UK’s Drax continues to push for CfD support

The CfD regime for renewable investment forms part of the energy market reform (EMR) bill making its way through Parliament. The strike price is expected to be announced in July, although discussions for several projects that require investment decisions before the market reform comes into effect in the second half of 2014 are taking place through the final investment decision (FID) enabling programme.

Drax is one of several developers in discussions with the UK government about securing early financial support under the new EMR package in an attempt to further secure and speed up conversion and investment decisions.

The generator expects two of its converted units to be subsidised under the renewable obligation (RO) scheme, where it will receive 1Roc/MWh of electricity generated from biomass from this month. The third converted unit is expected to be subsidised under the new contracts for difference (CfD) scheme but a report by French bank Societe Generale suggests

Drax may be excluded from receiving early financial support.
Drax could be excluded from receiving the support under the state aid exclusions, which stipulate that projects must be at risk of delay or cancellation without the CfD structure. Drax may find this difficult to justify, the bank said.

But Drax dismissed the claim and said talks with the UK government continue.
“I can confirm that we are in discussions with the government about the possibility of securing long-term contracts to enable early investment in advance of the CfD mechanism coming into force,” a Drax spokeswoman said.

The generator is very encouraged by the CfD progress as an alternative pricing mechanism and has fully participated in the government's most recent call for evidence on the expected strike price, it said.

Societe Generale said it expects German utility RWE to seek early CfDs for its converted Tilbury and Eggborough power plants for their potential 2GW conversion from coal to biomass. French utility EdF's planned new nuclear power plant at Hinkley Point C is another in negotiations over the strike price but the government's financial support for the plant has yet to be agreed.

Drax plans to convert three of its six 660MW coal-fired units at its Selby plant to sustainable biomass. The first unit is now operational, the second unit will go on line in 2014 and the third unit by 2017.

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