CFD – WIND WORKS

There were no successful bids from offshore wind projects in the latest CfD auction in the UK, and that is already described variously as a setback for net zero plans in the UK, and yet another nail in the coffin of the industry, already struggling from headwinds in the US and UK, where various projects are being cancelled or postponed, and PPAs abandoned or renegotiated.

But I actually take it as a good thing, in that (i) it reflects cost discipline, and (ii) it proves that the tariff design is smart in that it avoids crazy bids like we have seen in other markets.

So, to the UK government: the CfD is actually is an excellent design for a tariff (as is the OFTO mechanism, as an aside), developers and financiers understand it and like it, there is no need to tinker with it on the basis of the whining or blackmail of utilities..

The design of lease auctions is something else – it could be tweaked given how it currently encourages irresponsible bidding for leases that have no connection to the reality of the price of the sector but favor the deepest-pockets players at the expense of the long term viability of the sector.

Lazy And Incorrect Use Of The Word Subsidy

A “subsidy” is a straightforward allocation of taxpayer money by a public authority to prop up the production of a good or service by the private sector, used to offset market failures and externalities for a greater good. A CfD, however, is a contract whereby one party (public or private) trades a volatile price for a good against a fixed price for the same good, and another party takes the symmetrical position. They are obviously different things.