Written by Kunal Sawhney, CEO, Kalkine
While the country is going through its worst energy crisis, the government is putting forth all efforts to make the supply chains across the low-carbon electricity generation sector more competitive. A consultation paper has been launched by the government, seeking the industry’s view to make the supply chain of the low-carbon electricity generation sector more competitive, efficient and productive.
How is the industry being supported at present?
The Contracts for Difference (CfD) scheme is presently the primary tool of the government to support low-carbon electricity generation and the overall energy sector. Under this scheme, renewable power generators that fulfill the government-required eligibility criteria can apply for CfDs in the form of a sealed bid and compete for CfDs.
The CfD mechanism works in a fashion that investment for developers of projects with high upfront costs is incentivised so that they can be safeguarded from volatile wholesale prices; in turn, they protect customers from paying high costs when electricity prices surge.
Need to make supply chains across the sector more competitive
The prevailing energy crisis has made the government ponder upon not only the energy security but maintaining its affordability as well. The energy system is in itself a supply chain containing multiple and connected sub-chains. If we talk about the low-carbon electricity generation sector, a focus on the supply chain is required as the sector has been witnessing a very slow and uneven transition to renewables.
Scores of energy companies going bust in the last year have highlighted the fact that risks increase manyfold when the supply chain is reliant on a limited number of companies or technologies. The new consultation includes the provision of rigorous questioning and will ensure that power generators are committed to a scale of actions to increase the supply chain competitiveness.
The supply chain process consultation is also going to incorporating some evolving renewable energy technologies. All those technologies are supposed to be included in the supply chain plans, which are likely to see considerable growth and will have mass deployment in the next CfD round.
How are the supply chain plans going to be deployed?
The supply chain plan that the applicant wishes to commit will go for quality and ambition testing before they are finally passed. However, the Business and Energy Secretary will have the final say and can cancel the contract if the energy generators fail to fulfil the Supply Chain Plan commitments made by them.
The government’s consultation would also look for barring sites from forthcoming applications for all those who do not sign the contract offered or for not meeting the delivery goal.
Way forward
The energy minister has stated that CfDs have helped the country excel in renewable energy while reducing the cost and exposure to fossil fuel prices that have been very volatile. The supply chain process has been gradually being strengthened, and the fourth allocation round of CfDs to be announced later in spring/early summer will highlight its intensity and ensure an enhanced scenario for the fifth round in 2023.
The benefits of the CfD mechanism have been demonstrated since its first allocation, and the latest introduction of Supply chain commitment plans are going to be the government’s main tool to ensure CfDs can grow the low-carbon economy.