Contracts for Difference Subsidies On The Rise Again

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By Paul Homewood

The renewable lobby were quick to brag that the Contracts for Difference scheme was paying back money to energy users last year, when market prices of electricity spiked. But they have remained strangely silent since, now that market prices have fallen back, with the result that the subsidy conveyor belt is now running again.

In Q1 this year, subsidies for wind and solar power via CfDs totted up to £222 million, which will filter through on to our bills in months to come. Although onshore wind and solar still show negative subsidies of £9 million, offshore wind, which makes up 92% of the generation, gobbled up a subsidy of £231 million, with an average strike price of £166/MWh, compared to a market price of £120/MWh.

In reality, the subsidy is much bigger than the official figures say. The Emissions Trading Scheme adds £31/MWh to market prices, by artificially increasing the cost of gas generation. The real, underlying market price is therefore about £89/MWh, meaning that the real subsidy under CfD is £167 million higher than shown.

CfDs of course are just the tip of the iceberg, as far as subsidies go. The Renewable Obligation scheme will hand renewable generators about £6.8 billion this year, about 12% higher than last year thanks to indexation.