promises to reduce costs. But, he argued, the wind sector still needs politicians’ support, even if it is not in the form of subsidies.

“We don’t have an open field yet. The support for the energy transition has to remain for some time,” he said. Groebler argued that more countries should look to support wind by using systems like the Contracts for Difference regime used for UK offshore.

Under CfDs, governments award support for projects at a certain strike price. If the wholesale power price is lower than that strike price, the government pays the wind farm owner the difference between the two prices. If the wholesale price is higher than the strike price, the owner pays the difference to the government. This gives long-term price certainty to both the project owner and the government.

Groebler said this certainty would enable wind companies to continue investing to drive down the cost of wind energy, while still being a competitive model. Potentially, these could replace centrally-fixed feed-in tariffs across Europe and beyond.

Similarly, Luca Bettonte, chief executive of Italian developer ERG Renew, said he would welcome any move to make tendering regimes more compatible between countries. He said it was problematic for developers in the European Union to have to deal with conflicting tendering regimes in different nations.

“We could accept these differences [in tendering systems] if they represent a move to a more homogenous situation across Europe,” he said. Bettonte added that the European Union should encourage member states to align behind standardised tendering models. This could open the door for a wider rollout of CfDs.

Joao Manso Neto, chief executive of EDP Renovaveis, agreed government CfDs are necessary to ensure that the cost of wind power continues to fall: “We need state CfDs for the time being. Without these, we will not reach the objectives,” he said. While corporate power purchase agreements will play a key role, we cannot rely on them in Europe.

The UK may be in the process of giving up its place in the European Union – but, on wind tendering at least, we see the influence and collective importance of the UK's approach. Now wind firms just need the EU to pay attention.

One of the central themes to emerge from the opening day of WindEurope 2017 was the notion that European nations should follow the model of the UK’s Contracts for Difference regime: this could support the wind industry as power prices fall.

WindEurope-logo-sm.gif

Speakers at the conference have welcomed the record-low prices with which wind firms are winning support for wind farms in competitive tenders around the world. Just last week, we saw that Italian utility Enel won support for four projects totalling 593MW in a tender in Mexico, with a winning bid of $17.70/MWh. However, these mean that projects owners are more exposed to fluctuating power prices on the open market.

Gunnar Groebler, head of wind at Swedish utility Vattenfall, told the opening session of the conference on Tuesday that the falling cost of energy from wind farms shows that the industry is delivering on its promises to reduce costs. But, he argued, the wind sector still needs politicians’ support, even if it is not in the form of subsidies.

“We don’t have an open field yet. The support for the energy transition has to remain for some time,” he said. Groebler argued that more countries should look to support wind by using systems like the Contracts for Difference regime used for UK offshore.

Under CfDs, governments award support for projects at a certain strike price. If the wholesale power price is lower than that strike price, the government pays the wind farm owner the difference between the two prices. If the wholesale price is higher than the strike price, the owner pays the difference to the government. This gives long-term price certainty to both the project owner and the government.

Groebler said this certainty would enable wind companies to continue investing to drive down the cost of wind energy, while still being a competitive model. Potentially, these could replace centrally-fixed feed-in tariffs across Europe and beyond.

Similarly, Luca Bettonte, chief executive of Italian developer ERG Renew, said he would welcome any move to make tendering regimes more compatible between countries. He said it was problematic for developers in the European Union to have to deal with conflicting tendering regimes in different nations.

“We could accept these differences [in tendering systems] if they represent a move to a more homogenous situation across Europe,” he said. Bettonte added that the European Union should encourage member states to align behind standardised tendering models. This could open the door for a wider rollout of CfDs.

Joao Manso Neto, chief executive of EDP Renovaveis, agreed government CfDs are necessary to ensure that the cost of wind power continues to fall: “We need state CfDs for the time being. Without these, we will not reach the objectives,” he said. While corporate power purchase agreements will play a key role, we cannot rely on them in Europe.

The UK may be in the process of giving up its place in the European Union – but, on wind tendering at least, we see the influence and collective importance of the UK's approach. Now wind firms just need the EU to pay attention.

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Not a member yet?

Become a member of the 6,500-strong A Word About Wind community today, and gain access to our premium content, exclusive lead generation and investment opportunities.