UK Urged to Auction Renewable Deals to Cut Electricity Bills

The U.K. should hold competitive auctions for most renewable power contracts to bring down technology costs and lower the impact on consumer electricity bills, an analyst linked to the ruling Conservative Party said.

Biomass, onshore wind power and energy-from-waste could all compete against each other for electricity generation contracts from as early as next year, Policy Exchange said today in a report. Solar power may also be able to compete, while a technology-specific auction with a fixed budget should be held for offshore wind power, it said.

Energy prices have been a political flash point in Britain, with the opposition Labour party pledging to freeze bills should it win the next election in 2015. That spurred measures by the ruling Conservatives and Liberal Democrats to cut some charges. The government estimates support for renewables will add 132 pounds ($215) to typical a household’s bill by 2020.

Auctioning “should be preferred to administrative price setting because of its ability to reveal price information” and encourage cheaper bids, the Policy Exchange said. “The government should accelerate the planned timetable for introducing auctions.”

The government is trying to spur 110 billion pounds of investment to replace aging power plants by 2020, while still meeting binding emissions and renewable energy targets. To that end, Parliament last week passed a law reforming the electricity market and setting prices for power from different low-carbon generation technologies through 2019.

Offshore Wind Cap

While the government has said it intends to eventually move to competitive auctions, the transition is “ill-defined,” Policy Exchange said. It pointed to fast-falling wind power costs in Brazil as evidence of the benefits auctions can bring.

For offshore wind, it suggested the government should set a cap on 2020 prices, using an industry goal of 100 pounds per megawatt-hour as a “starting point.” That’s 40 pounds lower than the price the government has set for offshore wind for projects that start during the tax year ending March 31, 2019.

Policy Exchange also recommended the government should push to scrap its European Union target of getting 15 percent of all energy — including heat and transportation — from renewables by 2015. The goal, it said, implies deriving as much as 35 percent of power from clean sources.

Policy Exchange was set up in 2002, when its first chairman was Michael Gove, now the education secretary. Its first director was Nick Boles, another current Conservative Party lawmaker, and a third, Francis Maude, was also a founder-member.

Copyright 2013 Bloomberg

Lead image: Offshore wind via Shutterstock

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