Select Committee on Environmental Audit Memoranda


Memorandum from Cory Environmental Ltd


  1.  Cory Environmental, a subsidiary of Exel plc, is one of the UK's leading waste management companies. As such we have extensive interests in those aspects of renewable energy policy that are related to municipal waste management. Specifically, these are incineration or gasification with energy recover and the recovery and combustion of landfill gas.

  2.  Cory Environmental takes an active part in the work of a number of relevant trade bodies, including the Energy from Waste Association, the Environmental Services Association, the Association of Electricity Producers and the Green Power Producers. We have contributed to and support the submissions made by those organisations. Consequently, our submission is confined to a short commentary on specific issues about which we have particularly strong views.


  3.  This inquiry comes at a most opportune time. Successive governments have said much about the importance of encouraging the development of new and renewable energy sources. For some time, there has been public subsidy (principally in the form of the Non Fossil Fuel Obligation (NFFO)) for renewable energy projects.

  4.  NFFO has had some success in bringing forward new projects, though after 10 years or so of operation renewable energy sources still contribute only about 3 per cent of the UK's total electricity output. For some technologies, particularly landfill gas, NFFO has had a very high level of success in terms of the numbers of contracted projects actually coming to fruition. However, for other technologies, such as energy from waste and wind, success rates are much lower because they face substantial barriers, for example in obtaining planning permission. Until these barriers are addressed, there will be no significant increase in new renewable energy capacity among the technologies that have the greatest potential to make a substantial contribution to meeting the government's targets.

  5.  The government now has a target of achieving 10 per cent generation of electricity from renewable sources by 2010. This is a laudable objective, and its attainment would contribute to a number of important policy objectives. It has proposed a new support mechanism, the Renewables Obligation. We broadly support the concept of the Obligation as a mechanism for facilitating the development of renewable energy projects.

  6.  However, we see two fundamental problems with the scheme as proposed in the recent DTI consultation.

  7.  First, it will give long term windfall gains to owners of former NFFO 1 and 2 generating projects. This will do nothing to bring forward additional capacity.

  8.  Second, the government's plans envisage a central role for energy from waste (EfW) in meeting the 10 per cent target. The amount of new energy from waste capacity envisaged is significantly greater than required in the context of the government's waste strategy and well beyond the capability of the industry to deliver. Notwithstanding arguments over whether or not EfW should attract support under the obligation, this means that a significant element of the government's strategy for renewable energy is impractical.

  9.  Overall, therefore, we are concerned that the government's renewable energy strategy is in some disarray. There are inconsistencies between departments about the extent to which particular technologies should be relied upon. There are significant questions to be asked about the economic rationale for excluding EfW from the proposed Obligation, when other technologies, with even more favourable underlying financial positions, are included. It seems to us that the government's projections for the amount of new capacity that will be delivered under the Obligation are very optimistic, to the point of being unreal.

Are the government's targets properly formulated and achievable?

  10.  From the foregoing paragraphs, it will be clear that we have severe doubts that the government's targets have been established on the basis of intellectually defensible assumptions. It follows that we do not think that 10 per cent renewable electricity production can be achieved by 2010.

  11.  We would illustrate this simply by referring to the position of EfW within the government's strategy. The role of EfW is recognised in the recent consultation document, where the contribution from "non-eligible" renewables is shown to rise from 5.9TWh in 2000 to 13TWh in 2010. Since large-scale hydro is not expected to show significant growth, the bulk of this must come from EfW. This in turn implies an additional 880MW of new EfW capacity, which would require new capacity capable of handling some 11 million tonnes of municipal waste a year.

  12.  There is currently only one EfW plant under construction in the UK, with a capacity of about 135,000 tonnes per annum, capable of generating 12MW of energy. Given the obstacles of planning consent, IPPC licences, waste contracts and funding, and a typical gestation period for such projects of eight to 12 years, it is stretching credibility to suggest that even a fraction of the EfW capacity assumed by DTI will come forward within the timescale envisaged.

  13.  Exclusion of EfW as an eligible source of green power under the Obligation will guarantee that the potential shortfall from this source alone will be close to 7.1TWh by 2010.

  This point is argued fully in our response to the DTI consultation.

Levels of achievement so far and the current rate of progress

  14.  Despite government policy commitment and the existence of NFFO, in recent years an average of only about 100MW of new renewable capacity has been brought on stream each year. To achieve the government's 10 per cent target would require the average to be lifted to about 300MW a year for every year from 2001 to 2010.

  15.  As noted above, there is no sign that any significant new capacity in one of the key sectors that DTI is relying upon (EfW) is likely to come on stream in the next few years. Other key sectors such as wind face similar difficulties in securing the necessary development consents. Most potentially viable landfill gas schemes have already been developed and so we expect that as new landfill sites come on stream, their contribution will be largely offset by declining yields from completed sites which no longer receive waste.

  16.  The reality is that very little new capacity is likely to come on stream before 2005, making the task of meeting the target even more difficult. It is doubtful that the key sectors have the capacity to develop projects on the scale necessary in the five years from 2005 to 2010.

Expectations of the proposed Renewables Obligation and the definition of "acceptable costs to the consumer"

  17.  The concept of the Obligation is sound, and properly formulated it could be expected to boost significantly the prospects for developing new projects. However, as we have pointed out above, there are serious reasons for doubting that the structure proposed by DTI in the recent consultation document is the right one. The exclusion of EfW is perverse, both in terms of the economics of the energy market and in terms of supporting a key sector.

  18.  Equally importantly, providing as support for existing NFFO 1 and 2 projects undermines the Obligation. Cory Environmental takes the view that no NFFO 1 and 2 projects should be eligible since they have already enjoyed substantial support under often very generous terms. These projects are now fully amortised and additional support of up to 3 pence per kilowatt hour would simply deliver windfall gains to companies that do not need them. For example, our own ex-NFFO 1 3.2MW landfill gas plant at Mucking could benefit from a windfall gain of up to £800,000 per annum under the present proposal. We consider that this support would be far better going to new projects to bring on stream new capacity.

  19.  In our view the estimated cost of the Obligation to consumers is reasonable only if it genuinely facilitates the development of new capacity. It will be clear from what we say here that we do not believe that, as currently proposed, the Obligation will achieve anything like as much new capacity as is required. It will not be efficient or cost-effective and therefore we do not think that, in its current form, it represents "acceptable costs to the Consumer".

  Again, these points are described in more detail in our response to DTI.

The impact of energy market reforms on the prospects for new renewables capacity

  20.  A key objective of government policy in recent years has been to reduce costs to consumers. This is rather at odds with a policy of promoting renewable sources, most of which are currently, and will be in future, uncompetitive with conventional sources.

  21.  In practical terms, the continuing fall in energy prices has rendered inaccurate the economic modelling upon which key assumptions about how the Obligation should operate depends. For example, the recent consultation paper justified the exclusion of EfW from eligibility on the grounds that it had converged economically with conventional generation plant. The reality of course is that energy prices have fallen by some 10 per cent compared to the reference date of 1998 used for that exercise—and they are projected to fall by a further 10 per cent by 2010. The costs involved in developing EfW projects—and therefore the electricity price necessary to make them viable—has not fallen in this period, and is unlikely to do so in future.

  22.  Therefore, the government's reforms—or rather policy decisions about support for renewable energy which have failed to take account of changes in the market—are working directly against the need to develop key renewable technologies.

The interaction of the planning system and the development of renewable sources of power generation

  23.  We have alluded above to the difficulties that EfW projects encounter in securing planning permission. Generally these problems arise because of intense local opposition, much of which is ill-founded in terms of the understanding of the real potential for local environmental impacts etc. This tends to make the process long, unnecessarily drawn out and costly.

  24.  The costs of course have a direct impact on viability and the need for support. More importantly perhaps, this means that the lead-time for new EfW projects can be 10 years or more. Other renewable technologies also encounter significant problems with the planning system.

  25.  For this reason alone, the planning system is likely to be among the biggest barriers to attainment of the government's targets. The system needs urgent reform to enable projects that are clearly in line with key national policy (and often statutory) objectives to obtain a more streamlined passage through the system. Developers are unlikely to bring forward significant numbers of new projects unless they can do so with greater confidence of success at a reasonable cost and within a reasonable timescale.

January 2001

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