UK Renewable Subsidies and Whole System Costs

16 February 2016
By Daniel Radov and Alon Carmel

Drax Group plc, which owns and operates the UK’s largest power station in Selby, North Yorkshire, commissioned NERA Economic Consulting and Imperial College to look at wider costs (so-called 'system integration costs') that are not currently taken into account when the Government awards contracts to support renewable generation.

Building on their work for the Committee on Climate Change (CCC) on these issues, NERA and Imperial College analyzed the system integration costs (SICs) of renewable technologies and assessed potential policy reforms the Government could consider to better reflect these costs.

NERA analyzed two policy option scenarios that would enable the Government to take SICs into account when allocating Contracts for Difference (CfD) contracts. Both options would promote competition between renewable technologies. NERA compared these policy options to a 'Base Case' reflecting current policy. Under both alternative policy options, the Government would share the budget for CfD auctions more equally between less established and established technologies, and would allow biomass conversion to compete for a CfD contract against other established technologies such as onshore wind and solar power. The report finds that the alternative policies could save consumers on the order of £2 billion relative to the Base Case, while providing the same amount of renewable energy over an 18-year period.