Renew On Line (UK) 65

1. Energy Review-RO changes

The new Energy White Paper should be out soon- although maybe later than originally expected. In addition to indicating the governments approach to nuclear power, it will also presumably deal with one of the other issues raised in last years Energy Review- the revision of the Renewables Obligation (RO), following on from the consultation launched in October- see below.

Certainly- as Stern confirmed (see later)- there is a need for change. The trade journal, Windpower Monthly, noted in its Online Focus in Oct, ‘Britain’s renewable energy market is not working as intended. The government’s aim with the Renewables Obligation is to secure as much green power as possible for as little money as possible. Part of that aim is being fulfilled: a record volume of new wind power capacity is coming online. But far from paying as little as possible, consumers in Britain probably have the highest priced wind power in the world. What’s more, some of the price they are paying is for green electricity that has never been generated.’

The problem is that, as Windpower Monthly (WPM) note, changes in the RO have generally been resisted both by the industry and the government. But now change is afoot- although it may not be sufficiently radical. As WPM put it: ‘In the unshaken belief that electricity markets, when properly structured, serve the people better than bureaucrats, the government is ignoring calls from some quarters for a fixed purchase price for green electricity’.

However the energy review proposed a package of measures for curing the ills of the RO, which WPM says ‘may just be the right one’, although it adds ‘from our discussions with the wind industry, a clear and coherent response to the government’s proposals is a long way off.’ But it says that ‘the lack of unity is not entirely the industry’s fault. Much of ‘The Energy Challenge’ is either misleading, wrong or so obtuse that not even officials at the government department responsible for its production can explain what the document means. Mystery surrounds the government’s claim that its package of measures- including an extension of the Renewables Obligation from 2015 to 2020- will be “cost neutral”. Industry observers are no more able to explain it than the DTI.’

Lets hope the Consultation exercise results in more clarity!

RO Consultation

The governments’ consultation document on the Renewables Obligation last October noted that ‘as a technology neutral instrument, the Renewables Obligation has thus far proved less successful in bringing forward development of the more emerging renewable technologies. These considerations have stimulated debate about the need for further amendments to the RO in ways that would provide additional support for longer-term, but currently more expensive, renewable technologies.’ with ‘banding’- providing differentiated levels of support for different renewable technologies- being seen to offer ‘the most viable approach’.

It says that there are two ways in which it could be done:

a) Award more than 1 Renewable Energy Certificate (ROC) per MWh to some technologies, and less than 1 ROC per MWh to others- a ‘multiple ROC’ approach.

b) Create separate obligations for each technology, with different buyout prices and targets- a ‘multiple obligation’ approach. ( i.e. a bit more like REFIT, but still market led).

It comments ‘While recognising that the Scottish Executive is consulting on a separate obligation for marine support only in Scotland, following the multiple obligation model, the Government does not consider that this option offers an attractive means of banding the Obligation as a whole’, since it ‘would involve setting separate obligation levels for a number of different renewable technologies- effectively instructing the market which technologies to use to meet the Government’s renewables targets. The multiple ROC approach has the advantage that the Government sets the level of support, but leaves it up to the market to decide what generation mix is appropriate.’

It proposes that ‘individual bands could be set for each main renewable technology (i.e. onshore wind, landfill gas, offshore wind, co-firing etc.)’ but is open to suggestions on sub-bands, ‘for example, separate bands for smaller and larger projects, or a band for all microgeneration projects, or a band that gave additional support for projects that also use heat’.

It says it is committed to ‘maintaining Obligation levels above the level of ROC-eligible renewable generation, up to a maximum level of 20% of electricity generation from renewable sources. Any increases in Obligation levels above 15.4% will not occur at pre-determined stages, as with existing announcements, but will follow a ‘guaranteed headroom’ model, where increases are contingent on appropriate levels of growth in renewable generation.’

The Government will ‘remove the automatic increase of the buyout price in line with inflation from 2015/16 onwards’ and will consult on measures ‘to introduce a “ski slope” mechanism for ROC prices- i.e. to amend the RO such that any renewable generation exceeding the level of demand for ROCs created by the Obligation would not have a precipitate impact on ROC prices but would instead ensure that ROC prices tapered smoothly down in a situation of oversupply’.

It adds that the commitment ‘to maintain Obligation levels above renewable generation up to a level of 20% does not represent a commitment to increase Obligation levels to 20% by 2020. Any increases in Obligation levels after 2015/16 will be contingent upon appropriate growth in renewable generation. That said, if growth in renewable generation was extremely rapid, the level of the Obligation could potentially rise to 20% before 2020 under a guaranteed headroom approach. The Government believes that a guaranteed headroom of 1% should be sufficient to provide long-term confidence on the support provided by the Obligation, given the ability of suppliers to bank ROCs and our intention to modify the RO to remove the risk of ROC price crashes.’

It notes that some of the proposed changes (e.g. the ski slope) may require primary legislation, and the various suggested changes would not come into force until 2009 at the earliest.

For the full paper see: www.dti.gov.uk/files/file34470.pdf

Let’s have a Feed-in Tariff

The consultation led to a call by a group of energy academics, including Prof. Dave Elliott from the OU, Prof. John Twidell from AMSET and Dr Dave Toke from Birmingham, for the RO be replaced by a REFIT type feed-in tariff. In a letter to the Guardian they said that the feed in tariff system ‘is established and successful in other European countries with vigorous renewables growth and manufacture, e.g. Germany and Spain. It gives different, long term, guaranteed fixed prices for electricity exported to the grid from renewable technologies. This would improve the prospects of achieving the UK Government’s target of 20% of electricity from renewables by 2020.’

They go on ‘Carefully constructed feed-in tariffs could both increase renewables generation and also reduce the unit costs that electricity consumers now pay with the present system of ‘renewable obligation certificates’ (ROCs). Such appropriate feed-in tariffs would stimulate investment in offshore wind, wave, tidal current and other innovative renewable technologies. The Government should legislate a shift to feed-in tariffs for new schemes, whilst protecting the existing arrangements for schemes that are operational or in the pipeline. For example, the French and German wind-power feed-in systems vary tariffs for onshore wind according to the on-site windspeeds. By contrast, the Government’s recently announced proposals for ‘banding’ will either mean that ‘high windspeed’ schemes will be paid more than they need or that ‘lower windspeed’ schemes will become uneconomic.’

They add ‘The Government’s proposals for banding are both complex and unlikely to be more cost-effective than existing arrangements. Several authoritative studies have concluded that the ROCs system increases unit costs compared to feed-in tariffs. Moreover, market-place uncertainty about future prices of both ROCs and electricity increases the total monetary cost of the Renewables Obligation by comparison with feed-in tariffs.’

MSO: Scotland goes it alone on marine energy

Given their view that ‘the wave and tidal sector needs a commitment to support now’, the Scottish Executive is allocating £8m to support projects at the European Marine Energy Centre in Orkney, which will provide 40% capital costs and 100% of additional revenue support. In addition, it is pressing ahead with its independent approach to supporting wave and tidal power via a Marine Supply Obligation (‘MSO’), alongside the existing Renewable Obligation Scotland.

It says that although they ‘welcome the UK Government’s decision (which is fully in line with Scottish Ministers’ policy) that the (Renewables) Obligation should move away from its current technology neutral basis and adopt the principle of banding’ they are concerned that ‘this process is at a very early stage. The parallel consultation by the DTI on banding and multiple ROCs is only a preliminary look at the principles involved under such an approach, and represents the first chance for stakeholders to examine and comment upon the DTI’s proposals. There will then be a need to draft and table primary legislation to secure the necessary powers and so these changes would not be implemented until 2009 at the earliest. Finally, the detailed and consistent application of those powers across the UK will depend on the agreement of both the Scottish Executive and DETINI [Dept. of Enterprise, Trade & Investment, Northern Ireland], as well as requiring the approval of the European Commission.’

They claim that ‘If we were to defer our proposals, we would run the risk of incurring further significant delays in the development of the sector and the subsequent failure to capture the benefits of cost reductions, learning, diversity and carbon savings that early deployment could bring. We believe that an MSO, designed carefully (using existing powers) and pitched at an appropriate and realistic level, will send the necessary long term signal to developers concerning the Executive’s belief in the potential for successful and significant development around Scotland.’

They ‘recognise fully the need for clarity concerning the potential interaction of an MSO and the introduction at some point in the future of a banded approach at the UK level (based on multiple ROCs)’ but point out that ‘the MSO is designed to operate over more than one phase. A second phase would offer a lower level of support, building upon reductions in costs arising from successful deployment under the initial phase’ and ‘envisage that, in the event of a multiple ROC system being agreed and introduced, the practical effect of the support available under the first phase of an MSO would be kept in place under a suitably designed multiple ROC system operating across all three UK Obligations. Capacity installed before that date and receiving support under the MSO would continue to receive support at that level. But, should multiple ROCs fail to materialise, then our MSO would continue into a second phase of support.’

They conclude: ‘This is the basis upon which we intend to proceed. We will follow with interest the responses to the DTI consultation on multiple ROCs, and will remain in close contact with our DTI and DETINI colleagues as this work is taken forward.’

The Marine Supply Obligation - MSO

• MSO to form part of existing RO Scotland;

• Capacity cap of 75 MW under phase I;

• MSO based on realistic capacity forecasts;

• MSO to operate on headroom principle;

• Separate obligations for wave and tidal power;

• High buy-out payment levels;

• Buy-out fund recycled on basis of compliance with MSO;

• Commissioning period for phase I of 2008-2015.

The Consultation paper is at :http://www.scotland.gov.uk/Topics/Business-Industry/infrastructure/19185/ROSConsWaveTidal06Paper