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Government sums don't add up on renewable energy

Industry response to Renewables Obligation reform consultation demands extra resources if Government targets are to be met

Friday 5 January 2007

BWEA (the British Wind Energy Association) today shot a warning across the bows of Government that the level of support for renewable energy must increase if government targets are to be met. The warning headlines its response to the Government’s consultation on reforming the Renewables Obligation (RO), jointly prepared with the Renewable Energy Association (REA). This consultation, stemming from last year’s Energy Review, proposes significant change to the RO, the support mechanism for renewable power in the UK.

While BWEA welcomes the Government’s intention to increase the quantity and diversity of renewable energy delivery to the grid, the Association is clear that the attempt will succeed only if financial support is increased.

Commenting on the reform proposals, BWEA Chief Executive Maria McCaffery said:

“The RO has been highly successful in bringing forward the cheapest renewables: onshore wind, landfill gas and biomass co-firing. The Government’s plan to ‘band’ the RO could allow more technologies to share in this success, particularly offshore wind but this cannot be at the expense of onshore wind’s current strong growth. Accommodating the more expensive technologies whilst trying to get to a 20% target in 2020 – using the same amount of money as a 15% goal – is like trying to extract a quart from a pint pot. It just doesn’t add up.”

At present the Obligation rises to 15.4% of licensed electricity supplies in 2015, and is then stable until 2027, when the RO ends. Due to the design of the system, the money within it is dictated by the Obligation level and the buy-out price, the penalty that suppliers must pay for not meeting their requirements. The buy-out price rises with inflation, but now Government is intending to freeze it in 2015, so it will decline in real terms thereafter. At the same time, Government proposes to allow the Obligation level to rise in line with supply after 2015, up to 20%. By freezing the buy-out price, the Government wishes to get this rise to 20% for the same cost as 15%.

In addition, by banding the system so that more technologies are economic, this 20% would have to include capacity that is more expensive than would be brought forward by an unreformed system. Thus Government is attempting to get a third more renewable power, with a mix that includes significant quantities of technologies that are not economic under the current system, for the same amount of money. This is unrealistic.

BWEA also finds Government’s call for ‘net neutral banding’ to be problematic. Under net neutrality, the number of units of renewable electricity and the number of Renewable Obligation Certificates would be the same – currently 1MWh=1ROC, but banding breaks this link; Government would like to manage the system so it continues to balance. However, in order to do so, what is given to more expensive technologies has to taken from the less expensive, and the ‘spare’ resource in the system that can be reallocated is not enough to incentivise large quantities of, for instance, offshore wind.

Consequently, BWEA is calling for two specific actions: a reversal of Government’s decision to break the link between the buy-out price and the Retail Price Index; and the abandonment of the proposal for ‘net neutrality’. Together, these two technical changes proposed by Government add up to a limiting of the resource available to support renewables.

In addition, the Association is pointing out that the majority of difficulties that renewable developers face are nothing to do with the RO. If the issues of gaining planning permission and a grid connection could be resolved swiftly, then the UK could be making much better progress towards its renewable energy targets, even without reform of the RO.

Further information

 

Notes to editors

  • The British Wind Energy Association was established in 1978 and has 482 members, active in the areas of wind, wave and tidal stream power generation, of which 320 are corporate entities: see www.bwea.com
  • Wind energy has now started a major expansion in the UK and will be the single greatest contributor to the Government targets for 10% of electricity supplies to be met by renewables by 2010. Onshore wind alone could meet over half of this target, one of the conclusions of BWEA’s analysis of the sector conducted as part of the Government Energy Review. See www.bwea.com/energyreview
  • There are currently 7,700 MW of onshore wind projects currently being considered for planning consent in the UK, some of which have been in the system for up to four years. 1,660 MW of onshore wind is currently operational, a further 640 MW under construction and another 1,500 MW with consent to build.
  • 300 MW of offshore wind capacity is currently generating, with a further 100 MW under construction. With the approval in December of two projects in the Thames Estuary totalling 1,300 MW, there are now over 2,000 MW of projects with permission to build offshore, with a further 3,000 MW under consideration. However, larger ‘Round Two’ projects, of which London Array and Thanet are the first to be approved, cannot be built without additional financial support, such as ‘banding’ of the RO.

The Renewables Obligation and ROC distribution

The Renewables Obligation (RO) is the primary legislation in the UK to deliver the Government’s targets on renewables. The RO and associated Renewables (Scotland) Obligation came into force in April 2002, and require power suppliers to derive a specified and increasing proportion of the electricity they supply to their customers from renewable energy sources. Originally set at 3% in 2003, this now stands at 6.7% in 2006/7, rising incrementally to 10.4% by 2010 and 15.4% by 2015. See www.dti.gov.uk/energy/sources/renewables/policy/renewables-obligation/page15630.html

Eligible renewable generators receive Renewables Obligation Certificates (ROCs) for each megawatt hour (MWh) of electricity generated. These certificates can then be sold to suppliers, in order to fulfil their Obligation. Suppliers can either present enough certificates to cover the required percentage of their output, or they can pay a ‘buyout’ price of price of £33.24/MWh for any shortfall. All proceeds from buyout payments are recycled to suppliers in proportion to the number of ROCs they present.

Renewable generating technology’s share of the RO has changed since its introduction in 2002: the technology which benefits most, receiving the largest amount of ROCs, is by far and away landfill gas, although this is dropping proportionally as other technologies come into play. Co-firing is growing rapidly, as this is the most easily available of the renewable technologies, requiring no planning permission or grid access. Onshore wind’s share of ROCs is currently tracking the growth in the RO, but over the next few years will outpace it, attracting a larger share of the RO. Impressive as this growth is, it could be greater were it not constrained by non-economic factors such as planning and grid access.

 

ROCs issued by technology type 2004-5
Landfill gas generation attracted over 30% of the total ROCs issued in 2004/05; co-firing and hydro generation stations received 19% and 18% respectively, with onshore wind attracting almost 16% of the total ROCs issued.

Landfill gas   33.6%
Co-firing    19.5%
Hydro (<20 MW)    18%
Onshore wind   15.9%
Biomass    7.6%
Offshore wind  2.6%
Sewage gas 2.3%
Others  (includes ACFT, micro hydro, wave power & PV) 0.5%

Source: Ofgem, Renewables Obligation: Third annual report, Feb 2006
http://www.ofgem.gov.uk/temp/ofgem/cache/cmsattach/15383_ROannualreport.pdf?wtfrom=/ofgem/work/index.jsp&section=/areasofwork/renewobligation

ROCs issued by technology type 2003-4
Landfill gas attracted over 40% of the ROCs issued in the second obligation period, 2003-4, with hydro and onshore wind receiving 17% and 16% respectively. Co-firing and biomass attracted just over 10% of total ROCs each.

Landfill gas  41%
Hydro  (<20 MW) 17%
Onshore wind 16%
Co-firing  11%
Biomass   11%
Sewage gas     3%
Offshore wind    1%
Micro hydro & ACT 0%

Source: The Renewables Obligation: Ofgem’s second annual report, Feb 2005
http://www.ofgem.gov.uk/temp/ofgem/cache/cmsattach/10209_4405.pdf

ROCs issued by technology type 2002-3
Landfill gas generation attracted almost 50% of the ROCs issued in the first obligation period, with onshore generation being the next largest technology, attracting 20% and co-firing generation attracted just under 8% of the total ROCs. 

Landfill gas    48%
Onshore wind  20%
Biomass   11%
Hydro (<20 MW) 9%
Co-firing     8%
Sewage gas  3%
Micro hydro  1%
Offshore wind 0%
ACT 0%

Source: The Renewables Obligation: Ofgem’s first annual report, Feb 2004
http://www.ofgem.gov.uk/temp/ofgem/cache/cmsattach/6125_renewables_obligation.pdf