Contracting for wind generation

Abstract

The UK Government proposes offering long-term Feed-in-Tariffs (FiTs) to low-carbon generation to reduce risk and encourage new entrants. Their preference is for a Contract-for-Difference (CfD) or a premium FiT (pFiT) for all generation regardless of type. I argue that neither is suitable for on-shore wind, where a fixed FiT appears less risky. The estimated extra trading and balancing costs of a CfD for on-shore wind might be £70 million/yr by 2020, while the cost of the increased risk incurred by a pFiT might add another £180 m/yr. If similar savings were made to projected off-shore wind investments the savings might be three times as high.