1. Energy Review and the RO

The Energy Reviews’ proposal for modifying the Renewables Obligation (RO) have met with mixed responses. The idea of introducing technology bands was widely welcomed, but there were concerns that making a radical change might disrupt progress.

For example, the British Wind Energy Association’s new CEO, Maria McCaffery, commented: ‘The RO is a market-based mechanism which has been very successful in incentivising new investors in the renewables sector. BWEA believes that any proposal to alter the support mechanism for renewables must satisfy some key criteria, paramount of which is maintaining the momentum of onshore wind through retaining the confidence of these new investors. It is in no one’s interest for development of the most cost effective renewable energy technology to be hindered by policy changes.’

She added ‘BWEA is particularly pleased at the protection afforded to onshore wind development which has spearheaded renewables delivery, but urges Government to move swiftly on the proposed consultation to boost other technologies so as not to impede the momentum of renewables as a whole’.

The BWEA was also concerned at the lack of a timescale to translate the ‘aspirational’ 20% target to a firm commitment. But they welcomed the idea of speeding up planning decisions: ‘there are currently 11,000 MW of wind energy projects awaiting decisions’. And they were worried that ‘continued consultation will lead to further delay: decisions for onshore wind projects must be made by the end of 2007 in time to be built by 2010 to meet almost half of the Government target for renewables’.

Earlier the BWEA had responded to the Carbon Trust’s very critical report on the RO- which claimed that it needed radical overhaul and to be more like the REFIT system (see Renew 163). The BWEA, perhaps rather defensively, commented ‘The failings that some perceive in the RO mechanism would be largely solved by action to speed up the supply of projects through resolving planning and grid connection delays for the thousands of megawatts of projects currently stuck in the system’. And interviewed in the EWEAs journal Wind Directions Maria McCaffery noted that BWEA members generally felt that ‘if it’s not broken then it didn’t need fixing’.

* In Oct. the DTI launched a consultation on how to reform the RO : see www.dti.gov.uk/files/file34470.pdf. There is no doubt that change will cause some disruption, but it seems inevitable that it will be changed- it’s so clearly inefficient compared with REFIT. But it will take time.

After the Energy Review

The debate on the Energy Review continues, while we wait for the White paper- ‘at the turn of the year’, probably meaning early next year. In terms of renewables one of the main issues is the proposal to amend the Renewables Obligation (RO) to be more like a feed in tariff by the adoption of technology bands. There are problems with this- as the BWEA has argued (see above), it could be disruptive and lead to more delays- it’s not likely to be enacted until 2009/10, and earlier projects will then not have benefited from the arrangement. It could also lead to excessive costs- passed on to the consumer. The Energy Review proposed to deal with this by adjusting the price levels to give a balanced portfolio and imposing an overall limit by fixing the RO ‘buy out’ price after 2015. This in effect sets a limit to the value of the Renewable Energy Certificates (ROCs) that suppliers get for eligible green power. But the idea of extending the RO beyond 2015, and up to 20%, was widely welcomed- that will give more market certainty. The aim is to ensure that there will always be ‘headroom’- the targets will always be more than the current level of supply, so the value of ROCs will not be depressed by an artificial cut off date.

The Renewable Energy Association, who initially developed a version of this idea, says that ‘a consequence of fixing the headroom is that the amount of buy-out recycling is reduced.  The level of shortfall between the number of ROCs required and the number available will tally more closely.  This is because the number of ROCs required is based on the amount likely to be available, plus a margin of safety to ensure that the Obligation is not exceeded.  This has the effect of making ROC prices more stable. If ROC prices are more stable, then the ROC-earning capacity of different technologies can be adjusted to deliver a more tailored degree of revenue support.  This is, of course, a departure from the one-size-fits-all approach, with the cheapest technologies brought on in succession.’  

They add ‘More expensive technologies like wave and tidal can earn more than one ROC/MWh, whilst those which are more cost-competitive could earn less.  This creates less perverse incentives than the proposals put forward in the previous RO Review.  The 2005-6 RO Review suggested capping the length of time a project could earn ROCs, or capping the total volume of ROCs it could produce.’

The new Energy Review seems to have taken some of this on board, but not Scotlands idea of offering ‘double ROCs’ to key technologies.

The National Energy Foundation gave a muted welcome to the Energy Review, but said there was a real danger that support for sustainable energy could be swamped by the focus on large-scale supply, including nuclear. However it pointed out that the NEF ‘does not sit in either of the extreme pro, or anti, nuclear camps, in what has become a very positional debate concerning the role that nuclear power may or may not have in meeting our energy needs’.

Even so, it clearly saw some shortcoming. Dr Tim Lunel, NEF’s CEO said, ‘This review could have stimulated investment in mass market generation systems that capture both heat and electricity close to the point of use. Under this model, cost and reducing CO2 emissions would be the main decision-making criteria. However the Government has delayed making a decision and established a further review, due to report in April 2007. It seems to us that its primary focus remains on large-scale energy generation.’

They were a bit happier about the proposals on renewables. Gareth Ellis, Manager of Renewables said ‘We welcome the increase in the Renewables Obligation designed to increase the level of electricity from renewables from 4% to 20%, although this target falls below the potential of 30 to 40% from microgeneration alone identified by the DTI. However we are concerned that the Government is too reliant on the Renewables Obligation to meet this target, when smaller installations cannot readily gain credits under the Obligation. We are also pleased to see a greater emphasis on heat in microgeneration and the proposed relaxation in planning requirements through a General Permitted Development Order. Our work with the Solar Trade Association shows that some local authorities are still putting up unnecessary barriers to homeowners wishing to install solar heating. We trust that the Government will ensure that local councils follow the new rules and actively encourage residents to install microgeneration measures, for example through schemes like Energy for Good, which we operate in association with several councils in East Anglia. As the Government appears to have ruled out a Renewables Heat Obligation, we also hope that it will encourage gas and electricity suppliers to make microgeneration eligible for support under the proposed third round of the Energy Efficiency Commitment.’

Some of the more detailed proposals on energy efficiency were also welcomed. Ian Byrne, NEF Deputy Director, said. ‘Plans to eliminate the sale of the least efficient appliances from the UK market are long overdue and we are pleased that the Government will now ensure that new homes are built to comply with the energy requirements of Building Regulations. However the Review does not appear to have addressed the need to improve energy efficiency in commerce, including many shops and offices, or to have identified ways to overcome the inertia that prevents many householders making cost-effective improvements. Our work with the best companies, that have met the high standards of the Energy Efficiency Accreditation Scheme, shows how difficult it is for them to constrain energy consumption in the face of rising demands from new technology.’

Overall then? Good in parts, nuclear aside. But the approach to decentral power (a way off) and to the idea of a renewable heat obligation (too hard), did seem very timid, as we’ll discuss in Renew165.