REA Responds to UK Government’s Conclusions on RO Banding Levels

After delay and controversy, DECC has announced the RO banding conclusions. Renewable power is now set to deliver jobs and growth but uncertainty remains in several areas.

Martin Wright, Chairman of the REA said:

“We welcome the publication of the RO Banding decision, but it is not before time. Government has re-affirmed its commitment to the renewables industry, but we are concerned about the further reviews facing many technologies, which is likely to inhibit investment.

“Business confidence is essential to realise the vast potential of this industry, in which the UK still lags behind the rest of the world. Companies will not invest without stable Government policy delivered in a timely manner. At such a critical time for the economy, this country cannot afford any further political wrangling that puts at risk future investment and job creation.

“The Chancellor’s recent letter to the Energy Secretary showed a serious misalignment between the attitude of Treasury and other Government departments charged with delivering a growing, low carbon economy. The Treasury appears to be frustrating the creation of a comprehensive energy policy for short-term economic and political gain. It is time energy policy properly reflected the long-term interests of the nation.”

UK renewable electricity generation is currently at 11% [4], but to meet the Government’s overall renewable energy target, it will need to reach to 30% by 2020. Significant amounts of wind capacity are in construction or have won planning consent, but more is needed, along with contributions from baseload biomass and energy from waste (EfW) technologies. With the costs of PV falling so dramatically, it also makes financial sense for solar to play a major role in meeting the targets.

The REA will strongly oppose the proposal to consult on removing FIT-eligible technologies from the RO under 5 MW.

• Firstly only one AD plant in the UK is over 5MW (out of the 22 currently supported by the RO). Removing sub 5MW AD from the RO would therefore slash the budget. The ambitions for AD under FIT are already very low.
• It would be financially illogical to constrain solar PV to the FIT, which has a much smaller budget than the RO. Many solar applications are already cheaper than other technologies but the expansion of cheaper solar would be constrained if this were to happen.

Gaynor Hartnell CEO of the REA said:

“After a long wait there are some disappointments in the Banding levels announced today. There is good news for hydro, advanced pyrolysis and gasification and EfW. However, we are effectively left with no deep geothermal power industry in the UK, inadequate incentive to capture methane from landfill sites and the prospect of a further review for onshore wind.”

On wind specifically, Mr. Hartnell said:

“Onshore wind developers have been prepared for this modest reduction, although it will have an impact on smaller and community schemes.

“Offshore wind remains at the higher level introduced by the emergency review, but the support level will gradually fall, in line with expected price reductions in the technology.”

Given the further review of onshore wind, only one year’s extra certainty has been provided. Projects can take a long time in the UK given developers need to go through complex planning applications and a pre-construction stage.

On wave and tidal energy, Mr. Hartnell commented:

“The higher subsidy levels which the REA called for have been confirmed. There is a 30MW size threshold, above which only 2 ROCs/MW are available. The REA did not support this somewhat arbitrary distinction, but Government felt there was a need to limit the potential amount of capacity which could be supported at 5 ROCs/MWh, and this was the most workable solution.” 

Finally, Mr. Hartnell commented on the cost to consumers:

“Ofgem estimates the cost of the RO in 2010-11 at £21/household, which is around 4% of an annual average bill. Environmental costs are small in comparison with underlying increase in fossil fuel prices. Ofgem analysis shows that higher gas prices have been the main driver of increasing energy bills over the last eight years, and in the future fossil fuel prices will become more volatile and dependent on global market supply and demand. Investing in renewable forms of energy will actually reduce exposure to volatile fossil fuel prices and vulnerability.

“The Renewables Obligation pays renewable generators a premium which is additional to the income gained from the sale of the electricity. If the electricity price increases (e.g. because of rising gas prices) renewable generators benefit.

“The Government plans to close the Obligation to new entrants in 2017, and instead award renewable generators (along with nuclear and carbon capture and storage generators) a new form of contract. This change is part of a package of measures referred to as Electricity Market Reform (EMR). The new Contracts for Difference (CfDs) aim to pay a set tariff which will not fluctuate with electricity prices. This should deliver a saving if electricity prices go up.” 

[mappress]

Offshore WIND staff, July 25, 2012