Memorandum by npower Renewables
1. In November 2007, RWE AG announced plans
to set up a new renewables dedicated company that will enable
the significant expansion of its renewable activities, both in
the UK and in Europe. We anticipate that growth will be aligned
with the policy targets set at European and national levels, and
that ambitious UK targets for renewables will attract substantial
investment by RWE into the UK renewables market, where we will
continue to pursue our commitment to organic growth through investment.
Our primary focus will be to develop, construct and operate the
currently deployed commercial renewable technologies where we
have developed significant expertise: onshore and offshore wind,
hydropower and biomass. Innovation will also be a central strand
of our activities with a particular focus and significant expenditure
on the commercialisation of emerging technologies, such as wave
and tidal power from 2008 onwards.
2. RWE's retail arm in the UK is npower,
one of the UK's leading suppliers of electricity and gas with
over seven million customers. Serving the residential, small to
medium enterprises and industrial and commercial sectors, npower
delivers competitive, advanced solutions for its customers. Npower
retail is also committed to R&D into renewable technologies
through its 100% renewable electricity tariff, Juice. This has
proven to be a popular programme, with the subscription of 50,000
customers due to rise to 100,000 in two years. This further demonstrates
the importance of renewable energy within not only the business
community but also the wider population.
3. From 1 February 2008, all npower renewables
UK assets, as well as our development and operational activities,
have been pooled into the new company, RWE Innogy. To date, our
operating portfolio has the ability to generate approaching 463
MW of clean electricity (see appendix 1), and we have many more
projects in construction and under development. We are also fully
committed to the research and development of low carbon renewable
technologies and see such Research & Development to be a key
enabler in relation to RWE Innogy's target of 4.5 GW of renewable
generation by 2012.
4. Appendix 1 identifies current positions
for RWE renewable technology as well as the key barriers to be
overcome to achieve large scale deployment and meet the EU 2020
targets. These are also the key technologies that are supported
by the Renewable Obligation (RO) programme to encourage investment
into clean energy production.
ACHIEVING THE
2020 TARGETS
5. Our track record and commitment to energy
innovation gives us a valuable perspective to identify and support
the most viable and cost-effective technologies to maximise renewable
energy use. We are fully committed to helping the government meet
its renewable targets and believe this can be achieved if the
government continues to support the most viable and cost-effective
renewable technologies.
6. However, it is important to point out
that the EU's energy policies in general and the Third Energy
Package in particular suffers from a dilemma regarding the fundamental
objective of climate change policy—ie, "greenhouse
gas" abatement. This is because renewables is only one of
several mechanisms that can provide reductions in CO2 emissions.
One method that could help resolve this dilemma would be to link
the penalty for a Country that failed to meet renewable targets
with a reduction in its CO2 permit allocations.
7. That said, we are confident that existing
renewable technologies have the capability to meet a significant
proportion of the current 2020 targets, which simultaneously increases
the UK's indigenous energy supply. However, given that the UK's
share of renewables in final energy consumption was around 1.6%
in 2006 (according to BERR's "2007 Digest of UK Energy Statistics");
the nearly tenfold increase proposed by 2020 is extremely ambitious
and will only be achieved through change. Unless radical transformations
are made within the areas of grid access, planning consent, and
supply chain, existing technologies will not be deployed in time
to meet energy targets. Effective government policy is essential
for overcoming barriers in these areas and maximise renewable
energy capacity if the UK wishes to decrease its energy import
supply dependence.
8. The recent Government reforms to the
RO mechanism will further enable large-scale deployment of existing
technologies. In particular, the banding up of "post demonstration
technologies" help address economic challenges encountered
by renewable technologies, particularly offshore wind where we
anticipate a greater than tenfold increase by 2020. This vast
increase in off-shore development does not come without problems
in the form of grid connectivity and planning constraints. Therefore,
it is now critical that Government ensure policy stability and
consistent support across the UK for the sake of achieving one
clear goal.
9. The draft Renewables Directive provides
a second mechanism to help the Government achieve its targets.
Article 5.9 allows EU members states to meet their national targets
in other countries by trading Guarantees of Origin (GoOs), which
makes reaching the governments goals more achievable without undermining
the national support mechanisms. (As explained in paragraphs 31-33).
Furthermore, we feel that the combination of the two support schemes
(RO and GoOs) will not only have a long term positive effect on
the national renewable energy market but they will also greatly
change the entire UK energy structure by securing new energy supplies.
(See also paragraph 33 re GoOs.)
10. However, it is important to note that
other types of energy generation will still be needed in conjunction
with renewable energy. Given the large-scale use of wind energy
in the UK, and intermittent nature of wind itself, traditional
sources such as nuclear, coal and gas plants should be used to
supplement wind power.
GRID ACCESS
11. The availability of grid connections
for renewable projects remains a major barrier to the deployment
of most renewable technologies, particularly wind and marine renewables.
The current grid structure is designed for conventional forms
of generation. Physical grid access and the grid code inhibit,
and therefore delay, the connection of renewable assets to the
grid. Furthermore, UK grid code regulations are more onerous than
those of other European countries. These regulations influence
the technical requirements of turbines, which slows the supply
chain while imposing unnecessary costs.
12. Wind developers in the UK must compete
for turbines in a competitive international environment. Demand
for turbines, in particular, has risen dramatically over recent
years and has contributed to rising project costs for both onshore
and offshore wind. BERR recently commissioned a report[3]
to explore the capital and operational cost of renewable technologies,
where they found capital costs of wind projects have increased
by 25% over the previous 12 to 24 months. Furthermore, the costs
of turbines, towers and blades are expected to increase in real
terms until around 2010 as a result of supply—demand issues
and rising steel costs.
13. However, the problems within the supply
chain are not limited to wind farm components but it also includes
the lack of qualified staff. Currently these deficiencies are
being seen in the areas of engineering, construction and sciences.
Due to the fact that the UK is expecting to increase its renewable
installed capacity by tenfold then it is easily understood that
we will also need to significantly increase the number of trained
staff from current levels. Therefore, the government has a responsibility
to promote the development of renewables related skills across
UK schools and universities if they want to increase the chances
of reaching the 2020 targets.
14. Npower Renewables takes its role as
a buyer and employer very seriously. As such we actively seek
to engage with manufacturers to develop opportunities in the UK.
For example, npower renewables recently co-sponsored (with Business
Link North East) "Meet the Buyers—Wind Energy".
This trade fair in Northumberland aimed to bring together turbine
suppliers, the construction industry and local contractors in
order to build relationships between local and international suppliers.
We support the development of voluntary approaches to developing
opportunities for UK manufacturers that can be adopted by the
industry as a whole and contribute positively to UK GDP.
15. Priority grid access for renewable generation
was addressed in legislation (2001/77/EC) but as yet article 7.1,
which suggest that EU member states "may also provide priority
access" for renewable electricity, has not been applied in
the UK. This is because the article insisted upon priority despatch
for renewables with the option for Member States to have the choice
of priority access (connection). Priority Despatch is provided
by economic means in the UK as renewable generators receives the
benefit of Renewable Obligation Certificates (ROC), which significantly
increases the cost of turning down renewable generation, due to
the fact that most renewable generation has no fuel cost and because
of the loss of ROC's associated with that generation. Accordingly
in a self despatch market such as GB the plant operator will ensure
that his generator is running. It is therefore a generally held
view in the UK that no further legislation is required in relation
to priority despatch, npower renewables shares that view.
16. However, we do feel that a complete
overhaul of the GB grid connection system is needed to achieve
the government's target for renewables. The outcome of this overhaul
should be that all generators can obtain a connection within the
planning timescale of the project (ie the period it takes to obtain
planning consent for generators such as wind farms). Npower reneweables
believes that this outcome is achievable and would make the need
for priority access unnecessary. There is also the argument that
priority access could cause existing generation plants to be stranded.
This will send a negative signal to the market as developers of
wind farms may also be concerned that at some point in the future
they may also find that they are forced to give up their access
rights and become a stranded asset.
17. We support the BERR/Ofgem review of
transmission access arrangements, as we also believe that change
is inevitable and must be made with the help of an appropriate
impact assessment and cost/benefit analysis. Given the government's
aspirations to see an increasing amount of renewable generation
connected to the transmission network, together with the potential
for the closure of older plants, we recognise that the transmission
access arrangements must be fit for purpose and enable the delivery
of new connections within acceptable timescales and at costs that
are reasonable both for the party seeking connection and for other
users.
18. Some of these issues could also be addressed
in the short- to mid-term with better grid queue management to
enable a more timely connection of renewable generation capacity.
This would take out the more speculative applications that impose
more constraining pressures on the application process. In the
medium to long-term, it is very clear that, across the industry,
significant investment in infrastructure will be vital to prevent
the transmission and distribution grids constraining current and
future energy generation. This investment is also needed to provide
for the evolving nature of generation to include more distributed
and embedded generation, in addition to existing conventional
flexible generation.
19. Any investment in infrastructure must
be appropriate and timely; we believe the best way to achieve
this is to ensure that investment is driven by the requirements
of present and future projects being developed. Consequently,
National Grid with Ofgem's support need to be more proactive in
conducting feasibility and demand studies, as they have been with
the study that lead to the 400KV Beauly to Denny line in Scotland.
20. The current process for developing long-term
strategies on reinforcement planning (also known as network development)
has had a detrimental effect on renewable generators by greatly
increasing timelines, uncertainty and cost to projects. This puts
the UK at a competitive disadvantage compared to other EU states.
While other EU governments more proactively forecast grid needs
and guarantee grid connections within their planning permissions,
UK energy companies can find themselves receiving planning permission
to build a wind farm while not actually acquiring permission to
connect to the grid.
21. The current problems impeding the UK's
progress have gone hand-in-hand with obtaining local planning
permission to actually physically build the infrastructure network.
For example, to access the windiest regions of Britain, which
tend to be away from main population centres and transmission
networks, new sub-stations or underground/over ground cables must
be built to allow renewable generators in these areas to export
their electricity output. However, proposals to establish these
links are often met with strong local opposition, which can frustrate
the construction of both the line and the renewable generator.
This was seen in the last national infrastructure upgrade for
conventional power in North Yorkshire, where a second power line
took two public enquiries and ten years to create.
22. If these problems are to be overcome,
the UK Government must take responsibility to ensure that local
impact and cost issues associated with new infrastructure do not
cause further delays. We recognise that the Government is taking
steps toward this goal through the Planning Bill, which centralise
some powers in the proposed Infrastructure Planning Commission
(IPC) for new projects. However, the Planning Bill is limited
by its applicability to only England and Wales, and in the process
whereby local governments (who will still be responsible for consenting
most renewable projects) conform with national policy statements.
That said, we strongly feel that the planning bill will not only
streamline the planning process but also drastically increase
the deployment rate of renewable technologies and secure the UK's
ability to achieve their targets.
23. The three UK TOs are currently reviewing
the GB Security and Quality of Supply Standards (http://www.nationalgrid.com/uk/Electricity/Codes/gbsqsscode/)
in order to ensure that the SQSS are fit-for-purpose given the
large growth in renewable generation. It is important to point
out that these standards define technical methodologies that GB
transmission licensees shall use in planning and operating of
the GB transmission system. Given the intermittent nature of most
renewable generation development of methodologies that allow for
more effective use of each MW of transmission capacity is a natural
outcome of that review.
24. It is very clear that grid access and
planning constraints are the two most pressing restrictions on
the UK's ability to reach their 2020 energy targets. We feel that
these renewable energy objectives are achievable but only with
help from government to resolve these pressing restrictions. That
is why these issues need to be placed at the top of the governments'
agenda through support of the Planning Bill, the development of
better access methodologies that are cost reflective and a proactive
approach to reinforcement planning by National Grid and Ofgem.
25. If these actions are taken, then the
UK has a real opportunity to not only meet its 2020 targets but,
even more importantly, change its energy supply structure towards
a much larger share of indigenous renewable energy. This will
reduce dependency on imports and buffer against the effects of
high and unpredictable fuel prices. The UK will also be able to
build a strong industrial position in wind power technology and
other renewables.
SUPPORT SCHEMES
26. Investors are sensitive to political
risk and regard frequent changes to policy as a source of significant
uncertainty. As such, clear commitments from the UK government
and the EU, coupled with stable support mechanisms, have a significant
role to play in the deployment of renewable technologies.
27. Npower renewables supports the Renewable
Obligation (RO) and believes that it has to date created a positive
economic environment for growth in the renewables industry throughout
the UK and indeed has the potential to ensure that strong investment
in renewables continues. It is important to point out that the
RO comes at a cost to the consumers; therefore, it is the governments'
responsibility to verify that it is a cost that they wish to undertake.
28. The RO has been particularly successful
in engaging large suppliers (because by nature it is an obligation
on suppliers) and therefore it has been successful in encouraging
significant sums to be invested in the renewables industry. As
the chart in Appendix 2 demonstrates, the RO has been very successful
in achieving its goals and we support, in principle, the RO proposal
announced in the consultation document The Reform of the RO.
However, any changes should address the newest technologies deployment
of renewable generation capacity, and provide good value-for-money
to consumers in terms of CO2 emissions saved per pound paid into
the RO.
29. That is exactly what we feel has been
achieved in the most recent reforms to the RO with the re-banding
of the number of certificates that are given by technology. It
is our view that the current level of reform is appropriate, but,
as shown in Appendix 2, there is an influence of political risk
on deployment rates, as evident during the transition from NFFO
to the RO.
30. That is why we feel that the government
has a clear responsibility to stabilise the market and support
mechanism levels by removing uncertainty and grandfathering the
current rules. The government outlined a commitment to the principle
of grandfathering in the 2005 Review of the RO. With the exception
of co-firing, any reduction in support applies only to future
projects (operational after the date of implementation of proposed
changes, 1st April 2009). This reform would not only remove current
uncertainty but it would also further encourage the development
of more renewable generation resources, making it even more probable
that we can achieve the 2020 targets.
31. A further step in meeting these targets
is supporting the RES Proposal (as seen in paragraph 9) regarding
the EU Trade of Guarantee of Origin (GoOs), which is a secondary
market driven certificate support scheme that countries can trade
depending on their position in reaching their 2020 targets. This
is needed because national targets have been set with reference
to Member States' ability to pay rather than the resources they
possess; therefore, this flexibility is required in order to minimise
the cost and for reasons of fairness.
32. Consequently, we fully support the aim
of the RES Proposal to promote an increased share of renewable
energy in all member states of the EU. This resonates well with
our strategy to increase the share of renewables in our generation
portfolio through an annual investment of 1 billion euros per
year. We also welcome the Commission's idea to introduce tradable
GoOs, in principle to try and encourage a loosely defined market
based instruments and a least-cost-approach.
33. Unfortunately, the GoOs transfer scheme
proposed by the current language of the proposal is insufficient.
We would therefore encourage policymakers to take a more decisive
step toward the use of a stronger market-based mechanism. Therefore,
the transfer of GoOs should be opened directly to companies, rather
than as a transfer via government. This approach would also greatly
decrease the possibility of undermining successful existing national
support schemes because it would take any type of national bias
out of the equation. However, considering the view on a single
European Market and long-term energy goals, we need more clear
and harmonised rules to reach the ambitious targets and be as
efficient as possible. To strengthen these goals, the interim
targets should be mandatory for all member states.
34. Trade will only provide its full benefit
if there is a level playing field across borders. Currently conditions
in the 27 Member States vary widely, for instance, differing regimes
for grid access. It is vital that a system of trade is brought
forward at the same time as progress made on developing an energy
policy that applies across all of Europe.
35. The support scheme in the UK has been
one of the main driving forces behind encouraging new developments
into cutting edge technologies while maintaining existing regimes
and planning for the future. Therefore, it is safe to say that
it would have been a much more difficult journey to get from where
we were four years ago, when there were less than 200 MW built
in the year 2004, to a position where the UK has built well over
800 MW of capacity in 2006 (as seen in appendix 2). However, the
RO need not be used in isolation; the GoOs mechanism can work
in conjunction with the UK's RO mechanism to achieve the 2020
targets in a cost effective manner, while decreasing the UK's
dependency on foreign energy.
CONCLUSION
36. While the UK has come a long way in
the renewable energy sector over the past 10 years, there are
still many barriers to the industry that must be overcome if the
2020 targets are to be reached. Grid access, supply chain and
consent remain the most problematic areas of concern for the greater
deployment of renewable technologies and should be addressed by
government in a timely manner. Without true, measurable reforms
in these areas, the UK will be most unlikely to meet its 2020
targets.
37. Whilst it is important that developers
take on the responsibilities and commitments associated with infrastructure
development, it is equally essential that National Grid take a
more proactive role in reinforcement planning. Therefore, we feel
that Ofgem should be encouraged to permit National Grid in conjunction
with developers to take on more risk regarding speculative research
into grid demand and feasibility studies.
38. Finally, we understand that these are
very difficult and complex issues that will not be solved overnight.
However, we are also committed to the government's goals and welcome
the debate on how to move forward. We feel that the 2020 targets
are so ambitious that they will only be attainable by working
together as a team, with government and industry working in partnership
for the sake of obtaining one goal.
22 April 2008
APPENDIX 1
| Renewable Technologies
| Hydro | Wind
| Biomass | Solar
| Wave & Tidal |
| Types | Run-of-river Large vs small
| On-shore Off-shore | Techn.: co-firing, grate/fluidized bed, gasification Source: agricultural, forestry residues, live-stock waste
| Photovoltaic (PV) Solar thermal (ST) | Tidal barrage Marine current Wave energy
|
| Maturity of Technology | Mature Stand-alone economically viable
| On-shore: Stabilizing powering Off-shore: Some technical hurdles but expected to stabilize in near future
| High development potential for increase of efficiency
| Low degree of maturity Further development crucial for reaching commercial maturity
| still in pilot phase |
| Estimated time of Commercial Maturity |
Already | On-shore: Next 2 Years Off-shore: Next 10 Years
| Biogas: 10-15 years Biomass: 15-25 years |
PV: unknown ST: 15-20 years | Tidal: unclear (cost reduction not in sight) Other: 2010-20
|
| Installed Capacity & in Construction |
RWE UK: 62 MW UK: 601[4] MW
| RWE UK On-shore:341[5] MW RWE UK Off-shore: 60 MW UK On-shore: 2205 MW UK Offshore: 304 MW
| RWE:UK: 26[6]MW UK:181 MW
| RWE: 0 MW UK: 0.3 MW | RWE: 0 MW UK: 1 MW
|
APPENDIX 2
3
Department of Trade & Industry, Impact of banding the Renewables
Obligation-Costs of electricity production, April 2007. This report
was commissioned by the Dti and prepared by Ernst & Young
LLP. Back
4
Renewable Obligation Certificate generating. Back
5
10 MW npower renewables wholly owned, 331 onshore +60 MW offshore
owned by zephyr Investment and operated by npower renewables.
Some with PPA with RWE Ltd. Back
6
Ofgem estimation calculation: ROC's are only issued for the
percentage of electricity generated from eligible renewable sources.
This qualifying percentage changes on a monthly basis for each
station. This estimate of capacity is based on the number of ROC's
issued in the latest month. Back
| 
