Renew On Line (UK) 35

. NETA v’s Renewables

‘NETA is working well with wholesale prices falling by 20-25%’. That was the main conclusion of the OFGEM review of the first few months of the New Electricity Trading Arrangements (NETA). Smaller generators reported only a 17% drop below prices achieved the previous year under the Pool, but power output from smaller generators had plummeted 44%, with wind power producers in particuar being penalised for unreliability.

Ofgem’s Chief Executive, Callum McCarthy, said: "Under NETA we are seeing significantly lower wholesale prices than under the Pool which is good news for customers. Clearly this makes life harder for all generators. With lower prices for all generators, including those producing ‘green energy’, there is a need for the Government to review whether its targets for renewables can be met within the levels of subsidy now proposed by the Government. In particular, if for wider environmental reasons the Government wishes to encourage forms of renewable generation whose output is less predictable or less reliable, there is a need for the Government to consider additional support for these types of generators".

The Department of Trade and Industry said it would "consult urgently on action necessary" to lessen smaller generators’ problems. But renewable and CHP producers immediately called for changes in Ofgem’s running of NETA as much as for any extra subsidy. In particular, they called for Ofgem to make it easier for small generators to "consolidate" output and lessen variations in it. NETA requires power producers to forecast output four hours in advance, and to buy any shortfall at premium prices. However, OFGEM have pointed out that while ‘some changes to NETA rules have been, and can be made, which have the effect of limiting the impact on less predictable plant... it is not within the scope of NETA rules to change the principles and to do so would put at serious risk the benefits to customers’

In its new Environmental Action Plan, OFGEM noted that, while it was required to take environmental issues into consideration, ‘the Government has made clear that decisions on major environmental and social issues should be for Ministers, and will be implemented by legislation when, as often occurs, this involves major costs for industry or consumers. We welcome that principle.’

Even so, in the Environmental Action Plan OFGEM did say that it would review the treatment of embedded generation, whereby power plants supplying primarily one site can sell excess generation to the grid, although it noted that it needed to ensure that the system costs to be met by embedded generators were appropriate and that the power system integrity would be maintained if there were to be a substantial increase in embedded generation.

See www.ofgem.gov.uk/projects/eap_index.htm

For the NETA report see: www.ofgem.gov.uk/public/pub2001.htm#smallgen

* NETA was also seen as one of the main stumbling blocks for a rational energy future in the new report ‘Power to the People’ produced by Chris Hewett, Senior Research Fellow at the Institute for Public Policy Research, which looks in particular at the benefits of ‘green’ micro generation. We’ll be reviewing it soon. Meanwhile see: www.ippr.org/sustainability

NETA also hits CHP

It’s not just renewable energy projects which are being hit by NETA, Combined Heat and Power projects are also suffering- both existing and proposed projects. For example, the CHP Association has reported that British Sugar, which has seven CHP plants connected to its factories, recently postponed plans to raise capacity from 10MW to 70MW at factories in York and Cantley in Norfolk.

The CHPA says that proposals to raise capacity at other plants are similarly threatened. WS Atkins, which has CHP plants in Halifax and Wrexham, says power export prices have fallen from £24 to £17 a megawatt hour, making new projects uneconomic.

Dalkia Utilities Services, owned by French utilities Vivendi and Electricite de France, operates 16 CHP plants with a combined capacity of more than 100MW. It says plans for up to nine new plants have been shelved in the past 18 months.

CHPA director David Green said: "Currently only 6% of the country’s electricity is supplied by CHP plants. The government wants to double this by 2010 - representing a quarter of its target to reduce carbon emissions by 20% by this date. There is no chance of making this target unless early action is taken to boost the CHP market by changing the Neta rules, exempting all CHP sales from the climate change levy and providing help through capital allowances and business rates."