Bracewell ( UK ) LLP 111
2.6 How are large utility-scale renewable power projects typically tendered ?
The Contracts for Difference ( CfD ) scheme is the government ’ s main mechanism for supporting low-carbon electricity generation ( please see question 3.2 for more detail ).
CfDs are awarded in a series of competitive auctions , which drives efficiency and cost reduction . To date , there have been three successful CfD allocation rounds ( 2015 , 2017 and 2019 ). The fourth allocation round , planned for 2021 , is expected to include auctions for “ established ” technologies ( including onshore wind , which was excluded from the previous round ) and less-established technologies ( such as floating offshore wind ).
2.7 To what extent is your jurisdiction ’ s energy demand met through domestic renewable power generation ?
The share of UK electricity generated from renewable sources has increased considerably in recent years ; from 35.9 % in the first quarter of 2019 to 47 % in the first quarter of 2020 , which was the highest quarterly value on the government ’ s published data series ( where quarterly renewables share has never previously exceeded 40 % of total electricity generation ). This was driven by large increases in generation for wind and solar , with the largest increase for offshore wind generation .
32 Sale of Renewable Energy and Financial Incentives
3.1 What is the legal and regulatory framework for the sale of utility-scale renewable power ?
The Energy Act and related secondary legislation provides the main legal and regulatory framework for the sale of utility-scale renewable power in the UK and implements the UK ’ s Electricity Market Reform ( EMR ) policy . The Energy Act supplements the Electricity Act and the Utilities Act 2000 which provide a legal and regulatory framework for the wholesale electricity market generally in the UK .
3.2 Are there financial or regulatory incentives available to promote investment in / sale of utility-scale renewable power ?
The primary incentive schemes related to renewable energy include :
The Renewable Obligation ( RO ): the RO scheme , which came into effect in 2002 in England , Wales and Scotland , followed by Northern Ireland in 2005 , was previously the main financial mechanism to incentivise large-scale renewable electricity projects in the UK ( please see question 3.7 for more detail ). The RO scheme closed to all new generating capacity on 31 March 2017 , and has now been replaced by the Contracts for Difference scheme .
Contracts for Difference : the CfD scheme is the primary mechanism to incentivise new low-carbon electricity generation . The CfD is a quasi-power purchase agreement between an eligible generator and the Low Carbon Contracts Company ( LCCC ), a wholly government-owned company established under the Energy Act . Generators with a CfD sell their electricity into the wholesale electricity market in the normal way ; the CfD then pays the difference between an estimate of the market price for electricity and the generator ’ s lowest estimate for the costs of developing , financing and operating the given technology ( the strike price ). When the market price is below the strike price , the generator receives a top-up payment from the LCCC for the additional amount . However , when the market price is above the strike price , the generator must pay back the difference to the LCCC . Although a CfD is a private law contract between a low-carbon electricity generator and the LCCC , it is issued under a detailed statutory framework under the Energy Act .
The Offtaker of Last Resort ( OLR ): this scheme aims to promote the availability of power purchase agreements ( PPA ). It is intended as a last resort to help independent renewable generators who cannot get a PPA through the usual commercial means by providing eligible generators with a guaranteed “ back-stop ” route-to-market at a specified discount to the market price .
3.3 What are the main sources of financing for the development of utility-scale renewable power projects ?
The offshore wind sector currently represents the primary source of financing activity for large-scale renewable projects in the UK . A low interest rate environment coupled with a large number of lenders looking to participate in this sector has provided project developers with favourable conditions to finance their projects in recent years . To date , the main source of debt financing has been commercial banks , although we have seen participation from export credit agencies ( the Japanese ECA JBIC lent to the Moray East offshore wind farm in 2018 ). In recent years , we have also seen investment activity from new entrants to the market , such as pension funds ( Danish pension funds PFA and PKA invested in the Walney Extension offshore wind farm in 2017 ) and infrastructure investors ( Dalmore Capital Limited and Pensions Infrastructure Platform acquired a minority stake worth £ 701 million in 24 UK wind farms owned by EDF in 2018 ).
3.4 What is the legal and regulatory framework applicable to distributed renewable energy ?
Distributed renewable energy facilities are subject to the same legal and regulatory framework as utility-scale renewable energy facilities with respect to the sale of electricity , participation in the wholesale market and connection to distribution and transmission networks .
3.5 Are there financial or regulatory incentives available to promote investment in distributed renewable energy facilities ?
Available incentives include :
Feed-in Tariffs ( FIT ): the FIT scheme supports investment in small-scale renewable and low-carbon electricity generation projects up to 5MW capacity . It offers long-term support to projects and provides generation and export tariffs based on the costs of generation for the following technologies : solar PV ; onshore wind power ; hydropower ; anaerobic digestion ; and micro-combined heat and power ( up to 2kW ). The FIT scheme closed to new entrants on 31 March 2019 , but continues to support existing generation for up to 25 years .
Smart Export Guarantee ( SEG ): following the closure of the FIT scheme to new installations , the supplier-led SEG was introduced on 1 January 2020 . Under the SEG , licensed electricity suppliers ( with 150,000 domestic customers or more ) are required to offer small-scale low-carbon generators a price per kWh for electricity exported to the grid . Remuneration is available to solar PV , wind , anaerobic digestion , hydro , all up to 5MW in capacity , and micro-combined heat and power installations ,
Renewable Energy 2021 © Published and reproduced with kind permission by Global Legal Group Ltd , London