Going, Going, Gone: The role of auctions and competition in renewable electricity support

Monday, 16 December 2013

Going, Going, Gone: The role of auctions and competition in renewable electricity support

Synopsis

Renewable subsidies – especially for offshore wind – should be cut if they fail to come down in cost under strict time limits.

Going, Going, Gone: The role of auctions and competition in renewable electricity support, urges the government to hold the offshore wind industry to claims it can reduce its costs significantly by the end of the decade.

The report says that plans to introduce auctioning to enable all technologies to compete on a level playing field should be brought forward. Currently technology specific auctions are set to be introduced under the Electricity Market Reform (EMR) – the government’s flagship energy policy – from 2018 at the earliest for projects commissioning after 2020.

It argues that auctioning for mature technologies – in which different forms of renewables bid against each other for state support – should be introduced as early as next year for projects commissioning in 2017.

In Brazil, prices for onshore wind have dropped to world record lows since auctioning was introduced. Last year the cost of onshore wind was as low as £27 MWh compared to £95 MWh in the UK. If the UK can achieve a even a fraction of that result it would allow much greater decarbonisation for the available budget.

Recommendations include:

  • Mature technologies such as onshore wind, biomass and energy from waste should be able to compete in an auction process as early as next year.
  • Immature technologies such as offshore wind, which are not ready to compete with other low carbon sources, should compete with similar technologies in a separate set of auctions with a fixed budget. Those technologies would be subject to a reserve price in the auction which corresponds to a descending cost structure. If the technology hasn’t met that cost in the stipulated time-frame it would lose its subsidy.
  • The government should seek to abolish the EU Renewable Energy Target which imposes unnecessary costs on attempts to decarbonise.

Policy Impact

In January 2014 the Government consulted on bringing forward auctions for renewable energy subsidies. In our 2013 report Going, Going, Gone we advocated earlier auctioning as a way to increase competitive pressure and lower subsidies for renewable energy.

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