Categories:Energy,UK

Strike prices released early — does this provide more certainty for energy investors?

One of the key parts of the government’s Electricity Market Reform (EMR) proposals is contracts for difference (CfDs), which will replace the renewables obligation (RO) as the key support mechanism for low-carbon electricity generation. Under CfDs, a generator will be paid the difference between a strike price and a reference market price (unless the reference market price exceeds the strike price, in which case the generator will pay that difference back).

Clearly, the level at which the strike prices are set is one of the main pieces of information for investors and developers as it very much underpins the economics of any low-carbon project. The government has published the draft strike prices for renewables technologies, which reduce over time as technology costs come down. The government has set the strike prices to be consistent with the RO levels of support (although adjusted down as the CfD arguably protects the investor against additional risks).

It is worth noting that there are 14 published strike prices, in contrast with the current 35 RO support bands for renewables. In some cases, DECC is offering one strike price to cover two or more support bands under the RO, as it is moving away from having more than one support level for a single technology. In addition, DECC is not offering strike prices for a number of RO technologies at the present time, for example due to sustainability reasons…

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