Select Committee on Environmental Audit Minutes of Evidence

Memorandum from the Renewable Power Association


  The Renewable Power Association (RPA) is a newly established trade association representing producers of renewable energy. Its membership includes renewable electricity generators, fuel suppliers and providers of heat, along with their equipment and service providers.

  The RPA has member companies involved in wind energy, solar, biogas, energy-from-waste, landfill gas, biomass, wave, tidal, marine current and sewage gas industries, together with respected names from the legal, accounting and energy trading communities.

  The RPA works on the large number of generic issues that affect renewable energy producers, irrespective of the technology involved. These include the New Electricity Trading Arrangements, the Renewables Obligation, renewables integration issues, embedded generation, NFFO/SRO contract issues, emissions savings, planning, the Climate Change Levy, etc.

  The RPA has consistently drawn attention to three major barriers, namely planning, NETA and the problems embedded generators face in getting connected to the grid. If these barriers are addressed, then the industry can deliver on the 10 per cent target by 2010 and indeed go way beyond it [to meet the expanded renewables target advocated by the PIU Energy Review], as further expansion should be a great deal easier once these barriers are removed.

  The enquiry is seeking evidence on:

    —  the impact of recent developments in energy policy such as the New Electricity Trading Arrangements and the Renewables Obligation;

    —  current policies to support renewables (including R&D and capital grants) and the likelihood of meeting Government targets in this area;

    —  the extent to which current developments reflect "joined-up" working between the parties involved (Government departments, Ofgem etc;)

    —  the outcome of the PIU energy review and the development of a sustainable energy strategy.

  This following evidence is broken up into the following sections:

    1.  NETA.

    2.  The Renewables Obligation.

    3.  Other funding sources.

    4.  Capital grants.

    5.  Meeting targets.

    6.  Joined up working between relevant parties.

1.  NETA

  Impact on generator revenues

  NETA has had a major adverse impact on renewables, particularly on intermittent generation sources. Ofgem's review of the first two months of NETA reported:

    —  a substantial drop in average price received (and without taking into account the impact of the Climate Change Levy Exemption, without which the price reduction would have been significantly greater); and

    —  a 14 per cent drop in output of renewable generation.

  Although there has been much written about the impact on renewable generators, there is relatively little data with which to back it up. Renewable generators with NFFO contracts are insulated from the effects of NETA. It is only those renewable projects which had contracts awarded under the first two rounds of the NFFO (which expired in December 1998) or those that are entirely outside the NFFO process which are exposed to NETA. And of these, very few of these generators are exposed directly, as most of them are not signatories to the Balancing and Settlement Code. Instead they shelter behind the supplier purchasing their power. Most receive a tariff negotiated with the supplier before, but in anticipation of, the onset of NETA. These tariffs are lower than the price generators were previously paid for their power, and in many cases embedded benefits are rolled in.

  An independent survey of ex-NFFO generators concluded that on average these renewable generators had suffered a 38 per cent reduction in income for April and May 2001 compared to 2000, despite the inclusion of CCL benefit in the post-NETA price. The results are summarised in Table 1 below. The Ofgem report made the same invalid comparison. On a like for like basis (ie ignoring the CCL worth up to 0.43p/kWh) the reduction in income is therefore nearer 45 per cent.

Table 1. Income changes following NETA

MW dnc
% reduction
in income
Weighted average income reduction
Mean income reduction per site
SW = small wind, SG = sewage gas, EfW = energy from waste

  Although relatively few responses were obtained for this survey, this was also true for the Ofgem report, which only received a small number of usable responses from renewable generators [1].

  Although the number of responses to the independent survey was limited, the reduction in tariff levels generally and the reduction in income over the period April to May 2001 relative to the previous year, is clear.

NETA and the environment

  Renewable plants are small and suffer disproportionately because of their size. They do not have the resources (manpower, IT) to engage in the complex NETA market, nor is it a key focus for developers' time and efforts. The reasoning for renewables development is primarily environmental and the impact on competitive markets is largely secondary. Even if it were feasible it would not make environmental sense to operate renewable plant to balance contract positions.

  Several commentators are now questioning the efficacy of NETA in the wider context and the extent to which NETA can be credited with reducing electricity prices is questioned,[2],[3].

  NETA has resulted in increased emissions, due to an increased amount of coal being used for power generation and more plant being run on a part-load. Increased part-loading has come about because the pricing pattern so far favours over production, and generators are choosing to keep additional flexibility to increase their output to avoid imbalance charges. Power UK estimates part loading has risen from 1GW pre NETA to around 5GW (Power UK 88, June 2001 p 16). Part-loading is less efficient and this trend has therefore resulted in higher costs and carbon dioxide emissions.

  An RPA member reported that DTI statistics show that the fuels used for electricity produced during Q2 and Q3 of 2001 increased by 3 per cent over 2000 for the same quantity of electricity supplied, reinforcing the above statement that generation is operating less efficiently under the new rules.

DTI consultation on NETA and smaller generators

  There are two approaches to remedying the situation; supporting renewables through some other means—ie increasing the subsidy, or by tackling the root cause of the problem and modifying NETA. The RPA favours the latter approach.

  The DTI issued a consultation paper in response to Ofgem's findings, and the RPA response is enclosed with this evidence. In summary, RPA's views on the various options put forward by the DTI are as follows:

    —  full support for the concept of cost-reflective prices and the corollary, a single imbalance price. The fundamental cause of the problems created by NETA for small generators is the dual imbalance price arrangement. The imbalance prices were extreme in the early days, but continue to be non-cost-reflective. The cost of mitigating these adverse effects is disproportionately high for small generators;

    —  improving consolidation options is addressing a symptom rather than the underlying problem caused by NETA, and is only worth pursuing if the underlying problem is not addressed. RPA is sceptical as to whether consolidation will ever be cost-effective for small generators;

    —  ex-post trading is similarly addressing a symptom rather than the underlying problem, but is probably a more practical option than consolidation;

    —  "de minimis" or deadband provisions might be a practical way of delivering a neutral imbalance price for the majority of renewable generator imbalances, but the deadband would need to be sufficiently large to be of value to larger renewable projects such as offshore wind;

    —  providing greater access to imbalance surplus for small generators would, as for consolidation and ex-post trading, be addressing a symptom rather than the underlying problem, but would be worth pursuing if the underlying problem is not addressed.

  The RPA requests that its full response to the NETA consultation be considered by the Committee and published along with this evidence.


  The Government has not yet reported the conclusion of its consultation, yet in answering a parliamentary question Brian Wilson stated that:

    "the Government's key proposals are, broadly,

      To ensure imbalance prices are genuinely cost reflective; and

      To ensure that effective consolidation services emerge."[4]

  The RPA is fully in favour of cost reflective imbalance pricing. Indeed, the RPA has argued that cost reflective pricing leads to a single imbalance cash out price. Remedying this fundamental problem of NETA would be preferable to merely improving consolidation.

  The Government's key proposals are somewhat in conflict. Cost reflective imbalance pricing would reduce the spread between the cash out prices, and therefore reduce the scope for consolidators to bring commercial benefit to their clients.

  If dual cash out pricing remains and no other changes to NETA are made the RPA would support the development of a low cost and straightforward consolidation option for smaller generators, but it would be the less favoured approach.

  The Government has initiated a group to progress consolidation[5]. This group published an interim report[6] on 10 January and the final document is due to be published imminently.


  The Government began reviewing renewable energy policy soon after it was elected in May 1997. At the industry's request a fifth NFFO order was undertaken to maintain the momentum of renewables development and NFFO 5 contracts were awarded in September 1998.

  The Renewables Obligation has not yet started, and following an initial target date of October 2001, is now expected to begin on 1 April 2002.

  By any calculation the industry has been suffering a long period of hiatus. This is particularly true of particular technologies such as biomass, wave and PV that have not fully benefited from the previous NFFO rounds.

  During the interval, the Government has continued to issue supportive statements and provide assurances that the barriers to renewable energy deployment will be addressed. The industry has been encouraged by the Government's positive statements for renewable energy, yet frustrated that the starting gun has not yet been fired.

  The RPA has many concerns about how the Obligation will work in practice, but the highest priority must now be given to getting it going. The RPA recognises it is difficult to predict the effectiveness of the RO in achieving the target growth in renewable power and the real extent to which this mechanism will encourage the necessary financing and development of less well established technologies and fuel sources, such as offshore wind energy, energy crops, wave and ocean/tidal current technology. It is clear that even if changes to NETA are implemented a number of technologies will not be sufficiently stimulated by the RO. Table 2 which summarises the sufficiency of support for various technologies is given in section 6 of this evidence.

  In its response to the statutory consultation it urged the government to commit to an early formal review (within two to three years of the Order being made) and in that review to re-consider the sufficiency of the buy-out price and the sources of renewable energy supported by the obligation.

  More information on the RPA's concerns over the Renewables Obligation can be found in the response to the Statutory Consultation, enclosed. If not published along with this evidence, this and all other RPA responses to consultations can be found on

  The final draft of the order was circulated to the industry on 24 January. The RPA has concerns over the drafting of clause 8 which addresses which renewable energy sources are eligible for Renewable Obligation Certificates, but it does not want the order to be delayed.


  There is a great number of other support mechanisms now in existence with the potential to benefit renewable energy. These are:

    —  Exemption from the Climate Change Levy.

    —  Enhanced Capital Allowances (not yet available for renewable energy technologies, but widely called for during the Green Technology Challenge Consultation Document[7]).

    —  Grants from the New Opportunities Fund for Energy Crops (£33). Offshore wind (£10). Small biomass heating and CHP (£3 million) and various other measures (£4 million).

    —  £100 million to be allocated in accordance with the PIU's recommendations. The details of how the schemes will be administered are yet to be worked out. These schemes will cover Offshore wind, energy crops, Innovative PV, wave and tidal, advanced energy crops, next generation technologies, PV and metering and land use planning activities.

    —  Accelerated depreciation 40 per cent for SME's.

  It is estimated that in all, there are over 25 separate pots of money, which can be accessed for renewables. It is clear that in comparison with the NFFO regime where generators, provided they won a contract, were able to access one predictable and stable income stream, the framework is much more complicated. However, there is now greater flexibility in the range of renewable energy technologies supported and this is welcome. Under the NFFO, the technologies eligible to take part in the competition were tightly specified. The RPA supports the Government's aim of not picking winners. However there remains a significant degree of technology selection in the range of supplementary support measures outside the basic Renewables Obligation.

  Although the NFFO has the advantage of simplicity over the range of current and shortly to be implemented measures, it did not result in a rapid increase in renewable generation capacity. Whether this was due to an inherent problem with the NFFP policy itself or was primarily caused by other barriers, mainly planning could be contested. It is well recognised that planning and other barriers do need to be removed if the RO is to be more effective than NFFO.


  Capital grants are most effective where running costs are minimal and capital cost comprises virtually the entire investment. For example this form of support is more effective when used for offshore wind energy than it is for renewable sources in which the fuel represents a significant proportion of the overall cost of electricity generation; these include some forms of biomass and energy crops. For these technologies an ongoing premium price is more cost effective as a means of encouraging the development of energy crop capacity, that recognises both the capital cost and the operational fuel cost elements. Members of the RPA will be happy to provide more information on this if requested.

  While support is obviously welcome, there is a risk that the growing number of different grants and support measures for renewable energy projects is becoming excessively complicated and confusing to business/developers—and that this increases the risk that the various schemes/measures will not fully achieve their goals. This is particularly true with respect to energy crops—where the PIU's £100 million appears to add significant further complexity to what was already quite a detailed picture.

  The Government should be pressed to simplify the grant funding in this area by pooling grant monies wherever possible, appointing a single Department/organisation to look after and distribute all the money available and by operating as small a number as possible of clear, transparent bidding rounds.


Contribution from different sources

  The DTI Consultation document published in March 1999 outlined the contributions each technology was expected to make towards a 10 per cent renewable energy target. Three different scenarios were portrayed; trends continued high wind and constrained wind. Significant contributions were expected from wind energy, "waste incineration" and existing capacity. Under the constrained wind scenario energy crops expanded to fill most of the gap left due to the reduced wind output.

  Given the change in status of "waste incineration" and the inadequacy of support for energy crops, proportionately more emphasis is placed on wind energy to deliver the bulk of the new capacity required.

  The PIU £100 million report noted that "wave and tidal [stream] power offer perhaps the greatest long-term scope for the UK". The recent House of Commons debate on wave and tidal energy [8] suggested that "at a comparably immature stage of development, the generating costs of wave and tidal power are already at or around 5p per kWh". For the sake of encouraging diversity within renewables, the RPA urges the Government to ensure that these technologies are given adequate support.

  It is not within the RPA's remit to comment in detail on the contribution different renewable sources could make towards meeting the target, but it would like to see each technology given the chance to deliver its potential. Given the immaturity of the renewables sector and the scale of the challenge, it is far too early start picking winners. To ensure a balanced strategic response to the UK's energy challenges most renewable technologies will be required. Also the case for UK export opportunities into overseas energy markets.

Rate of deployment

  Renewable resources are large and the quantity of resource is not a constraint on the contribution that renewables can play in the UK energy mix. It is combination of policy driver and the removal the barriers which is the key factors which determine whether the targets will be met.

  However, it is worth pointing out that a rapid acceleration in the rate of deployment of renewable energy will be required. The figure below shows the growing output from the renewables eligible for the Renewable Obligation over the past few years, along with the targets. The dotted line is clearly much steeper than the unbroken line. An acceleration of over 7 fold is required.

  The industry is confident that if the barriers are addressed, and the support given is adequate, that it can deliver the required capacity. The support mechanisms proposed for the various technologies and an RPA assessment of the adequacy of this support and the anticipated rate of development are given in Table 2.

Table 2. RPA assessment of sufficiency of support measures for various technologies

TechnologyROCs/LECs GrantsAssessment/comments
Energy cropsY/Y£33m in form of £/MW grants (DTI)

£29 DEFRA of which
£12m over next 3 years

£10 near commercial
energy crop and
woodfuel schemes (PIU)

3.5m infrastructure for
harvesting E crops (esp.
non SRC schemes not
covered by DEFRA)

£2m industrial heat
schemes (PIU)
Sufficient at 40% capital grants to deliver c.50MWe of mixed generation capacity (some early combustion & some gasification). This could be fully taken-up by a single large scale gasification plant. Inadequate level of funding for a programme of demonstration plants utilising different biomass conversion technologies.

Sufficient matched funding for the establishment of c.18,000- 29,000 ha of energy crops on a mixture of existing arable and grassland. Further funding requirement to support existing high costs of harvesting, processing and storage of fuel, that recognise additional rural/agricultural benefits of diversification and a more sustainable approach to farming

If one assumes near-commercial relates as in PIU report to steam combustion plant, then £10 million at 40% capital grants would deliver 12 - 18 MWe (depending on scale)

Objectives and therefore allocation of funding is not clear here. Objectives seem to relate to : (1) energy crop support scheme for non-SRC and miscanthus crops (2) start-up grants for producer groups, (3) investment in development & demonstration of fuel management infrastructure

Biomass with pyrolysis/
Y/Y£18m for D&D of
next generation of
The 2% limitation on fossil fuel content for bio-degradable waste stream will be a limitation on use of fuel supply based on biomass waste streams—D. Williams EPR will be able provide a more comprehensive explanation.
Biomass co-
fired with
Y*/Y   For more detailed specialist comment, we suggest you contact British Biogen.
Biomass heat boilers &
N/A £3m from NOFThe economics are still marginal. Developers are looking into such schemes.
Landfill gasY/Y   Sufficient stimulus to develop the limited uncontracted capacity remaining.
AD of food wastes/farm
slurry etc
Y/YAvailable under some
PIU initiatives, eg if
community element.
Possibly enough support to encourage the development of AD of MSW once 3 - 4 large-scale plants have demonstrated the technology.
AD of MSWY/YAvailable under some PIU initiatives, eg if community element. For larger scale projects, capital grants would be needed. Around 3 or 4 demonstration plants would help establish larger scale diversion of biodegradable material from landfill.
Sewage gasY/Y   There should be sufficient stimulus to expand the amount of power generation from sewage gas. Some aerobic processes may be converted to operate anaerobically. If ROC income is treated as regulated income by regulator Ofwat, the incentive to develop sewage gas is reduced.
Tidal currentY/Y£5m (for both tidal and wave - PIU)
Wave powerY/Y£5m (for both tidal and wave - PIU) A clear and unambiguous market pull" support mechanism is needed to bridge opening costs with prices available under the RO, in order to allow developers to plan and permit projects early on. Other countries are starting to take a lead in this area (eg Portugal with a wave power tariff of 22.5 eurocents/kWh). Unless the UK gives support to commercial development of wave power projects there is a danger that the UK will lose its competitive advantage.
PVY/Y£10m demonstration
programme (DTI)£10m for innovative PV (PIU)
These programmes should help kick start a PV-roof programme to compare with Germany's - covering the first 2,000 - 3,000 roofs. Underwriting of market volume will help to bring costs down, and encourage investment in manufacturing capacity. This is currently 3 MWp/annum, but forecast to rise to around 10MW within the next three years.Metering appropriate for domestic scale generation is extremely important, along with in the longer term incorporating within building regulations a requirement for a certain level of PV usage.
Y/50%  Some RPA members express the belief that very little capacity will result from the current measures, due to the lack of bankable" technology available at present.
EfW (other)N/50%     
Small hydroY/Y   There should be sufficient stimulus to encourage further development of small hydro, although the remaining resource is small.
Y/Y   This will be helpful in securing the future of much of the marginal (smaller scale) existing plant. Larger scale refurbishment will be stimulated, although it will not add greatly to the total output of large-scale hydro capacity.
Y/Y   Sufficient stimulus to develop across a range of wind regimes. Although NETA, planning and grid connections issues are a particular concern. For more detailed comment, contact the British Wind Energy Association
Y/Y £39m over 3 years (DTI)£10m NOF

£25m PIU
For more detailed comment, contact the British Wind Energy Association.
*But not for the whole period of the obligation.


  The RPA believes that lack of joined up working between government departments can present a real problem. This is borne out by a finding of the report of the Evaluation of DTI support for New and Renewable Energy under NFFO and the Supporting Programme.

    "A number of companies indicated that, while they were able to communicate their views to the DTI, they had found the DTI relatively powerless to act on the issues raised. This was attributed to the conflicting priorities between different government departments and agencies. Lack of inter-departmental communication and co-operation between government departments was identified as exacerbating problems."[9]

  The RPA recommends that the responsibilities for implementing renewable/sustainable energy should be brought together into one government department. At present these are split between various government departments, with the result that some issues can fall through the cracks. Planning and the NFFO was a key example; DTI devised the policy to stimulate renewables deployment, whereas the key barrier, planning, was under the remit of DETR. Each department could point the finger at the other—DTI at DETR for not sorting out planning, whilst DETR could criticise the policy framework (NFFO) for exacerbating planning difficulties. It remains to be seen how far a change in policy framework from the NFFO to the Renewables Obligation will ease these difficulties.

  This theme and other examples are elaborated on below.

Planning—communication between DTLR (formerly DETR) and DTI

  The sponsoring department for planning is the DTLR formerly DETR, whilst the sponsoring department for renewable energy development is, of course, the DTI. The RPA believes that this separation and the lack of adequate communication between the two departments has resulted in the planning climate being a key barrier to the deployment of renewables.

  The background paper examines the planning picture with respect to NFFO projects and clearly illustrates that securing planning permission has been a grave hindrance to achieving government targets for renewable energy.

  The House of Lords report on renewable energy, published in 1999, suggested that "National policy for renewable energy needs to be a clear and integral part of the planning guidelines. Moreover, planning inspectors should be more clearly held accountable for decisions by reference to those expanded guidelines"[10]. The report also noted the value of regional targets for the implementation of renewable energy.

  Just over three years later, the regional assessment studies are now complete and DTI has commissioned a further study to examine the results in the context of the government's 10 per cent target for renewable energy. However it is not within the remit of that further study to make recommendations with respect to planning policy.

  The real test of whether the "stakeholder buy-in" approach used for the regional targets has been effective will be seeing how the targets feed through to local planning authority decisions and how quickly.

  Planning Policy Guidance on renewable energy (PPG22) was issued in 1993, but effectively dates from 1991, when the first draft was issued for consultation. Few amendments were made from the original draft. Government has begun a review PPG 22 and the first workshop will be held on 16 January. A summary of the points made by the RPA at this meeting is attached as an appendix to this evidence.

  The RPA's members are deeply concerned about the planning climate and find the suggestions that developers should place more emphasis on consultation with the local community unhelpful, as the industry demonstrably spends considerable time and effort on this. More support from the government, whose targets the industry is trying to deliver, would be helpful. This could take the form of public information campaigns.

  The RPA is pleased to note that a new position has been created to promote business support for renewables. Similar work promoting renewables to the general public would be welcome.

DTI and Ofgem

  Whilst it is DTI which sets renewable energy policy, it is Ofgem which is the ultimate arbiter of many areas of its implementation.

  For example under the NFFO. The DTI designed the scheme and the minister decided on the size of the NFFO Orders made. Ofgem however undertook the "will secure" test and advised on the size of orders made.

  There have been a number of projects, which have not progressed as Ofgem has determined against them in one respect or another. One RPA member has had 60 MW of capacity which had obtained planning permission and finance in place, but which was prevented from progressing as a result of Ofgem.

Locational flexibility

  Although no more NFFO orders will be made, the large number of undeveloped contracts are hoped to comprise a substantial amount of the near-term renewables capacity being developed. Of the 3,270 MW dnc of contracts awarded under the five NFFO orders, 320 MW dnc has been terminated, 855 has been commissioned and 2,094 is pending.

  An Order allowing contracts to change location was laid before Christmas, a move that was welcomed by the Renewable Power Association. Consequential changes will be inevitable when a contract changes location and Ofgem will have to determine whether such changes are consequential to the move, or whether they breach the Qualifying Arrangements. The RPA is seeking swift resolution and a productive interpretation in support of overall governmental objectives in Renewable Energy.

  The NFFO evaluation report[11] concurs with the decision to grant portability for NFFO contracts, but states "However, we would caution against over-optimism as to what this measure by itself can deliver".

  The RPA will offer to assist Ofgem in this process.


  Energy from waste is an example of an issue suffering from lack of joined up thinking between departments. The DTI had promoted EfW in parallel with other renewables since 1990, and were initially intending to continue with this policy through into the Renewable Obligation.

  Pressure to exclude Energy from waste came from DETR following a campaign by environmental groups. Messages from DETR have been mixed, with a recognition that a significant amount of EfW capacity would be required (in the document Waste Strategy 2000) followed by a backtracking of political support. Recently EfW has benefited from a renewed recognition of its role during the Waste Summit.

  Present DTI policy prevents any gate fee-paying waste stream being used in a renewables project (unless using gasification or pyrolysis)—even when a small intake of waste would improve the economics of biomass projects.

  The end result is that both the UK's renewable energy targets and its landfill diversion targets are made substantially more difficult to achieve.

1   Table A3.1 Classification of site questionnaire returns lists 11 renewable generators" 8 wind generators and 4 hydro sites for which volume and price analysis data could be used. Back

2   NETA-Is the Glass Half Empty or Half Full? Nigel Cornwall. UK Powerfocus. September 2001. Back

3   NETA-are there new risks? Power UK 91. Back

4   Brian Wilson's response to question put by Mr Llwyd: "To ask the Secretary of State for Trade and Industry if she will make a statement on the Ofgem review of NETA on small generators' (a) profit and (b) output since the introduction of the scheme." [25630] 9 Jan 2002 : Column: 871W. Back

5   Wilson Gives Smaller Generators a Voice in the New Electricity Market. DTI press release P/2001/714. 20/12/01. Back

6   Interim Report to the DTI of the Consolidation Working Group. Ofgem, 10 January 2002. Back

7   Green Technology Challenge consultation, HM Treasury Environmental and Transport Taxes, July 2001. Back

8   10 Jan 2002: Hansard. Column 269WH-310WH. Back

9   Quote from Evaluation of DTI support for New and Renewable Energy under NFFO and the Supporting Programme. Final Report to the Department of Trade and Industry by Frontier Economics and Byrne O Cleirigh. Main Report. December 2001. DTI Evaluation Report Series, No 5. Back

10   Para 12. Electricity from Renewables. Volume 1. Select Committee on the European Communities. House of Lords. Session 1998-99. 12th Report. HMSO. 29 June 1999. Back

11   See reference 9, page 57. Back

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