DECC revises subsidies for renewables

Renewable electricity subsidies under the Renewables Obligation regime are undergoing further changes. And the renewable heat subsidy scheme has been delayed for two months

Eon’s 44MW Steven’s Croft biomass power station, Lockerbie, would still be built under the government’s proposed subsidies. But plants above 50MW peak capacity may not (Photo: Newscast/Eon)The energy and climate department (DECC) plans to reduce support for onshore wind, waste and biomass schemes accredited from April 2013, but wants to increase support for offshore wind, wave and tidal projects.

It says the shake-up of its Renewables Obligation (RO) scheme for England and Wales, set out in a consultation paper on 20 October, will ensure subsidies are cost-effective.1 But the changes, which cover renewable electricity projects becoming operational from 2013 to 2017, will save just £38m in 2016/17.

The RO is the government’s main subsidy scheme for renewable electricity. It provides renewable generators with a set number of certificates (ROCs) for each megawatt hour of electricity they generate.

Projects earn ROCs for 20 years from the date they become operational. These can be sold to electricity suppliers, which have to meet targets for supplying renewable power, and are currently selling at about £45 each.

The RO will be replaced in 2017 by a system of contracts for electricity generation (ENDS Report 431, p 5).

The most striking proposed RO change concerns dedicated biomass plants. These currently get 1.5ROCs/MWh and DECC intends to keep support at that level for all new plants until April 2016, after which it will drop slightly to 1.4ROCs/MWh.

But the consultation says this will only bring forward “small-scale plants below 50 megawatts”. Larger plants, it says, would need more support, which will not be forthcoming. DECC does not want the UK to become reliant on potentially unsustainable timber imports to fuel huge biomass plans, the consultation says.

Several biomass projects are being proposed above 50MW capacity. Drax in North Yorkshire, for example, is planning to build three 299MW plants. Drax said it was disappointed by DECC’s decision and the investment case for its plant is now highly challenging.

But DECC is also proposing to increase support for co-fired biomass schemes which burn plant material alongside coal.

Coal-fired power stations that burn above 15% biomass will get 1ROC/MWh support, double the 0.5ROCs/MWh they currently receive. DECC also wants to see coal plants convert to run entirely on biomass and has created a new ROC band specifically for them.

DECC says co-firing is the most cost-effective way to meet the UK’s 2020 renewable electricity target. But these plants will rely largely on imported wood fuel. (ENDS Report 437, pp 6-7).

The Scottish Government issued a consultation on future support levels under its own RO on 21 October.2 This recognises the confused nature of DECC’s position. Scotland is considering not increasing support for co-firing, it says, as it raises “similar questions to the promotion of large scale dedicated biomass in terms of poor efficiency, limited carbon benefits, scale of supply required and impact on existing wood using industries and renewable heat [markets].”

Other proposed changes in England and Wales include:

  • Onshore wind:Support will drop from 1ROC/MWh to 0.9 for new projects after April 2013. This reflects cost improvements and deters developers from building wind farms on sites with a low wind resource.
  • Offshore wind:Support will be maintained at 2ROCs/MWh for all projects until April 2015. It was previously meant to drop below this level in 2014.
  • Wave and tida: Projects will receive 5ROCs/MWh from 2013, up from 2 ROCs. Scotland already had this level for wave power and had proposed it for tidal projects.
  • Waste: DECC wants to reduce support for combined heat and power energy-from-waste schemes from 1 to 0.5ROCs/MWh. It intends to reduce support levels for some gasification and pyrolysis plants, unless they are particularly efficient.
  • Sewage gas: Current levels of support for sewage gas schemes at 0.5ROCs/MWh will be maintained.

DECC’s consultation runs until 12 January; Scotland’s until 13 January.

The department has also delayed the start of its new support scheme for heat from renewable sources by two months because the European Commission believes it offers too much support to large biomass projects.

The announcement on the renewable heat incentive (RHI) was made on 29 September, the day before it was due to launch. Under the RHI, businesses and public sector bodies that install renewable heat equipment will be paid a tariff per kilowatt hour (kWh) of heat generated (ENDS Reports 438, p 47 and 434, pp 55-56). It aims to lift the UK’s proportion of heat from renewables from 1.8% in 2010 to 12% by 2020.

DECC applied to the commission for state aid approval for the scheme earlier this year. But Brussels “has expressed concerns that the large biomass tariff is too high”. This applies to projects over 1MW peak capacity. It would have paid developers 2.6 pence per kWh of heat generated for 20 years.

The tariff was designed to give a 12% rate of return, but the commission thinks the actual rate is higher. The Carbon Trust has urged businesses to invest in biomass projects on the grounds that returns could be at least 18% (ENDS Report 440, pp 15-16).

Third delay

On 7 October, DECC issued an update saying the commission had granted state aid approval for the rest of the RHI provided the biomass tariff is changed. “This means we now need to change the regulations and submit to parliament,” DECC said. The government intends to do this by December and then immediately open the RHI to applications. Companies will have to apply to Ofgem for project approval.

This is the third delay for the RHI. It was originally meant to launch in April, then July, before being pushed back to September. “This is desperately disappointing,” said Paul Thompson, head of policy at the Renewable Energy Association.

“The industry has been gearing up over the last six months to deliver on the government’s plans for renewable heat.

 “As heat demand is seasonal, delaying the scheme again will mean many customers will either put off a decision until next winter or buy a new fossil fuel boiler now – locking them into higher carbon heat for years to come.”