UK shifts older wind and solar farms to fixed-price deals to reduce price shocks | Renewable energy
The government has confirmed plans to move older wind and solar farms, which account for almost a third of Great Britain’s energy market, to fixed-price contracts to help protect households and businesses from future gas market shocks.
As part of the government’s plan to “decouple the price of electricity from the price of gas”, renewable energy projects that receive subsidies above the market price will be asked to sign contracts paying a set price for electricity, according to plans first revealed by the Guardian.
The voluntary change would mark the government’s most radical attempt to weaken the impact of rising wholesale gas prices on the UK’s electricity costs, which are among the highest in developed economies.
Officials confirmed market intervention, as well as plans to accelerate the rollout of clean energy projects and promote the use of electricity alternatives to fossil fuels as “the only path to energy security and completely reducing bills”.
The measures are set ahead of a speech on Tuesday in which energy secretary Ed Miliband is expected to say the lesson from the second fossil fuel shock in less than five years is to “double down on our clean energy mission, not step back”.
The Guardian reported last week that so-called “legacy producers” will be offered the opportunity to sign up to new contracts similar to those agreed on low-carbon projects since 2017 or face higher windfall taxes on their profits.
Securing the majority of the UK’s electricity through fixed price contracts will mean electricity costs will fall and bill payers will be less exposed to sudden market price shocks.
The proposal was first put forward by analysts. UK Energy Research Center in April 2022 to hedge against rising gas prices following Russia’s invasion of Ukraine. They said savings of between £4bn and £10bn a year could be achieved if market prices remained high.
The UK has emerged as one of the countries most exposed to fluctuations in fossil fuel markets because it generates around 30% of its electricity from gas power plants, which determines the overall price of the market.
This means higher market prices provide a windfall for renewable energy, biomass and nuclear reactors, unless they produce energy based on a guaranteed fixed price contract, known in the industry as a contract for difference.
Since late 2022, generators have faced a 45% tax rate on electricity sold at market prices above £75 per megawatt hour, through the electricity generator levy, which was introduced after the war in Ukraine led to record high gas market prices across Europe.
Electricity market prices have risen again in recent weeks, from around £74/MWh to over £100/MWh, and authorities fear prices will rise further if the outage continues into winter.
