CfDs: Facts v Myths
JULY 26, 2024
By Paul Homewood
NZW has a long detailed analysis of how CfDs work.
I would like to add some actual numbers to it:
Advocates of wind and solar electricity argue that Contracts for Difference (CfDs) are good value because they deliver green power at fixed prices, which protect us from volatility in the fossil fuel market. Critics argue that wind and solar CfDs are expensive relative to the alternatives, and that this reveals that the claimed cost reductions in these technologies under the Levelised Cost of Electricity (LCOE) metric are illusory when one takes into account a wider range of factors that cannot be avoided in reality. How should we judge the value of CfDs?
At one level, the CfD itself reveals whether it is costing or saving money. It guarantees a fixed value (the strike price) to the operator, regardless of market prices. If the market reference price is more than the strike price, the operator has to pay the difference to the Low Carbon Contracts Company (LCCC), which administers the scheme. This value is a net gain to electricity customers. If the market reference price is less than the strike price, the LCCC pays the operator the difference, so as to ensure it receives the strike price in the round. This value is then a net loss to electricity customers.
To date, strike prices have mostly been well above the market reference price. Consumers have had to contribute material sums to pay wind and solar operators their premium over the market value. However, for around a year from late 2021, when prices surged, the strike prices were below the market reference prices on average, and CfDs saved consumers some money.
https://www.netzerowatch.com/all-news/the-cost-of-contracts-for-differencehttps://notalotofpeopleknowthat.wordpress.com/2024/07/26/cfds-facts-v-myths/
