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Faculty of Economics

CWPE Cover

Newbery, D. M.

Contracting for wind generation

CWPE1143

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.

Keywords: Wind power, long-term contracts, balancing costs

JEL Codes: Q42 L14 L94

Author links: David Newbery  

PDF: http://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe1143.pdf

EPRG Paper Link: 1120

Open Access Link: https://doi.org/10.17863/CAM.1164