Solar sector backs plans to reduce bills using fixed price contracts for RO renewable generators

Solar currently provides about 4% of the UK’s power over the entire year. Image: Getty.

The solar sector has thrown its weight behind plans to lower energy bills by offering fixed price contracts to active renewable energy generators.

First put forward by the UK Energy Research Centre, the voluntary scheme would offer those that developed a project under the Renewable Obligations (RO) scheme a new fixed price contract based on the Contracts for Difference (CfD) system.

The RO offered generators a fixed subsidy designed to cover the investment cost of their older and more expensive assets. Power from these assets was then traded into the general wholesale market.

It closed in 2017, but over 2020/21 around a quarter of the UK’s entire electricity consumption was still generated by RO companies.

According to Solar Energy UK, the RO helped lead to costs falling so significantly that solar is one of the cheapest sources of power available in the UK, with many new installations in recent years being subsidy-free.

RO power is largely sold in advance, so the income generators receive currently does not reflect the greatly increased price on the wholesale spot market. But with high prices looking set to stay for the foreseeable future, there is a risk consumer costs will rise further if the RO regime is not reformed, continued the trade association.

As such, potential replacement schemes are being eyed that would ensure costs are met while stopping consumers from being hit by further high market prices on the back of gas setting the marginal price.

This would also tie-in to the ongoing Review of Electricity Market Arrangements, which is eyeing the decoupling of the electricity price from the gas price, and work to improve rather than damage investor confidence as calls for windfall taxes on generators could.

Additionally, these proposals would also help to slow inflation and provide a long-term stable income for renewable generations.

There are two proposed options for how such a fixed price scheme could be brought in. The first would retain RO payments in return for companies trading in the right to sell power on the wholesale market.

The second is more complex, and would see both RO payments and sales to the market replaced with a CfD. This could lead to deeper bill reductions in the short term.

“We have begun considering the proposals to reform support for renewable power, which we will need to be sure will function as intended to both support the sector and combat the rising cost of living,” said Solar Energy UK chief executive Chris Hewett.

“There is much to be worked through on the detail, but senior industry players are very supportive of the principle. Continuing to let natural gas set the price of power is not in the interests of the country. Clearly expansion of renewables such as solar is the solution to low-cost generation, energy security and reaching net zero. We are ready to discuss with new ministers as soon as they take office.”

Solar Energy UK is the latest trade association to back such proposals, following on from Energy UK and RenewableUK, highlighting the level of support for such a move from the clean energy industry.

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