UK’s Eggborough to mull enduring CFD subsidies

February 19, 2014, London, England — UK power generator
Eggborough remains “extremely surprised” with the UK department of energy and
climate change's (Decc) decision to leave its coal-to-biomass conversion off
the list of provisionally affordable projects under the final investment
decision (FID) enabling for renewables process. But it will consider an
alternate option of enduring contract for difference (CFD) subsidies, the
company said.

Eggborough's conversion was left in jeopardy after its three
500MW units in December did not meet the affordability criteria for early
support — and the company has been involved in talks with the UK government
ever since.

“We have been trying to get clarity on Decc's decision since
19 December. Unfortunately, continuing discussions which we hoped would explain
the government's approach to the selection process — which excluded Eggborough
— have not clarified how they reached that outcome,” Eggborough chief operating
officer Paul Tomlinson said. “The issue more and more looks less to do with
process and more a matter of political will.”

Eggborough aimed to satisfy three criteria with its FID
submission — decarbonisation target, affordability, and being “shovel ready”,
Tomlinson said. “We have a project that meets the requirements towards the
decarbonisation target. And in terms of affordability, compared with offshore
wind, we are £50/MWh cheaper for the first two years and significantly cheaper
thereafter. We needed to be shovel ready, which we are. We're absolutely ready
to go.”

Decc's decision to exclude Eggborough was based on a
technology bias rather than the application process, Tomlinson said. “Wind
turbine generation seems to be getting the majority of support within the levy
control framework.”

Eggborough has continued with the application process for
the early FID and has completed submission for the binding application. “If we
do not receive the early FID, we have and will take a full and active part in
applying for an enduring CFD,” Tomlinson said.

But the company needs “unequivocal assurance” that it will
be included for an enduring CFD and the rules will not change. “All the to-ing
and fro-ing' that has happened has knocked investor confidence,” Tomlinson
said.

Decc's FID rankings in December negatively impacted investor
confidence, Tomlinson emphasised. “There were two international investor
companies that have done due diligence, and they went right through to final
bids for Eggborough and clearly they can't proceed until they have some
certainty on their investment.” Waiting for certainty on the enduring CFD could
also delay the project's implementation, he said.

It is still possible for Eggborough to be converted to
biomass by January 2016, if there is clarity on subsidies soon, Tomlinson said.
“We're looking for a positive message to come out from Decc on early FID and
the enduring CFD.”

Although Eggborough was not one of the projects that was
assessed as provisionally affordable under FID, all 16 projects that met the
minimum threshold evaluation criteria in phase 2 — including Eggborough —
remain in the process, Decc said. “The ranking of projects could change if
project circumstances change or if some projects do not submit binding
applications. The final selection of projects and affordability assessment will
therefore be carried out by Decc following the receipt of binding applications
in March 2014,” it said.

UK generator Drax's two 600MW units and German utility RWE's
320MW Lynemouth plant were declared provisionally affordable by Decc and will
go forward for the final affordability assessment in March. The projects that
qualify will be awarded investment contracts under an FID in spring.

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