Energy sector backs proposals to cut bills with new fixed contracts for generators

The energy sector has come out in favor of a proposal to introduce fixed contracts for existing generators, to help provide them with long-term security and reduce short-term consumer bills.

Originally presented by the UK Energy Research Centre, the approach would see nuclear and renewable generators backed by the subsidiary Renewables Obligation (RO) offer new voluntary, long-term and fixed contracts.

Currently, projects developed under the OR – which closed to new renewable energy projects in 2017 – exchange their electricity on the market and receive a fixed amount of subsidy to cover the investment cost of renewable energy. most expensive and oldest.

Under the new regime, the market power price would be replaced by the fixed price under the new contract. The price of market power is set by gas. Therefore, by moving to a fixed price, consumers would be further protected from the volatility and record high gasoline prices currently observed.

“It makes no sense to let the exorbitant cost of gas set the price for the whole electricity market,” said RenewableUK CEO Dan McGrail.

“This proposal is a step towards breaking this obsolete link. This will allow ratepayers to benefit more from the vast amounts of low-cost electricity generated by wind and other renewables, which are our cheapest new sources of energy.”

According to Energy UK, the proposal could cut energy bills by £10.8-18 billion a year from next year. This would equate to savings of £150-250 for a typical household, in addition to a reduction of £6.7-11.1 billion for non-domestic users.

The price cap for the upcoming winter period has been set at £3,549, an increase of around 80% from its current level. This is expected to increase the number of UK households in fuel poverty from 4.5 million last October to 8.9 million in October, according to National Energy Action.

As such, moves to cut bills by making better use of the low-cost renewables already on the system have been welcomed by trade associations Energy UK and RenewableUK.

“We have discussed these proposals in detail with our member companies to ensure that the changes are designed in the right way and are fully feasible, so that we can maximize savings for bill payers,” McGrail added.

“We want to work with the government and a wide range of other organizations to explore how we can get a new program in place quickly. The proposals put forward so far have broad support among our members and further discussions are ongoing. »

The new contracts would rely on the Contracts for Difference (CfD) regime, which similarly offers producers a guaranteed strike price. This means that when generators sell electricity on the wholesale market when prices are above this level, they return the excess profits to consumers.

Given record wholesale electricity prices over the past year, generators with CfD contracts are currently set to pay back £23 to the typical household customer this winter, according to Ofgem.

The last round of CfD saw nearly 11 GW of onshore wind, offshore wind, solar, tidal and other forms of renewable energy awarded contracts at record strike prices.

“By giving generators the option of securing a longer-term deal with lower returns instead of selling electricity at wholesale market prices, this program would be an important first step towards decoupling gas from electrical detail. Breaking the link between retail gas and electricity prices will be complex and time-consuming, but this solution provides a quick fix for up to 40% of our generating capacity,” said Adam Berman, Deputy Director of ‘EnergyUK.

“Much will depend on the details of the program, but with gas prices likely to remain high for some time, we are confident it can deliver significant savings for customers next year.

As part of its review of electricity market agreements (REMA), the government is seeking to treat low-carbon generators with RO contracts benefiting from a high wholesale cost of electricity due to the gas, allowing consumers to really benefit from the growing number of renewable energy projects in the UK. .

But this fundamental reform of the wholesale market will need to be carried out carefully to avoid any unintended consequences, Energy UK said. As such, this new proposal from the UK’s Energy Research Center would be an important first step in decoupling gas and electricity prices, while allowing more time for long-term reform. .

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