Although there are high expectations for the capacity of onshore wind and solar to be procured through future CFD auctions, it is offshore wind that has taken centre stage in recent policy announcements, with a target of 40GW offshore wind by 2030. This will almost quadruple the capacity of offshore wind installed today.
Unsurprisingly, onshore wind generation patterns tend to correlate closely with offshore wind. This increase in offshore wind generation could have a substantial impact on cannibalisation of prices for onshore wind over the next decade. Couple this with higher demand during the day, when solar generates, and this leads to significantly higher captured reference prices for solar than onshore wind and, conversely lower support costs.
Technologies such as Energy from Waste with CHP, Landfill gas and Sewage gas will also compete against onshore wind and solar in Pot 1. These technologies receive a reference price based on season-ahead forward prices. As such, without any price cannibalisation, AFRY projects higher reference prices than wind or solar for these technologies, and hence, lower support costs.
There are many elements that will contribute to the exact support costs, and the future capacity mix is a key factor for determining the levels of cannibalisation. Ultimately different renewable technologies tend to be complementary, and a range of technologies will likely lead to lower support costs. The trend shown here is based on AFRY's current capacity outlook but would change if the balance between solar and wind changed significantly.
GB isn't unique, our Irish experts have also found a more balanced mix of wind and solar will avoid increases in support costs in the Irish market, as well as lowering carbon emissions and creating a more secure system.
Do we expect change?
Beyond the 2021 auction, CFD auctions are expected every other year. The Government have recently published a Call for Evidence 'Enabling a high renewable, net zero electricity system'. This aims to understand how to incentivise generators to minimise overall system costs of large amounts of renewables. One area explored is price cannibalisation and this may lead to reform of the CFD. However, the CFD has been deemed a very successful instrument in deployment of offshore wind, which could mean there is some reluctance to change.
ÅF Pöyry AB published this content on 17 February 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 18 February 2021 09:30:08 UTC.