Renew On Line (UK) 46

Extracts from NATTA's journal
Renew, issue 146 Nov-Dec 2003

1.Government replies to Select Committee

 ‘The Government accepts that the absolute level of UK Government expenditure on energy RD&D is currently lower than its competitors. After a long period however, during which expenditure was substantially reduced, the trend has begun to be reversed in recent years.’

So said the government in its response to the very damning report on Non- Fossil R&D by the House of Commons Select Committee on Science and Technology.  As we noted in Renew 144, the Select Committee claimed that there was “no prospect” of achieving the target of a 10% contribution from renewables by 2010 and said that the UK’s investment in renewables was ‘pitiful’ by comparison with other countries. It also called for a new ‘Renewable Energy Authority’ to bring the dislocated policy and support arrangements together.

In its response, the government agreed that there was “a need to improve the strategic direction, cohesion and co-ordination of the UK’s energy policy making and the delivery of its energy research, development and demonstration programmes,” but said the new Sustainable Energy Policy Network (see our Groups section) was the best way to achieve this. That was better than a new organisation, because “the proposed renewable energy authority risks diverting effort into the creation of structures and possibly new silos separate from the main stream of energy policy rather than into the delivery of programmes and commitments.”

The government also said it did not accept the Committee’s finding that ‘market pull’ was inadequate. It said: “The Renewables Obligation, exemption from the Climate Change Levy, the future EU Emissions Trading Scheme combined with capital grants and support for R&D provide a huge package of support for renewables that will be worth about £1 billion a year by 2010 from the Renewables Obligation and from exemption from the Climate Change Levy alone, and which is bringing forward very substantial investment. In March alone more consents were granted for wind power than were built in the whole of the 1990’s.”

So it rejected the Select Committee proposal for a new tax incentive with varying level of support for various options, to replace the Climate Change Levy.

The Committee wanted a new tax which ‘distinguishes between fossil fuel with carbon capture; carbon neutral technologies; nuclear fission and mature non-carbon technologies; maturing non-carbon technologies 10 to 15 years into the market; non-carbon technologies 5-10 years into market; and nascent renewable technologies in their first 5 years of commercial use’.

The Government however, in effect, said that the Climate Change Levy was already selective enough in that ‘the levy includes an exemption for most forms of renewable energy and for good quality combined heat and power, given the Government’s wish to encourage these environmentally-friendly forms of energy generation.’ adding that  ‘The levy forms an important part of the Government’s Climate Change Programme, along with other measures to encourage new low-carbon forms of energy generation including the Renewables Obligation and Government spending. The levy is consistent with the requirements of the EU Energy Products Directive, on which political agreement was reached in March 2003.’

The government was similarly unreceptive to the committees suggestion that their proposed new tax should also replace the Renewables Obligation which the committee felt did not provide sufficient support, especially for newer renewables. The government clearly felt this was unfair comment: 

‘The number and scale of renewables projects now off the drawing board and into the planning system is very impressive and is a direct result of the introduction of our renewables policy, mainly the Renewables Obligation backed up by capital grants and exemption of renewables electricity from the Climate Change Levy. We disagree strongly with Committee’s view that there is no effective legislative stimulus to renewable development- the Obligation is working smoothly and well- and the market arrangements, while presenting some problems for renewables, are not a strong disincentive to renewables investment.’

On funding of the new renewables, they commented ‘The Government has significantly increased its spending on offshore renewables over the last year.  Offshore Wind now has a capital grants scheme supporting development of the technology within the Renewables Obligation. The £74m  budget was increased by £28m, as announced at the British Wind Energy Association Conference on 26th March 2003, in order to allow a third round of bidding to proceed with funding of at least £40m to be allocated.’

It added ‘Legislation is in preparation to allow wind farm developments beyond the 12 nautical mile territorial limit. All of these activities confirm the Government’s commitment to the technology and the case for further funding will be considered through the Review of Renewables Innovation Spending.’

And on wave and tidal, they noted that ‘current forecasts for research and development spending currently total £11.88m between now and 2005/6, including the allocation of the £5m for demonstration projects from the PM’s £100m fund. EPSRC will shortly announce £2.6m for a SUPERGEN consortium on Marine Energy. Further to this, Minister has announced a further £2m for wave and tidal research and development and a possible capital grants programme of at least £5m.’  

Some might say that the committee had rather set themselves up for a fall by arguing that ‘Offshore technologies should be funded at least on a par with fusion (currently £23.5 m a year) and fission should be funded at £10m a year to fund participation in the Generation IV Forum and boost the academic skills base’ 

This allowed to government to point out that in fact ‘the UK invested some £14m in Fusion in 2002-3.  In addition, as host of EU facilities, the UK will have benefited from some £30 m contributions from EU partners. Offshore technologies are now funded to this level. Offshore wind has £102m in capital grants to be allocated over three years and has forecast R+D spend of about £4m until 2005/6. Wave and tidal has £11.88m R+D funds committed to 2005/6 plus a further £2m for 2004/5 and a possible capital grants programme of at least £5m. This totals £124.88m and thus gives about £40m of funding to be committed per annum over the next three years.’

Overall then the government was able to present a reasonably robust defence of its position, even if it relies heavily on funding promised rather than actually in place.  We will be reviewing the governments reply in more detail in Renew 147.

 RO: the reckoning

The first period of the Renewables Obligation finished in March this year, and suppliers had until Oct 1st to submit their compliance reports. If any supplier fails to produce Renewables Obligation Certificates (ROC’s) and/or pay their share of the buy-out for the  period, they will be in breach of their Obligation, and may be subject to enforcement action by Ofgem,which may include the imposition of a financial penalty.  Any such breach could also impact other suppliers, as it will reduce the amount of money they may have been expecting to receive back as part of the buy-out redistribution. The RO target imposed on suppliers for the first period was that they had to source 3% of electricity supplied to customers in 2002-2003 from renewable sources.  The target will be raised in stages  to 10.4% in 2010-2011.

TXU Europe Group presents a special case. It went into administration in October 2002 and Powergen, as the buyer of six of TXU Europe Group’s licences, is responsible for any Renewables Obligation against those licences.  In parallel, the TXU administrator has responsibility for the remaining TXU Europe Group licences, including Norweb Energi Ltd. So it has proved to be quite complex to sort out the obligations. OFGEM has estimated that the  buy-out shortfall, should no ROC’s be presented against these licences, could be in the region of £20 m.  One possibility, not welcomed by the renewables industry, is that this will be seen as a debt to the government, rather than feeding back to creditors and/or the ROC market.

* Information on what ROC’s suppliers are holding at any point in time is available via Ofgem's ROC Register:   www.ofgem.gov.uk/ofgem/work/index.jsp?section=/areasofwork/rocregister

According to initial reports from suppliers, the total RO on electricity supplied to customers  was 8,393,371 MWh in England and Wales, and 880,477MWh for Scotland,9.3TWh in all - around 2.6% of UK electricity consumption.