Electricity Market Reform - Energy and Climate Change Contents


Memorandum submitted by Mainstream Renewable Power

1.  Mainstream Renewable Power is a leading renewable energy company developing renewable energy projects across several continents, including Europe, Africa, and both North and South America. The Company expects to be a major provider of renewable capacity for the UK and has a development pipeline in excess of 5,000MW.

2.  In the UK, we are developing two large offshore wind projects; both of which are subject to the OFTO regime. In Scottish territorial waters we are developing the 450 MW Neart Na Gaoithe project. Through the SMart Wind consortium, we are developing the 4,000MW Hornsea Round 3 zone with our partners, Siemens Project Ventures. In the German North Sea, we are developing the 1,000 MW Horizont project.

3.  In doing so, we will be attracting new sources of finance, encouraging new entrants to broaden and deepen the supply chain, and pursuing innovation at all levels to lower the cost of offshore wind. We are concerned that some of the proposals contained in EMR, if implemented, may militate against these goals. We provide below our response to the Consultation, together with detailed answers to the Consultation questions.

4.  Mainstream Renewable Power supports the Government's objective to decarbonise electricity generation in the UK. We believe that the current market arrangements will not facilitate the required rate of decarbonisation to deliver the UK's 2050 ambitions, nor enable the UK to fully exploit its offshore renewable energy assets over this period. We agree that the incentives to invest in low carbon generation need to be strengthened, as do instruments to ensure that high carbon energy sources are not "locked in" to the energy mix, as the UK pursues measures intended to accelerate the transition to a low carbon energy sector.

5.  The investment challenge for the UK electricity industry is the highest it has ever been, with both generation and transmission assets requiring renewal on an unprecedented scale. This represents a singular opportunity for the UK. With the appropriate suite of market reforms, skilfully delivered, not only will our ambitions for low carbon generation and the networks to support it be realised efficiently, but the consequent multiplication of investment benefit through additional high quality industrial activity, skills and jobs will provide a continuing benefit to the economy.

6.  That is why it is important that the reforms are the right ones to bring about this necessary transformation; and have the broad support of both industry stakeholders and those parties who will provide the finance to enable the realisation of the vision. The confidence to provide this support will be underpinned by reform proposals which are clear, detailed and widely accepted, together with an implementation/transition plan which charts a low risk path from where we are now, to where we need to be. It is imperative that reforms are robust and enduring, to avoid the necessity of further near term revision and the accompanying damage this would cause to investor confidence.

7.  Any proposed reforms must be based on the fundamental objective of promoting confidence, in order to ensure that there is not a damaging hiatus, or permanent diversion of investment away from the UK energy sector. It is vital that investment in renewables is seen as an increasingly attractive opportunity by all stakeholders involved in the sector. We look to the government to continue the constructive process of engagement as the Energy Market Reform (EMR) reform moves to the next stage of development.

8.  We are particularly concerned that the preferred CfD mechanism presented in the EMR effectively removes capacity from exposure to the market and relies instead on central direction, with its attendant need for "perfect foresight" and constant corrections as events unfold. Further, by removing a significant proportion of capacity from the market, the fundamental operation of the residual competitive, liberalised market is inevitably compromised and distorted.

9.  In order to deliver a fully decarbonised power sector, EMR must meet the following objectives, which are vital if offshore wind is to continue its contribution to the UK's energy and climate change objectives:

10.  Transform the RO into a low carbon premium FIT in preference to a CFD. Given the current trading arrangements for electricity in the UK, we cannot see how a CfD can be made to work. The UK does not have a sufficiently liquid electricity market (both transparent and accessible) to create a reference price on which to base a CfD. A premium FIT is better understood by investors, would operate more effectively in the UK market, and has greater similarity to current support schemes, so as to ease the "switchover" from the RO. A transition from the RO to a premium FIT would ensure that the momentum of the offshore industry is maintained, an essential requirement for any new investment in the sector.

11.  Retain an obligation on suppliers to source electricity from low carbon generation. The RO has been successful in attracting all of the major UK electricity suppliers to the offshore wind sector. Not only is it necessary to have suppliers involved in order to provide a route to market for the power that sector will generate, but the presence of large established utilities has given confidence to the wider supply chain that they can make the necessary significant investments to supply the offshore wind industry. Any new support scheme, whether it be a premium FIT or CfD, must retain an obligation on suppliers.

12.  Recognise that auctions are inappropriate to set support levels. Auctions have proven very ineffective at setting the price of renewable support schemes. The UK's own experience with the Non Fossil Fuel Obligation demonstrated that those who win the auctions tend to do so at levels that do not allow them to deliver their projects. The industry has become used to the RO banding review process as a support setting mechanism and that should be the mechanism to deliver further adjustments to the levels of support for the sector.

13.  Ensure that those who have already invested in the UK power sector are treated fairly. Government should ensure a transition process which adequately protects existing investment and provides the necessary confidence for industry to continue its expansion as we move forward to operation under the reformed arrangements.



 
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Prepared 16 May 2011