Renew On Line (UK) 35

4. RO Delayed

Once again the start date for Renewables Obligation (RO), which was hoped to be Jan.,has been put back - possibly to April. When it’s finally in place, the RO will require electricity companies to work toward sourcing 3% of their power from renewables by 2003 and 10.4% by 2011. But it’s taken time to sort the details.

Last Aug. the Government published its Statutory Consultation and, according to Energy Minister, Brian Wilson, ‘received responses both commending the Government’s proposals to exclude energy from the incineration of mixed wastes from the Renewables Obligation, and advocating that it should be included’. Hopefully they won’t budge on this issue.

Meanwhile, Wilson has still to deal with the problems caused by the New Electricity Trading Arrangements, NETA, which could be a major block to generators trying to meet the demand created by the RO. Ofgem’s report last year on NETA’s impact on smaller generators, found that there was widespread concern that aggregation (‘consolidation’) services have yet to become fully operational. Responding to a Parliamentary question last Oct, Wilson said that ‘the government believe that effective aggregation services, which would group smaller generators into portfolios of predictable and less predictable generation, are one of the keys to addressing issues faced by smaller generators under NETA.’ He added ‘the Government will imminently be issuing proposals specifically aimed at addressing the concerns of the smaller generators community, including wind generation. These will include proposals on aggregation services under NETA and will set out the Government’s views on aggregation services in detail’.

See our reports on the impact of NETA later.

RO Shortfall?

UK energy suppliers are struggling to find sufficient green power to meet the soon to be imposed requirements of the Renewables Obligation - a 3% renewable element by 2003 and 10.4% by 2011. So some will have to make use of the 3p/kWh ‘buy out’ provision (essentially a fine for non compliance), and some have already been passing part of this extra costs on to customers, according to industrial and commercial energy buyers tendering in last Octobers contracting round. ‘They’ve all added a 2 % margin’ said David Thomas, chief executive of CHEEP, the Consortium of Higher Education Energy Purchasing. ‘They seem to be treating it like a tax...assuming there will be a shortfall’.

There is nothing illegal in this - the RO allows suppliers to pass extra costs to customers. But the initial hope was that market competition would limit price rises - i.e. to avoid losing customers by increasing prices, the companies would want to absorb most of the extra costs, assuming they couldn’t find cheap renewable sources. The incentive for compliance would be particularly strong since the revenue from the buy out scheme will be shared, as a reward, by companies who did manage to meet the obligation. However, Danny Clarke, energy buyer for Prudential, told Utility Week that he knew of no major supplier likely to do so and called for ‘a speeded-up planning process’ to boost renewables. Even Powergen, which has one of the industry’s largest renewable portfolios, conceded it could not guarantee it would meet the 3% target.

The newly established Renewable Power Association also felt that there were problems ahead, but saw it slightly differently. "The government is being timid with its renewables support", David Byers, RPA’s chief executive told Reuters. Byers said the government either needs to force suppliers to buy more green energy or it should increase penalties for those retailers which fail to buy green power. Possibly it needs to do both, he added. Byers noted the target in the first year for green generation was close to existing output (2.8%), creating little incentive to build more renewable generation quickly. He said targets should be much higher in the early stages to kickstart projects - thus increasing the value of the tradable Renewable Energy Certificates (ROC’s) that companies will been given when they comply with the RO. "ROC prices will be higher if demand exceeds supply," and demand for renewable electricity would then grow since suppliers without enough ROCs to match their electricity sales face financial penalties. But attempts to increase generation capacity was being stalled by NETA, which he said was ‘severely damaging the sector’.

And also, with planning delays in obtaining consents for new projects having put the UK ‘five years behind other countries, streamlining planning without steamrolling communities is a very desirable goal’.

See: www.renewablepowerassociation.org

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Green Power NFPA Auction

The Non Fossil Purchasing Agency, organises on-line auctions of green electricity from NFFO contracts. In all, 212 contracts representing some 580MW of green electricity were successfully auctioned. At 2.81p/kWh, average prices were substantially up form the first auction last Feb., when the average price was 1.89p/kWh. Maybe NETA was the cause. Average prices (Feb in brackets) were Wind 2.84 (1.85), Small Hydro 2.81 (1.84), Landfill Gas 2.84 (1.92), Biomass 2.61 (1.85), Waste 2.21 (1.59).