Vattenfall wants UK to ditch competitive green energy auctions, says exec

The UK should ditch competitive renewable energy auctions that cause uncertainty and see good projects losing out, says a Vattenfall executive, who also discusses life after the “ludicrous” English onshore wind ban and why a proposed power grid shake-up should be “taken off the table”.

The Contracts for Difference (CfD) auction system has been a bedrock of the UK’s renewables sector for a decade and is credited with turning the country into a global leader in offshore wind.

Vattenfall understands the “logic” of having a competitive auction price to keep power prices lower, he said, with the UK’s last auction seeing new offshore wind projects awarded CfDs at £58.87/MWh ($74.5/MWh).

But for every auction winner, there is a loser. The UK head of RWE said the latest CfD round was a “missed opportunity”, with the German utility having several gigawatts of offshore wind projects eligible to bid that were not awarded contracts.

Elsworth echoed this point, saying there is “a lot of missed opportunity” caused by the system. “Clearly some good projects are being left on the table.”

It also causes “uncertainty” for developers, he said. “It's like, we've got these projects, which one's going to make it? Are they going to make it?”

“The UK is not a world in isolation,” he said. “Investors will just simply go somewhere else if the deal is better over the English Channel or the Irish Sea… it's worth remembering that.”

What Vattenfall would prefer, he said, is for the government to set a power price (or prices, depending on the technology) at which it is happy to award projects a CfD. “You just know, that's the price. And if we can make the project work, that's what we'll get for it.”

“We know what bad pricing is because we saw it straight after the invasion of Ukraine,” he said, and the industry knows what “good prices” look like.

This system would give developers more time to focus on what they do best, developing projects, rather than trying to second guess what their competitors are doing to beat them in auction rounds.

“Everyone could just crack on with building.”

England won’t be ‘carpeted in wind farms’ after onshore wind ban lifted

Labour wants to double the UK’s current onshore wind capacity, most of which is based in Scotland, to 30GW by 2030.

Elsworth believes that UK-wide target is “viable” but strikes a cautious note regarding how quickly England should expect new onshore wind farms. “Symbolically, it's very good,” he said on the ban being lifted. But in energy infrastructure, “nothing happens quickly.”

Vattenfall had felt the “winds of change” coming even before the election of Labour, said Elsworth. “With the war in Ukraine and energy prices spiking, it became so ludicrous that the cheapest form of energy wasn't available to the UK. And that wasn't sustainable.”

Elsworth said it is still however unclear “what the consenting regime for onshore wind will be” for many projects.

Currently, projects of 50MW or more fall under the Nationally Significant Infrastructure Project (NSIP) regime, which enables consenting decisions to be made at a national level through a fast-tracked process. But the government has proposed raising this to 100MW for onshore wind and 150MW for solar.

Elsworth said there are “different views in the industry” on this and RenewableUK has reported there is “no clear view” among its members.

Projects must still be consulted on locally and regionally, he said. Otherwise people “lose faith in the process.” But equally, projects of this scale are nationally significant, he said, and it should be the government that makes the “ultimate decision.”

Wind projects may come far larger than 50MW, especially offshore, but Elsworth said that it is “worth bearing in mind” that projects this size will still typically cost £55m-£60m or more. “It's not small fry by any means.”

Elsworth cautions however that there is “something to be learned” from the solar sector, where many UK projects developed are 49.5MW – just under the threshold at which they would have to enter the NSIP regime. “People are trying to avoid the process.”

This is because it is “very resource intensive,” he said. It is however “worth the additional resource and effort to go through if you have known timelines and confidence in the outcome,” which is not the case when planning permission is decided by often understaffed local authorities.

UK law firm Pinsent Masons has said projects between 50MW and 200MW have been considered the "planning dead zone" for solar projects because developers considered it was not cost-effective to seek consent through the NSIP regime, although it said that may be beginning to change.

Regional power prices will raise risk and cost of capital

While the Labour government investigates the best planning regime for onshore wind projects, another consultation it is currently carrying out is causing more alarm to Elsworth and others in the renewables sector.

This concerns a proposal that electricity prices should vary zonally, also known as locational marginal pricing, with customers in areas where there is less supply paying more.

Elsworth however said adopting regional power prices would be a step into the unknown and represent a “big risk” for the sector.

A higher level of risk means a higher cost of capital, he said. “And whatever you think you could save by having these signals on a day-to-day basis, frankly, is going to be totally outweighed by people having to apply a risk premium to their investment decisions.”

“What that means is that electricity would just be more expensive,” he said, adding that he hopes the government takes the proposal “off the table.”