Proposal for CfD floor aims to attract power investors to meet UK’s low-carbon needs

Industry has called on climate and industry minister Claire Perry MP to instigate a ‘CfD floor’ mechanism to bring forward investment in 160GW of new power plant required to meet 2050 decarbonisation targets.

The  organisations said the government had to re-examine its policy for mature and established renewable technologies and reconsider its stance on supporting grid scale onshore wind and solar PV, in a letter from Gareth Miller, chief executive of Cornwall Insight, and backed by Airvolution, Broadview Energy, Eneco, Foresight Group, Fred Olsen Renewables, Jones Lang Laselle, Lightsource, Non-Fossil-fuel Purchasing Authority, the Renewable Energy Association and the Solar Trade Association.

The organisations said that “project funding from banks and other risk-averse investors still requires insulation against short-term, substantial swings in wholesale power prices. Appetite for this wholesale power price risk amongst debt investors has, if anything, reduced.” And although there had been “significant reductions” in the cost of onshore renewables “this does not make investments credible in projects if they are to rely predominantly on wholesale power price signals.”

The groups propose a CfD floor that would give investors protection if wholesale reference prices fell below a guaranteed floor price and would only allow them to realise power prices above the floor price if any sums received under the floor had been fully repaid.

Without such a mechanism, the organisations warn that “lack of revenue stabilisation will significantly reduce the bankability of grid-scale onshore wind and solar PV and make it inconceivable that our power sector decarbonisation objectives can be achieved.”

Miller said: “Our recommendation of a CfD floor will allow the government to bridge the gap between their policy goals and what is being asked of the market. Crucially, it will do so with only a negligible risk of subsidy payments.”

Read the letter and proposal:  CfD floor price – letter to BEIS