Wanted: a new energy contract for renewables and nuclear projects

theguardian.com:

Rishi Sunak, when he was still chancellor and was coming round to the idea of a windfall tax, noticed a key point about today’s energy market. Not all the corporate winners in the UK from soaraway wholesale gas prices are producing hydrocarbons in the North Sea. Some are generating power from nuclear power stations, solar projects, windfarms and biomass and are enjoying the same high wholesale prices.

Those generators are benefiting from old-style contracts based on “renewables obligation certificates” (ROCs) and suchlike, rather than contracts-for-difference (CfD) arrangements that have been the main way of incentivising capacity in recent years. Under CfDs, excess revenues over the agreed “strike” price flow to the Treasury. That is not the case with ROCs, thus some spectacular improvements in corporate fortunes; the share price of biomass-heavy Drax is up two-thirds in the past 12 months, for instance.

In the event, Sunak confined his “energy profits levy” to oil and gas producers. It seems the Treasury was deterred by the complexities in the generation market, which was understandable up to a point. Much of the power is sold under long-term contracts, rather than at “spot” prices, and intermediaries sub-divide output many times. It is hard to get a firm grasp on where, precisely, windfall gains arise.

Here, though, is a proposal that cuts through some of the complexity. Encourage those generators with juicy old-style contracts to enter an auction to switch themselves on to CfD arrangements, suggests consultancy Cornwall Insight. If they all did so, and if the price of power came out at £162 per megawatt hour – still high by historical standards but a lot less than current month-ahead price of £435 – the resulting