(Further) Reform of the renewables obligation

16.10.06 Share

 

Less than 12 months after the Department of Trade and Industry's (DTI's) consultation on the 2005/6 Renewables Obligation Review closed, another consultation has been launched.

The most recent consultation is, in fact, two reviews in one:

  • The first is part of the Government's ongoing Energy Review, and concerns changes to have effect from 1 April 2009 (Part 1).
  • The second is billed as a technical review proposing "limited changes" to the Renewables Obligation Order, which are intended to take effect on 1 April 2007 (Part 2). The Part 1 proposals, which are concerned with "banding" and the long-term future of co-firing, have been well publicised, and rightly so. The decisions made on these key issues will have a significant impact on the future development of renewable generation in the UK. We will consider the Part 1 proposals in detail in a subsequent note to be published later this month.

In this note, however, we will concentrate on the Part 2 proposals, which have, for the most part, received much less attention to date. Although less wide-ranging than the Part 1 matters, the Part 2 issues are, nevertheless, significant in terms of:

  • the need for electricity to have been supplied by a licensed supplier;
  • co-firing during the next two obligation periods; and
  • the promotion of micro-renewables.

Removal of sale and buyback requirement

This matter was consulted on previously and the necessary primary legislation was introduced as part of the recent Climate Change and Sustainable Energy Act.

This Act provided that, in addition to allowing the issue of Renewables Obligation Certificates (ROCs) in respect of renewable electricity supplied to customers, the Renewables Obligation Order could allow for the issue of ROCs in respect of renewable electricity used in a "permitted way". A "permitted way" being that the electricity is:

  • consumed by the operator of the generating station; and/or
  • exported to a distribution or transmission system in circumstances where its supply to customers cannot be demonstrated.

This therefore gave the DTI scope to expand the ambit of the Renewables Obligation Order to cover those two circumstances, and the DTI has put forward proposals to do so.

However, the proposed wording in Article 16 is not as clear as it could be, and we would hope that it is further refined before the amendments come into force.

The proposed changes suggest that a generator would either be required to make the current declaration regarding supply by an electricity supplier, or alternatively to declare that, where the generating station is not connected to a transmission or distribution system, the electricity has been consumed by the generator.

This alternative declaration does not currently appear to accurately reflect the revised wording in the Electricity Act.

Co-firing in the short term

Given that the Part 1 changes regarding co-firing will not have effect before 1 April 2009, the DTI is proposing certain changes under Part 2 in order to ensure "continued impetus" for the development of energy crops in the interim.

The proposal is that the co-firing of energy crops would not (in practice) be treated as co-firing, and would instead be treated in the same manner as pure renewable technologies. Under Article 14, a cap is imposed on the percentage of a supplier's renewables obligation that can be met by presenting ROCs issued in respect of co-firing stations. This cap is currently set at 10 per cent.

The proposal is that ROCs issued in respect of stations that co-fire entirely with energy crops would not count towards this 10 per cent cap.

This will clearly have a beneficial impact for those generators who do (or are able) to co-fire entirely with energy crops. It should also benefit the operators of other co-firing stations, as there will be an increase in potential demand for co-fired ROCs, as headroom in the 10 per cent cap opens up. The change may be seen as less beneficial by those involved in other renewable technologies.

There is also a proposal to classify all miscanthus giganteus, salix and populus as an energy crop, without the need to demonstrate when it was planted and for what purpose. Biomass generators generally will also, no doubt, welcome the proposal that, where more than one fuel is used, the average energy content of the fuels will be considered (rather than each individual fuel having to meet the 90 per cent requirement).

Small generators - creation of ROC agents/aggregators

The intention of these proposals is to remove some of the administrative barriers that hinder small generators. If made, the changes would allow agents to act as ROC aggregators on behalf of a number of small generators.

The appointed agent would act as Ofgem's sole point of contact, and be responsible for all matters from accreditation to taking receipt of the issued ROCs.

An agent would be able to amalgamate the output of all the small generators for whom he was appointed in calculating the number of ROCs to be issued. Such amalgamation would only be possible between generators of the same technology type and within the same geographical region (England & Wales, Scotland or Northern Ireland).

By making such a change, the Government clearly hopes that aggregators will seek to tap into the micro-renewables market, and that with the possibility of this additional revenue stream the development of micro-renewables will be further encouraged.

One potential downside is the increased revocation risk that must be inherent in a ROC that relates to more than one generating station.

Consultation on the Part 2 matters closes on 15 December 2006

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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