The Government will introduce new fixed price contracts for existing renewables generators.
Prime Minister Liz Truss confirmed the latest shake up to the energy market in the House of Commons today, alongside the £130bn-plus support package for households to tame rising energy bills.
She revealed that wind and solar projects on lucrative legacy contracts will move onto Contracts for Difference in a bid to separate green energy prices from soaring gas rates.
Contracts for Difference are already in use for future offshore wind projects.
These will replace the Renewable Obligation Contracts (ROC), which makes up 40 per cent of the renewable and nuclear power producers.
ROCs allowed generators to charge wholesale rates for renewable electricity – and the move is considered as a compromise measure amid calls for the windfall tax to be expanded from oil and gas producers to renewable generators.
Rather than charging current soaring wholesale rates for renewable power, the Government will look to agree deals with generators setting a set price over a 15-year period.
If the market price for power is below this level, the contract acts as a subsidy.
When prices are higher, the producer pays the Government the difference in costs.
The Government’s Energy Supply Taskforce – which is led by Madelaine McTernan who headed up the UK’s Vaccine Taskforce – has begun negotiations with domestic and international suppliers.
Industry body Energy UK is in favour of the move.
It estimates the switch could cut an estimated £10.8-£18bn per year from energy bills next year, which would equate to a £150-£250 saving for a typical household.