Plans announced yesterday (December 16) to replace the Renewables Obligation with a new system for encouraging the development of renewable energy technologies such as biomass and energy-from-waste need to be handled carefully to maintain investor certainty.
That's the message from the Renewable Energy Association (REA), which welcomed the government's proposals for electricity market reform, but warned that any uncertainty during the planned move to a system where the government signs long-term contracts to support renewables generators would be “disastrous”.
The system, dubbed a ‘contract for difference' Feed In Tariff, which will involve government offering top-up payments for generators if wholesale energy payments are low.
But, it also means the government can then take money back if the prices charged for energy by the renewables generators are higher than the cost of renewable energy generation.
The reforms would replace the existing Renewable Obligation system, whereby electricity companies are required to purchase Renewables Obligation Certificates (ROCs) to show they have sourced an increasing amount of their electricity from renewable sources.
ROCs are banded to favour particular technologies, although there have been concerns raised over difficulties faced with securing accreditation for certain waste-to-energy technologies due to issues with proving the biomass content of material (see letsrecycle.com story).
REA
Commenting on the proposals, the REA's chief executive, Gaynor Hartnell, said: “Given the UK needs to achieve the fastest increase in renewable electricity deployment in Europe, any uncertainty that stalls investment would be disastrous.
“The support mechanism has been in almost perpetual change since 2002, and so transition arrangements must be handled with great care. Government tells us it is keenly aware of this, as well it might be given the large sums of private capital which it wants to attract.”
Ms Hartnell added that the phasing out of the RO could require a system giving renewables “priority access” to the grid to ensure the sector continued to have a guaranteed market.
Highlighting the benefits of fully moving away from the RO, she said: “The advantage of having all generation covered by one policy, both administratively and legislatively, should encourage government to make the transition rather than keep the RO going to merely provide some semblance of continuity.”
Reforms
The proposals to move away from the RO are accompanied by other major proposals for electrical market reform, which include:
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Creating a carbon price floor to give a clear long term price for carbon in the energy sector, therefore increasing investment in low carbon energy technologies;
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Providing additional payments to encourage the construction of reserve plants or demand to reduction measures to create a “safety cushion” as the amount of intermittent and inflexible low carbon generation increases;
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Introducing an Emissions Performance Standard to limit how much carbon coal-fired power stations can emit.
Energy secretary Chris Huhne said: “These reforms lay the foundations for a sustainable economy, bringing billions in investment in the UK through greater certainty, safeguarding jobs up and down the supply chain, and giving the UK real competitive advantage in advanced energy technologies.
“More than £110 billion of investment is needed in new power stations and grid upgrades over the next decade, that's double the rate of the last ten years. Put simply, the current market is not fit to deliver this.”
He added: “”In the new, reformed UK electricity market, the economics of low carbon will stack up like nowhere else in the world. By 2030, three quarters of our electricity could be low carbon.
DECC's electricity market reform consultation runs until March 10 2011 and the Treasury's carbon price support process runs until February 11 2011. The new system is set to be introduced from 2013, although the government plans to allow facilities to be built under the RO until 2017.
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