7. NETA Crisis
The battle over the impact of the New Electricity
Trading Arrangements (NETA) on renewables and CHP has continued.
The Combined Heat and Power Association pointed out that the preliminary
conclusions from the Performance and Innovation Units study were that
offshore wind might be generating at 1.5-2.5p/kWh by 2020, and that
CHP costs could have fallen to 1.6-2.5p by then- compared with nuclear
generations costs of 3-4.5p. And yet NETA was undermining both CHP and
renewables. Instead the CHPA wanted sustainable energy technologies
to be taken out of NETA, and in particular for CHP to be exempt from
the Climate Change levy.
The battle lines had been well drawn by Andrew Robathan
MP (Blaby, Leics), who is vice-president of the Combined Heat and Power
Association, and vice-chairman of PRASEG, in a House of Commons debate
last October.
On renewables, he referred to a conversation he
had with a small wind energy producer in Leicestershire. ‘The
unpredictability of supply from his two 25 kW turbines meant that his
contract with Powergen was cancelled in April. In other words, it is
no longer cost-effective to run his wind generators, a fact that is
mirrored throughout the country. Large wind farms are seeing a 27% reduction
in the price of their electricity, while other renewable prices are
down by 26 per cent. The renewable energy price is being artificially
depressed by NETA; far from encouraging renewables, they are being discouraged.’
As another example, he cited a report from the
Tyndall Centre for Climate Change Research, which ‘found
that the imbalance penalties imposed by NETA outweighed the payments
made for supplying energy. It suggested that a 10 MW wind farm would
have had a net negative unit value of minus 0.41p per kW hour. That
means that the farm makes a loss just by producing and selling electricity,
not even taking into account any costs involved in setting it up. Indeed,
experience shows that some wind generators are finding it easier to
stop producing electricity and that turbines are being switched off’.
Turning to Combined Heat and Power, he said that
he had heard the CHP industry described recently as "in meltdown".
‘Power exports from CHP generators have
fallen by more than 60 per cent. and British Sugar has cancelled two
major 70 MW CHP schemes, which was a £100 million investment. Slough
Heat and Power, a small local producer, is considering writing off £60
million of investment because of the impact of NETA; that would lead
to 70,000 tonnes a year of additional landfill waste, which the company
is currently turning into fuel.’
He added ‘The problems
facing CHP are not due only to NETA, but relate to the fall in electricity
prices as a consequence of NETA and the unprecedented rise in gas prices.
Moreover, CHP labours under the need to pay climate change levy on exports
of power from CHP producers. The Combined Heat and Power Association
was promised exemption from the levy but achieved only partial exemption.
As almost everyone, including the Government, believes that combined
heat and power is an efficient use of energy and leads to the reduction
of carbon emissions into the atmosphere and therefore a reduction of
climate change, it seems ludicrous to impose the climate change levy
on the export of CHP-produced energy.’
He went on ‘It is also currently intended
that CHP should be subject to the renewables obligation, and that would
cost CHP producers a further £100 million a year’.
So CHP would be subsidising renewables, something he felt was perverse.
It will all come out in the wash
The Minister for Energy, Brian Wilson replied saying
he too was concerned to resolve the problems, and there were consultations
going ahead which would lead to action shortly. But he also but also
tried to play down the scale of the problem. He noted that the Ofgem
report, stated that actually ‘the volume
of trade in renewables is slowing down only slightly. Although the same
volume of renewables is sold at market, prices have dropped substantially’.
He added, ‘I hope that
improved future contract terms will address that problem. The renewables
contracts that were traded in the first two months of NETA were negotiated
before 27 March, and I expect them to contain a speculative element,
but as NETA settles down and the industry gains trading experience,
future contract prices may stabilise. The report stated that in NETA’s
early days, sharp price hikes had occurred when trying to balance the
market. That would have a greater impact on small generators. As the
market has matured, the price spread has narrowed, and the balance and
settlement system has been modified in the light of earlier experiences’.
He went on ‘The report also showed that consolidation
services, which could group smaller generators into portfolios of predictable
and less predictable generation, had not yet emerged in the market.
That, possibly, is a partial solution. I do not deny that the issue
exists, but we can take evolutionary steps to address the problem.’
On Combined Heat and Power, he said he ‘recognised
the urgency of that matter’ but pointed
to the climate change levy exemption for good quality CHP used on site
or sold direct to other users, noting that ‘CHP
is a key option for energy-intensive industries that want to negotiate
an 80% reduction in CCL’.
He added ‘about £70
million has been made available this financial year for enhanced capital
allowance. We have offered tax incentives to companies investing in
CHP, and have exempted electricity generating plant machinery in CHP
schemes from business rates. The energy efficiency fund under the climate
change levy is to be administered by the carbon trust, and CHP schemes
are expected to benefit from it.’
So, he concluded, ‘a
lot has been done in support of CHP’,
but recognised that this might not be enough. ‘If
the reality is that people are now walking away from it, I have to treat
that seriously.’
Overall he concluded ‘I
have no interest in denying or concealing the fact that there are problems
for wind energy and CHP. I am very anxious to address those problems’.
Fine, but lets hope he can really resolve the problems. Source Hansard,
17 Oct 2001: Column 298WH
Getting Power to the People
In its new report ‘Power to the People’ (see p.4),
the IPPR see NETA as a major stumbling block for renewables and CHP
and offer the following potential solutions:
