Think of it this way: as a windfarm operator you know your costs and you know your expected amount of energy produced. But you don’t know the precise timing and therefore the market value at generation time.
From the first two you can calculate what you need in terms of £/MWh (include whatever profit you want in there). Now you can go to the government and bid that price in the auction. If you win, you have a safe profit and all risk (and upside potential) now lies with the government.
As GP said, in the case of 2022 you would have lost out on revenue. But that’s the price foe guaranteed margins
The CfD part is a technical detail. It ~ doesn’t matter whether you first sell the energy and then go to the government for reimbursement. Or whether you sell the energy to the government which then handles the follow up sale.
What I’m not sufficiently familiar with is whether you _have_ to go to such an auction (i.e. whether the auction also is the mechanism of capacity planning) or whether you are free to bypass this system and just hook up your wind park and carry the risk yourself. But functionally this is an insurance scheme for profits, with a market based pricing system
> ~ doesn’t matter whether you first sell the energy and then go to the government for reimbursement. Or whether you sell the energy to the government which then handles the follow up sale
Still missing something in relation to a point above. Does one of these scenarios involve the operator “paying” or “giving back” actual money when the market price is higher than agreed? As opposed to just operating at a loss or less profit?
If you are willing to ignore the mechanics, then the result rounds to: The operator will receive the auctioned value of x £/MWh for each MWh delivered to the grid
If you are interested in the mechanics, then _I think_ (i.e. not first hand knowledge) the operator will join each auction (once per day for each 15 min interval of the next day) and offer his energy amount there. He will then receive the integral of (auction price) times (volume) from “the grid”. If that is too little money he then goes to the government and asks for a top up to (contract price) times (volume). If that was too much he has to pay the government the difference.
But again. That is purely mechanical. The end effect of the contracts is you will always receive say 80£ per MWh delivered. Independent of the MWh was worth 500£ in that 15 min interval or -50£. It’s “just” a risk transfer
Ah I’m seeing a possible confusion. There are two different auctions in the description. The first one is for the CfD price and happens (for each project) once. The second one is the daily-price-discovery one and happens daily
From the first two you can calculate what you need in terms of £/MWh (include whatever profit you want in there). Now you can go to the government and bid that price in the auction. If you win, you have a safe profit and all risk (and upside potential) now lies with the government. As GP said, in the case of 2022 you would have lost out on revenue. But that’s the price foe guaranteed margins
The CfD part is a technical detail. It ~ doesn’t matter whether you first sell the energy and then go to the government for reimbursement. Or whether you sell the energy to the government which then handles the follow up sale.
What I’m not sufficiently familiar with is whether you _have_ to go to such an auction (i.e. whether the auction also is the mechanism of capacity planning) or whether you are free to bypass this system and just hook up your wind park and carry the risk yourself. But functionally this is an insurance scheme for profits, with a market based pricing system