Contracts for Difference making wind industry 'lazy,' says Luxcara chief
Contracts for Difference seen by many offshore wind farm developers as crucial to providing revenue certainty to hugely expensive projects
Renewables developers may love Contracts for Difference (CfDs) but they are making the industry “lazy,” argues a managing partner at German offshore wind player Luxcara.
Alexandra von Bernstorff, managing partner at the Hamburg-based asset manager, was speaking on a panel at the BloombergNEF clean power summit in London last week.
“I know everyone loves CfDs, everyone loves feed-in-tariffs,” she said.
But von Bernstorff stressed that that the 6.5GW portfolio of power projects developed over a decade by Luxcara, which she co-founded, relies on Power Purchase Agreements.
“We have a product, we need to sell the product like everyone else,” she said.
Developers need to think about whether they have customers for their product or not, and whether it is cheap enough, she said.
“As an industry, we should have gotten into these questions much earlier.”
“I’m a big fan of free markets, negotiations,” she added.
CfDs see governments agree to pay a set price for power from a project for an extended period, typically 15 years or more. If the market price for power exceeds the agreed ‘strike price’ at any one moment, then the developer pays money back to the government, and vice versa.
The system was pioneered in the UK and helped turn the country into a global leader in offshore wind, as it gave developers in the budding industry confidence to invest in projects.
Germany and Denmark, two countries that had been relying on a negative bidding system deeply unpopular with developers, both committed this year to adopting the CfD mechanism after failed offshore wind auction rounds.