Government tinkers with renewables obligation's rules on waste

The Government has unveiled proposals to reduce the renewable obligation's support for "low cost" technologies such as landfill gas and onshore wind.1 Plans to extend the obligation to waste incineration have been discarded, but the rules on co-firing of waste and biomass have been relaxed considerably.

Announcing the consultation, Energy Minister Malcolm Wicks stressed that the proposed changes are "intentionally limited and seek to maintain the stability of the obligation while improving its effectiveness over time."

The mood at a Renewable Power Association conference in October suggests that the review should not dent investor confidence - although there are concerns about the impact of the Scottish Executive's plan to offer double benefit to marine energy projects (ENDS Report, 368, pp 26-27 ).

Key points in the consultation include:

  • "Low cost" renewables: Earlier this year, the National Audit Office concluded that around a third of the subsidy under the obligation went as "oversupport" to mature technologies (ENDS Report 361, pp 6-7 ).

    Roy Collins of the Department of Trade and Industry told the seminar that "ministers don't have difficulty justifying the obligation and its cost to consumers" - but pointed out that there are fundamental questions on the long-term prospects for the mechanism. Should the obligation grow indefinitely, or "evolve" so that support becomes targeted to newer technologies?

    The consultation proposes tapered support for "low cost" renewables. The first target is landfill gas, where support would begin to be reduced for projects brought in after 2009. After that date, the DTI suggests that new projects would receive renewable obligation certificates (ROCs) for 8-10 years, or would be subject to an equivalent output-based limit.

    The consultation also invites proposals for tapering support for onshore wind as a "policy option for the future". Gordon Edge of the British Wind Energy Association described the proposal as "well flagged".

    The RPA's Philip Wolfe said: "We aren't subsidy junkies and we appreciate an exit strategy needs to be discussed." Even so, the proposal "sends real shockwaves through the obligation" - with an "immediate and harmful" impact on onshore wind development.

    Mr Wolfe also warned that potential offshore wind investors may be wondering whether their technology will be "out of the obligation before it starts making money."

  • Energy from waste: Earlier this year, the DTI suggested that energy from waste (EFW), including mass-burn incineration, could qualify for ROCs (ENDS Report, 363, pp 44-45 ).

    The DTI remains keen to see more power generated from mixed wastes. But the latest consultation says that most EFW plants are economic without ROCs, and points to an analysis by Ilex Energy Consulting which found that key barriers are planning, local authorities and resource limitations.

    Ilex's Richard Slark told the RPA meeting that if EFW was included, the obligation would have to be increased by 3% by 2010 to balance the effect of the new ROCs. That could increase the cost of the obligation to the consumer by 25%, and still lead to some renewables projects being displaced by EFW.

    Although the move to categorise all waste technologies as "renewable" has been discarded, two other proposals blur the boundaries between different types of plant. The DTI describes its proposals as "neutral to waste".

    At present a biomass power plant cannot claim any ROCs for a month in which it adds mixed waste to its biomass fuel. The DTI suggests removing this constraint. ROCs would be given only for the fraction of power produced using biomass - but no lower limit for the biomass fraction is specified, and the change may open up a new market for co-firing biomass and waste.

    Secondly, the DTI proposes relaxing the purity requirement for biomass, currently set at 98%. Some biomass developers such as Sembcorp argue that the level should be 90%. Sembcorp says that waste chipboard, for example, cannot be burned as biomass because it contains 10% binder - and as a result, 65% of the UK's 5.5 million tonnes of annual waste wood arisings goes to landfill.

    The DTI is "persuaded" by such arguments and plans to reduce the requirement, but has not decided whether to set the new level at 95% or 90%. These levels would be too high to allow refuse-derived fuel (RDF) to qualify for ROCs, at least with current separation techniques. Supporters of mechanical-biological treatment (MBT) technologies had been hoping that RDF might qualify for ROCs (ENDS Report 361, pp 25-28 ).

    Mr Collins said that the changes would have a "limited" effect on the obligation but agreed the picture was not fully clear. He was "not aware" how many projects could be fuelled by a combination of waste and biomass on the back of waste-neutral ROCs. He also admitted that a new definition of "pure" biomass as low as 90% could potentially encompass some wastes.

    "We don't want to create an incentive to process municipal solid waste," Mr Collins said. However, Tony Voong of consultants Fichtner suggested that even with a purity limit of 90%, some RDF operators might consider additional processing to secure the benefit from ROCs.

  • No new targets: The Government has decided not to set new obligation levels beyond 2015/16, when the obligation will have risen to 15.4% of electricity supply. Renewables accounted for just 3.1% of supply in 2004.

    "There is uncertainty over where electricity prices are going," the DTI's Roy Collins said, "and we consider as a Government it is too early [to extend the obligation]". The consultation says an extension would "tie in additional costs to consumers", increasing prices by 12-13%.

    Dr Edge of the BWEA expected decisions on extending the obligation to come in 2006, after the freshly announced energy review. He said an extension is vital to ensure progress with the second round of offshore wind projects: "If they go in the water between 2008 and 2012 there are only three more years of rising obligation, and 15 years before it stops altogether. It will give offshore developers pause for thought."

    Responses to the consultation are due by 9 December.

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