National Grid has made its decisions as to eligibility for participation in the first Contracts for Difference auction but the auction process itself has been delayed as some applicants have asked Ofgem to review National Grid’s decisions. However, the Secretary of State for Energy and Climate Change, Ed Davey, by letter, assured the Select Committee that the process could still see contracts awarded by 17 April 2015.
Minister of State, Matthew Hancock, appeared before the select committee last week for questioning by MPs. The following are the main points which arose from his evidence:
1. He is considering changes to the Ofgem appeal process in order to reduce delays to the CfD auction. While he was not necessarily considering making the process any more administratively burdensome, he did not want it to be a ‘no-cost option’;
2. In response to criticisms that it can cost up to £200,000 to participate in the CfD process, he indicated that no specific assistance had been offered to SMEs to encourage them to apply but he felt that the auction process would allow new entrants and broaden the proportion of ‘independents’ in renewable generation;
3. He suggested that FITs were more appropriate for smaller operators as there was a much lower cost of entry for them. He acknowledged that they would inevitably find it difficult to participate in the CfD regime but that size limits were an inevitable consequence of the multi-billion and multi-million pounds contracts involved;
4. DECC was not looking at moving from an annual auction to multiple auctions throughout the year (which some MPs felt would encourage more entrants). He felt that the current annual auction was the best balance between the process not being a ‘one shop game’ and keeping the market liquid enough to get the best possible value for money.
It appears that the government is not overly concerned that the move to CfDs is pricing out smaller operators and the lack of auction frequency could lead to a lower diversity of entrants into the market. Policy appears to be that SMEs (who could previously have operated smaller installations over 5MW under the ROCs regime) should concentrate on smaller installations under the FIT regime.
It also appears likely that appeal of National Grid eligibility decisions to Ofgem will be made more costly, if not more difficult, in order to avoid large numbers of appeals and delays to the 2015/16 CfD auction process.