Renewable projects face closure at year end, MPs warned

Many renewable energy projects supported by the non-fossil fuel obligation (NFFO) may have to shut down when existing contracts expire at the end of 1998, according to evidence presented to a parliamentary inquiry. Renewables developers warned that reliance on "green electricity" trading schemes would fail to deliver the Government's target for renewable energy, and called for a continuation of the NFFO support mechanism.

The House of Commons Trade and Industry Committee's inquiry into "aspects of energy policy" was spurred by the Government's review of the security of electricity supply and moratorium on new gas-fired power stations (ENDS Report 276, pp 14-16 ).

On 28 January, the Committee heard evidence from representatives of the UK's renewable energy industry - with a focus on the strategy for meeting the Government's target that renewables should supply 10% of the UK's electricity by 2010.

However, most existing renewables projects are facing an immediate crisis. So far, the NFFO support mechanism has led to the commissioning of nearly 200 schemes with a total of 444MW of declared net capacity (DNC). Premium-price contracts awarded under the first two NFFO orders - covering 146 projects with a DNC of 326MW - expire on 31 December.

The Renewables Generators' Consortium was set up in December to improve generators' bargaining power when negotiating new supply contracts with the major electricity companies. It represents 90% of NFFO1/2 capacity, and is now involved in a tendering process with 16 suppliers.

The Consortium told MPs that the electricity market "may not be sufficiently liberalised or developed for a significant number of the NFFO1/2 generators to survive after 1998." Elm Energy, which burns 90,000 tonnes of scrap tyres annually in a waste-to-energy plant in Wolverhampton, has warned that the plant may close at the end of 1998 unless it secures premium prices for "green" electricity.

The main problem, the Consortium says, is that an unexpectedly large fall in Pool prices has presented generators with "much more difficult trading conditions from 1999 than were budgeted" - especially when competing against the big fossil-fuel generators. So far, suppliers have offered prices "comparable to the prices offered to the most efficient new fossil fuel generators." The Consortium says this price is "considerably below" the 3.52p/kWh average price which suppliers pay for electricity, and does not recognise the benefits of local, "embedded" generation.

Many NFFO1/2 generators also face problems arising from delays in planning permissions or commissioning. As a result, the Consortium says, many still "owe banks large sums which will not be repayable out of prices currently on offer."

The Consortium wants bridging arrangements to avert widespread closures. It says that the Government could itself procure green electricity, or indicate that suppliers will be expected to buy a set percentage of electricity from renewable sources.

In the longer term, the Consortium believes that moves towards "green tariffs" (ENDS Report 270, pp 24-25 ) will allow renewables to prosper without Government support. But, it says, such a market is not yet viable - and "it is suspected that the premium paid by the customers for the electricity will not necessarily be passed back to the generators."

Last year, Eastern Electricity launched its Ecopower scheme, under which customers pay a 5 or 10% premium into an independent trust to fund new projects outside Eastern's own portfolio. The firm told the Committee that market research has shown that only 2% of customers are prepared to pay extra.

The Renewable Energy Company, which plans to build the first commercial wind project outside NFFO this year, warned that "premium tariffs for renewables will serve only to create a niche market." It told MPs that "Government support via a NFFO-type mechanism (or preferably better) is essential in the medium term" - a view echoed by all renewables developers.

Moreover, the company says, the fall in the fossil fuel levy from the recent level of 10% to 0.9% in April has "made a significant difference to our ability to price match with `brown' power." Eastern agrees that "the drive to reduce the market price for electricity makes the aim of price convergence between existing and renewable technologies more difficult to achieve and increases the need for some form of long-term support."

Catherine Mitchell of Sussex University's Science Policy Research Unit warned that "strong pro-renewable policies are required if renewables are to provide a significant proportion of electricity supply in 2010." The Government's 10% target would, she says, require another 3,500-4,500MW DNC in addition to the 1,500MW or so already expected to come on line under NFFO. This implies a "challenging" increase in the rate at which renewables projects are commissioned.

Dr Mitchell says that the UK has no shortage of renewables resource. Landfill gas, energy-from-waste and sewage gas could provide 3-5% of electricity supply by 2010, with a further 1% coming from hydro power and agricultural wastes. The remainder would come from energy crops and onshore and offshore wind farms, all of which have "very large potential".

  • Wind: The British Wind Energy Association told the Committee that wind turbines could supply 6% of the UK's electricity demand in 2010, rising to 25% by 2025. It suggests that the UK could have 3,300 onshore turbines with a DNC of 1,200MW by 2010. Offshore wind capacity is forecast to reach 1,700MW - an ambitious goal as no offshore wind farm yet exists in the UK.

  • Biomass: British Biogen, which represents the infant biomass industry, says the UK's "economically and sustainably accessible" biomass resource could provide 10-25% of primary energy supply.

    The association told MPs that some 1.8 million hectares could currently be made available for energy crops. This would support a potential generating capacity of 9,000MW - rising to 18,000MW within ten years through improvements in crop yields and conversion efficiencies. The association says that biomass capacity could reach 1-2,000MW by 2010.

  • Landfill gas: This is one of the cheapest renewables. However, the Landfill Gas Association told MPs that although projects are close to convergence with Pool prices, continued development of the industry needs long-term supply contracts under an NFFO-type system. It says that a further 500MW of landfill gas could be developed by 2010.

  • Photovoltaics: The British Photovoltaic Association (PV-UK) accepts that solar power is unlikely to make a significant contribution to electricity supply by 2010. But, it argues, official support is needed to ensure that the UK secures a strong position in the potentially huge global market (ENDS Report 274, pp 5-6 ).

    PV-UK wants the Government to support a three-year, £40 million programme to develop showcase technology in the UK, promote a market for grid-connected solar power, and target a developing country for rural electrification. The aim is to stimulate the development of a viable domestic PV industry with a capacity of 360MWp by 2010 - which, PV-UK claims, would generate revenue of at least £3 billion.

  • R&D: Dr Mitchell agrees that PV, fuel cells and wave power are unlikely to provide much capacity in the UK by 2010 - "although they should be able to do so for 2020." Growth in these technologies, and also offshore wind and energy crops, would depend on a significant increase in the R&D budget, she argued. Government-sponsored R&D for renewables fell from £25.2 million in 1992/93 to £11.1 million in 1997/98 - and on current plans will decline to just £7.6 million within two years.

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