Econonomics of Energy and Environmental Policy

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Contracting for Wind Generation

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The UK Government proposes offering long-term Feed-in-Tariffs (FiTs) to low-carbon generation to reduce risk and encourage new entrants. Their preference is for a Contract-for-Difference (CfD) for all generation regardless of type. I argue that a standard CfD is unsuitable for on-shore wind, where a fixed FiT appears less risky. The estimated extra trading and balancing costs of a CfD for on-shore wind might be £56 million/yr by 2020 and £170 million/yr for all wind. The extra costs of investment risk could be comparable and additional.
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JEL Codes:D02: Institutions: Design, Formation, Operations, and Impact, L51: Economics of Regulation, Q42: Alternative Energy Sources

Keywords: Wind power, Long-term contracts

DOI: 10.5547/2160-5890.1.2.2

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Published in Volume 1, Number 2 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.


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