UK government GBP 150m energy regulation typo sparks investor panic

24 Jun 14 – The UK Parliament’s Department of Energy and Climate Change (DECC) has admitted it miscalculated one of the renewable subsidies made available by the new electricity market reform.

On 23 June DECC issued its final publication of the electricity market reform, which has been passed to Parliament. The subsidy in question is awarded to large-scale photovoltaic power generation. In the December 2013 draft guidance; this technology type was to receive GBP 100/MWh in 2018/2019. In the 23 June publication, however, this was inadvertently bumped up to GBP 110/MWh.

This means that an extra GBP 10/MWh would be added to the revenues received by solar generators. This could equate to an extra GBP 150m year. This is based on the assumption that there will be 1GW of solar generation on the grid (based on current projects in development), generating 1000MWh over the 15-year life of the CfD contract.

If Parliament needs to change anything on the bill, any final document later published by DECC will be null and void, and pushed back to the drafting stages, noted an industry source. “This is a huge risk that will put projects at risk if any decent due diligence is completed internally,” he added.

The source added that renewable developers he’d spoken to were talking about “bailing out” of their investments, fearing the contracts they may sign could be rendered useless.

This issue adds to the investor uncertainties that are already present in the UK energy market, as reported by this news service last week. Numerous companies are investors in the UK renewable sector and could be affected by the blunder, including RWE, Dong Energy, Statkraft, Iberdrola, VattenfallEDF, E.ON and SSE, as well as independent generators.

DECC is in the early stages of rolling out electricity market reform (EMR), aimed at de-carbonising the UK market. The main pillar of the bill is the introduction of contracts-for-difference feed in tariff, known as CfDs. Under a CfD, low-carbon generators will sell their energy on the wholesale market price as usual, with the CfD allowing for a set strike price through a sizeable subsidy that is specific to each generation technology. 

“The reason for the difference is that the Updated Allocation Framework published yesterday set out the strike prices in 2011/2012 prices, while the EMR Delivery Plan set out the strike prices in 2012 prices,” said a DECC spokesperson. “I’m just checking as to the why this is the case.”

 

By Katie McQue

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