Modelling the GB Renewable Electricity CfD Auctions – the cost of excluding onshore wind and of maintaining separate pots

04 November 2015
By Richard Marsden, Alon Carmel, George Anstey, Sam Forrest, Konrad Borkowski, Dr. Clemens Koenig, et. al.

The UK government introduced auctions for setting subsidy levels for renewable electricity projects under the Contract for Difference (CfD) mechanism in 2014. The first auctions in February 2015 resulted in prices significantly below the maximum strike prices, showing the potential of auctions to drive cost savings for consumers. The UK government has now proposed to stop subsidising new onshore wind projects. If the government is still to meet the its renewable energy target in 2020, excluding onshore wind may lead to higher costs for consumers. Further, consumers could save significant amounts if the government modified the auction system to require all technologies to compete against each other for subsidy.

NERA was commissioned by the consumer group Citizens Advice to assess the impact on consumers of the British government’s policy decisions on auctions for renewable electricity subsidy. In the report, the NERA authors modelled the impact of potential government decisions on the CfD auctions and on the costs that consumers would pay.

NERA’s model of the GB Renewables Auctions can be used to analyze policy decisions, bidding strategies, and the impact of auction outcome uncertainty on project valuations.