European Commission approves UK's "Contracts for Difference" scheme

The European Commission has concluded that a UK scheme called "Contracts for Difference" that promotes the generation of electricity from renewable sources is in line with EU state aid rules. In separate investigations, the Commission has also found that public support worth £9.7bn (around €12.3bn) to five offshore wind farms is in line with the state aid rules. The Commission found, in particular that all projects further common EU objectives, such as the promotion of renewable energy and environmental protection, without unduly distorting competition in the Single Market.

In June 2014 the UK notified plans to support renewable electricity production through market-based mechanisms. The scheme will run for 10 years starting in April 2015, with a budget of £15bn (around €19bn). Selected individual projects will be able to receive support for up to 15 years. 'Established’ technologies (such as onshore wind, solar photovoltaic, energy from waste with combined heat and power, small hydropower, landfill gas and sewage gas) will compete against each other for support in a common auction. ‘Less established’, new and innovative technologies (such as offshore wind, wave, tidal stream, anaerobic digestion or geothermal energy) will initially benefit from allocated budgets in order to promote their further development but will also be subject to competitive auctions with some degree of cross-technology competition. Biomass conversion plants will be supported through dedicated tenders up to 2017. After that, the UK will evaluate whether biomass can be included in the common tenders for established technologies. Aid granted under the scheme will be paid out as a variable premium on top of a reference electricity (wholesale) price, and up to a pre-defined strike price, based on a so-called "Contract for Difference" (CfD). Generators will earn money from selling their electricity into the market as usual. When the average wholesale price of electricity is below the strike price, generators will receive a top-up payment. In case of high wholesale electricity prices, revenues for the generator will be capped at the strike price to ensure that there is no overcompensation. In addition, as of 2016 no support will be paid in case of periods of negative prices longer than six hours.