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Rebanding the renewables obligation

Although its days are now numbered, following the Electricity Market Reform proposals, the Renewables Obligation is still set to take in new projects and run with them, and existing RO projects, until 2017, offering ROCs- Renewable Obligation Certificates- for each MWh produced. After 2017, the new Contracts for a Difference system will be the main support mechanism. Indeed, if the CfD offers more, some existing and new projects may chose to go for that before then, as soon as it’s in place- in 2013/14?

Meanwhile DECC has released new proposals for RO tariff levels and technology banding- for consultation. Chris Huhne, Secretary of State for Energy and Climate Change, said: ‘We have studied how much subsidy different technologies need. Where new technologies desperately need help to reach the market, such as wave and tidal, we’re increasing support. But where market costs have come down or will come down, we’re reducing the subsidy.’

So there are winners and losers. In the proposals wave and tidal stream have both been boosted from 2 to 5 ROCs/MWh, for projects below 30 MW. Offshore wind also has a boost, with one more year at 2 ROCs, but on-land wind falls back to 0.9 ROCs. Solar PV gets two more years at 2 ROCs, then tails off. The same for geothermal and microgen. Hydro gets demoted to 0.5ROCs, while, more understandably, low cost/low new resource potential landfill gas is finally written out, but sewage gas stays unchanged at 0.5ROCs. There is some serious tinkering with various biomass and co-firing definitions and arrangements, with some old bands removed/combined and new ones proposed, and some ROC cuts later on. A lot to debate there.

Crucially DECC say ‘These proposals are expected to cost between £0.4bn and £1.3bn less than retaining current bandings’, but they claim that we will get ‘more from less’- the new tariffs will ‘drive a higher level of deployment than leaving bandings as they are’. In addition ‘the proposals also provide industry with the certainty needed to make investment decisions and will overall mean a lower impact on consumer bills, without reducing our level of ambition’.

The main saving (about £372m p.a.) would seem to be from the revised support pattern for biomass/wastes, but there’s also a £60-80m p.a cut for onshore wind. On the plus side, wave/tidal get £13m p.a. extra, while offshore wind gets £130m-190m p.a. more.
The DECC report is backed by a new study of costs from consultants ARUP. Amongst other comments, it says that PV solar is a technology ‘with very significant deployment potential of 16.6 GW by 2030 (medium forecast), but with very high capex’ (capital cost).
So it’s surprising, especially given the recent 72% cut in the Feed In Tariff cut for PV projects over 50kW, that DECC leaves it at 2 ROCs and falling later- expect major complaints!

DECC’s overall rationale for the new RO tariff levels reflects a concern for cost effectiveness. It comments ‘Any support above 2 ROCs, marks a significant change for the RO in England & Wales, and moves us away from supporting only the most marginal technology needed to meet our 2020 renewables target’.

It sees offshore wind as the high bench mark: ‘offshore wind is considered to be the most expensive technology required on a large scale to meet our 2020 renewables target. Therefore, in the context of meeting the 2020 renewables target, it would not be value for money to provide a higher level of support to any other technology for the purposes of meeting that target.’

But it says, with the UK a world leader in the emergent wave and tidal current area, there may be ‘other reasons for setting a higher level of support’, such as ‘the desirability of securing the long term growth, and economic viability, of the industries associated with this technology’ (e.g. UK jobs and export potential) and as a ‘hedge’ against ‘underperformance of other forms of generation out to 2050.’ (i.e. insurance). So they get 5ROC/MWh- quite a breakthrough.

This RO consultation applies to England and Wales only. There will be separate banding consultations on proposals in Scotland and Northern Ireland. DECC consultation/Arup report: www.decc.gov.uk/en/content/cms/consultations/cons_ro_review/cons_ro_review.aspx

What next?

There will be some haggling over the details, but the winners will be keen to push ahead. Offshore wind in particular. They will be helped long-term by funding from the Energy Technologies Institute (ETI), which is to invest up to £25m in a floating offshore wind system demonstration project It is to be installed by 2016 at a relatively near shore site with high wind speeds up to about 10 metres per second in water between 60 and 100 metres deep. The main aim is to help bring generation costs down.

Floating wind turbines offer a way to go into deep water, where it is very hard and expensive to provide sea-bed mounting, and have often been seen as the way ahead for projects further out in the North Sea than the current rounds of projects. But floating system are not cheap and the cost of undersea grid links back to shore are very high.

The ETI seem to have adopted a different interim tack – to open up near shore sites off the West coast. Dr David Clarke, ETI Chief Executive said: ‘Our studies have shown that access to high wind areas which are close to shore should be an attractive investment compared to some existing UK sites which are further from the coast in areas of lower wind. We also expect there is likely to be a considerable global market for floating wind turbines which can be developed in the UK’.

The ETI backed Nova vertical axis turbine project, which led to the 10MW Aerogenerator X design, would seem likely to be one candidate for support. But there are several others, including their Deepwater design and Norwegian Sway, a prototype of which is already under test. ETI has invited proposals for projects in the 5MW to 7MW range.
Of course there will also be opportunities, under Round 3, for location further out to sea off the east coast, where there are shallow areas e.g. the Dogger Bank, without having to use floating devices. Although the cost of installing undersea grid links will be high, that may be offset by having the option of delivering power to mainland Europe – a much bigger market- with the project being part of an emerging North Sea supergrid. For example see: www.forewind.co.uk/dogger-bank/overview.html

When and if that is established then it may become economically viable to infill in the deeper water with floating devices.

Meanwhile, wave and tidal project will also be moving ahead, nearer to shore, with around 2GW expected to be operating by around 2020, mainly off Scotland, Wales and Cornwall.

Whether PV solar will also boom now seems to depend on the results of the current DECC review of the Feed In Tariff system, which covers project under 5MW. But signs are that there will be further cuts – of perhaps 50% for some tariffs.

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