No benefit from 'negative subsidies'

The renewables lobby has been vigorously publicising the extraordinary fact that market prices for electricity are now so high that some renewables generators are having to pay money back. Normally, under the Contracts for Difference regime, generators sign up to supply power at a fixed ‘strike’ price, far above market rates. Because, in reality, they can only get the market price for power, they then receive a subsidy that makes up the difference. This is funded by a levy on consumer bills.

But with market prices having skyrocketed, most generators can now get a price in the market that is above their strike price, and so the subsidy has become negative.

This has been the cause of great excitement among environmentalists and government ministers and people of that ilk, although this appears to be largely for the benefit of the cameras as it were. The sums involved have thus far been rather paltry. This is partly because even the eye-watering market prices of the last few months have not been enough to push biomass into negative territory, so the gains on wind and solar are significantly offset, but also because the strike prices for most generators are so high that only rather small repayments are generated: £40 million per month in the last quarter of 2021 and, despite breathless predictions of £200 million in January and-300 million in February, the actual figures came in at just £4 million and £2 million respectively.

To put these numbers in context, we continue to pay out something like £600 million per month under the Renewables Obligation (see tiny red CfD blips in bottom right of the figure).

And there’s another problem. While the CfD regulations are quite specific about how the negative subsidies will find their way back to suppliers, there is absolutely no obligation on said suppliers to pass the money on to consumers. Given that they are going bust, left right and centre, there can be little doubt that they will simply swallow the lot.