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Policy will force up wholesale energy prices

UK renewable energy policies will push wholesale energy prices higher than they would be without those policies until 2024.

Furthermore, they will make little difference for a further six years according to a report published by the Department of Energy and Climate Change (Decc). However from 2030 they will keep prices down.

From 2030 renewable support measures including the Renewables Obligation (RO) and planned feed in tariffs contract for differences (FiT CfDs) will peg wholesale prices power prices where without them prices would be more than 20 per cent greater by 2040 the report said.

The report by consultant Pöyry shows how wholesale electricity prices under a theoretical “Low ambition” policy framework where there were no European Union (EU) 2020 targets for renewable energy would rise steadily from about £60/MWh now to about £88/MWh by 2030.

Applying a scenario where Decc’s minimum bands for the RO with added support for marine are in play, the price of wholesale power falls below the Low ambition price by up to about £5MWh in 2019 after which prices in both scenarios show little difference until 2029.

By 2040 the Low ambition scenario has wholesale electricity rising to £110/MWh while the price under maintained renewable support levels out in 2029 at about £90/MWh.

The report - Potential Impact of Revised RO Technology Bands - explains the price differences as the result of the absence of a carbon floor price under the Low ambition scenario.

The difference is checked by downward pressure on electricity price from the greater amount of renewable generation in the renewable support scenario which, coupled with nuclear capacity, flattens price increases over time.

Under both scenarios the EU Emissions Trading System applies but in the low ambition scenario there is no carbon price floor, the RO closes in 2027 to all generators and RO certificates capped at 20 per cent of suppliers sales and no FiT CfDs, small-scale FiTs or Renewable Heat Incentive.

See the report on Decc’s website here: