The UK Government has been considering the benefits of supporting renewable electricity projects located outside the United Kingdom.

The Department of Energy and Climate Change has now published a policy paper outlining the high level issues regarding the use of Contracts for Difference (CfD) to incentivise the development of new renewable electricity projects connected to the electricity systems of Great Britain but located outside the UK.

The Government has been considering the benefits of supporting renewable electricity projects located outside the United Kingdom for a number of reasons, including:

• to use the cooperation mechanisms created under the EU Renewable Energy Directive(particularly joint projects) as a contingency option to help the UK meet its renewables target;
• to improve the security of electricity supply in the UK and to support the creation of the European internal market through greater interconnectivity with neighbouring countries;
• to reduce the cost of investment in low-carbon technologies through greater competition; and
• more generally, to support the UK in achieving its longer term carbon reduction objectives in a cost-effective way.

In 2013 a Memorandum of Understanding was signed between the UK and the Republic of Ireland to explore the benefits of renewable trading for the two countries. This is seen as a first step in understanding the issues that need to be resolved to establish a framework to govern renewable trading with non-UK projects generally.

While further progress has now been made in assessing feasibility of renewable trading, the paper says there are a number of challenges in considering renewable trading as a realistic contingency option for meeting the UK’s renewable target.

The Renewable Energy Directive created “cooperation mechanisms" (statistical transfers, joint projects, and joint support schemes) to give Member States flexibility to jointly exploit renewable energy sources and to facilitate cross-border support of renewable energy.

Joint projects are where a new renewable energy project in one country can be co-financed by another, and the ‘renewable value’ of the energy (i.e. renewable credits) can be shared.

The paper says that the long lead times for renewable trading projects suggests they should not be considered as a contingency for 2020. However, over the longer term increasing investments into low carbon technologies in a way that is cost effective while improving the UK’s electricity supply and moving towards an integrated internal market are key objectives for the Government.

The Government’s Electricity Market Reform (EMR) programme is aimed at increasing investment in low-carbon technologies and ensuring the UK’s security of supply in the short, medium and long term, at least cost to consumers. The policy paper states that opening the EMR CfD scheme to projects from outside the UK in due course is an aspect of EMR originally announced in 20125

If introduced, this type of support would be the first of a kind in Europe. In terms of indicative timings, the paper says the UK Government “understands that giving greater visibility on when non-UK renewable electricity projects can expect to have access to CfDs is a key question for interested parties.” However, at this stage the Government is not committing to specific timelines.

To start managing interested parties’ expectations DECC has nowoutlined key timing constraints that will determine the timelines for non-UK CfDs.  

Firstly, it is anticipated that the application process for CfDs will open and allocation is expected to begin in autumn 2014, with first contracts awarded in late 2014 or early 2015 for projects located in the UK.

The Government’s priority is to implement the CfD across the UK before opening it to non-UK projects -  it currently expect the CfD regime to start in Northern Ireland from April 2017. The dependency on the CfD implementation across the UK and the complexity of the issues that need to be resolved to open the CfD to non-UK generators means that under current planning assumptions the non-UK projects would be likely to have access to CfDs from 2018 at the earliest.

Further updates on indicative timing will be published in the future as the CfD implementation across the UK and the areas of work progress.