Early investment contracts: creating competition or avoiding an investment gap?

According to DECC officials, the recent decision to award £16.6bn of early investment contracts under the Final Investment Decision enabling Renewables (FIDeR) scheme, to eight key renewable electricity projects, was necessary to begin creating a competitive market for new investments in large scale low carbon electricity generation. The FIDeR scheme is the forerunner to full contracts for difference (CfD) due to come in later this year.

The National Audit Office (NAO), however, takes a different view and has suggested the early contracts, offering fixed ‘strike prices’ to the generation projects over fixed time periods, may represent poor value for money for consumers. The guaranteed electricity prices for these contracts set without the opportunity for price competition.

The contracts also represent a commitment by the government of around 58% of the renewable energy support budget set under the levy control framework running to 2020/21 which, in turn, “has limited the Department’s opportunity to secure better value for money.” These early contracts under the FIDeR scheme have the advantage (from investors’ perspectives) of providing “…certainty of support to the contractors at least five months earlier than they could have achieved under the full Contract for Difference regime,” helping to avoid an investment gap in the timeline of large scale renewable electricity projects.

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