DTI's final decisions for the Renewables Obligation Order 2006

17.01.06 Share

 

The Department of Trade and Industries (DTI) scheduled review of the renewables obligation regime for England & Wales is nearing completion.

Earlier this month, the DTI published its final decisions paper, along with a draft of the Renewables Obligation Order 2006, which will now be laid before Parliament. The changes are due to take effect from 1 April 2006.

As you were

On first impressions the 2006 Order looks very different from the 2005 Order. However, this is almost entirely due to the structural revamp the DTI has undertaken - headings have been added, and the articles re-ordered.

The intention appears to have been to make the 2006 Order more user-friendly, and the results are largely successful. But it does mean that those who were familiar with the structure of the 2005 Order will need to reeducate themselves. The cross-referencing in pre-existing contracts will also be incorrect.

In terms of substance, the 2006 Order is very similar to the 2005 Order, as we predicted would be the case in our April 2005 briefing note. Here, we will briefly set out the changes that are to be made by the 2006 Order.

Tapered support for landfill gas

Before doing so, we should comment on what is perhaps the most significant development arising from the review, albeit one that finds no place within the 2006 Order.

Although no legislative changes have yet been proposed, the DTI has decided in principle that the support given to new landfill gas projects should reduce with effect from April 2009. Details of how this tapering of support will take effect have not been agreed, and the DTI has indicated that there will be (yet another) amendment to the renewables obligation legislation in 2007.

The time from which this change will take effect is still some way off, and the DTI is once again at pains to say that the eligibility of existing operational projects will be protected. Yet this decision will have fundamental consequences for the landfill gas industry and represents a precedent that operators in other sectors will be mindful of. We will no doubt see increased activity among landfill operators seeking to commence operation before 2009.

Onshore wind operators will take comfort from the fact that the DTI does not believe there is a strong case at present for tapering support for onshore wind. They will be less comforted by the DTI's assertion that it "will continue to monitor the situation".

Principle changes

  • The definition of "biomass" will be altered so that energy content derived from plant/animal matter need now only be 90 per cent rather than 98 per cent. This change will be welcomed by biomass operators and should allow the use of wider fuel sources, particularly waste wood.
  • CHP plants are to receive one concession. Those that burn waste will (unlike conventional plants) be entitled to claim Renewables Obligation Certificates (ROCs) in respect of the biomass element of such waste. Only Good Quality CHP will be able to take full advantage of this concession.
  • Preliminary accreditation pre-construction will become a possibility.
  • Ofgem will be given greater flexibility to issue further ROCs (or revoke ROCs) where the information on which the ROCs were issued is found to be incorrect.
  • Generators will only be required to make the consumption declaration once per obligation period.
  • Although not fully reflected in the 2006 Order, the DTI has suggested that Ofgem will seek to be more flexible regarding biomass sampling requirements and the means for measuring mixed wastes. These matters will be developed through the Biomass Fuels Working Group.
  • The legislation will explicitly allow for offsite blending/measurement for fuels, but Ofgem will be able to insist on onsite blending/measurement in certain circumstances.
  • Suppliers will be able to notify their electricity sales/renewables obligation to the DTI/Ofgem simultaneously. The programme for ROC presentation (and all consequent events) will also be brought forward by one month.
  • The possibility of obtaining duplicate ROCs for hydrogen storage will be closed-off.
  • Ofgem will make more information available regarding the number of ROCs that have been claimed by, but not yet issued to, generators. This will enable more accurate market forecasting by participants.

With the exception of the first two changes, the rest are largely procedural. In fact, in terms of the changes legislated for by the 2006 Order, the scheduled 2005/6 review has been less wide-ranging than the "technical" amendments provided for in previous years which gave us late payment funds and mutualisation, among other things.

The true legacy of the 2005/6 review will not be felt until the support for landfill gas is phased out from 2009

Key Contact

Derek Goodban, partner, +44 (0)121 685 2710, derek_goodban@wragge.com

This alert may contain information of general interest about current legal issues, but does not give legal advice.

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