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
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
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
2. The Renewables Obligation.
3. Other funding sources.
6. Joined up working between relevant parties.
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
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
|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 .
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
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,,.
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 meansie 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;
To ensure that effective consolidation services emerge."
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.
This group published an interim report
on 10 January and the final document is due to be published imminently.
2: THE RENEWABLES
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 www.r-p-a.org.uk.
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.
3. OTHER SUPPORT
There is a great number of other support mechanisms now in
existence with the potential to benefit renewable energy. These
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).
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
£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
4. CAPITAL GRANTS
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/developersand that this increases
the risk that the various schemes/measures will not fully achieve
their goals. This is particularly true with respect to energy
cropswhere 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.
5. MEETING TARGETS
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  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
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
|Energy crops||Y/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
|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 streamsD. Williams EPR will be able provide a more comprehensive explanation.
|| ||For more detailed specialist comment, we suggest you contact British Biogen.
|Biomass heat boilers &|
||£3m from NOF||The economics are still marginal. Developers are looking into such schemes.
||Sufficient stimulus to develop the limited uncontracted capacity remaining.
|AD of food wastes/farm
|Y/Y||Available under some|
PIU initiatives, eg if
|Possibly enough support to encourage the development of AD of MSW once 3 - 4 large-scale plants have demonstrated the technology.
|AD of MSW||Y/Y||Available 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.
||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 current||Y/Y||£5m (for both tidal and wave - PIU)
|Wave power||Y/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.
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.
||There should be sufficient stimulus to encourage further development of small hydro, although the remaining resource is small.
|| ||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.
|| ||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
||£39m over 3 years (DTI)£10m NOF|
|For more detailed comment, contact the British Wind Energy Association.
|*But not for the whole period of the obligation.
6. JOINED UP
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."
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 otherDTI 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.
Planningcommunication between DTLR (formerly DETR) and
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".
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
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
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.
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
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
The NFFO evaluation report
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.
DTI and DEFRA
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
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.
Table A3.1 Classification of site questionnaire returns lists
11 renewable generators" 8 wind generators and 4 hydro sites
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NETA-Is the Glass Half Empty or Half Full? Nigel Cornwall.
UK Powerfocus. September 2001. Back
NETA-are there new risks? Power UK 91. Back
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."  9 Jan 2002 : Column: 871W. Back
Wilson Gives Smaller Generators a Voice in the New Electricity
Market. DTI press release P/2001/714. 20/12/01. Back
Interim Report to the DTI of the Consolidation Working Group.
Ofgem, 10 January 2002. Back
Green Technology Challenge consultation, HM Treasury Environmental
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10 Jan 2002: Hansard. Column 269WH-310WH. Back
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.
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