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…And the Band played on: Wind power in the UK under a banded Renewables Obligation

…And the Band played on: Wind power in the UK under a banded Renewables Obligation. Dr Gordon Edge Director of Economics & Markets BWEA. Agenda. A short guide to the Renewables Obligation Government’s change proposals and likely final shape of the system

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…And the Band played on: Wind power in the UK under a banded Renewables Obligation

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  1. …And the Band played on: Wind power in the UK under a banded Renewables Obligation Dr Gordon Edge Director of Economics & Markets BWEA

  2. Agenda • A short guide to the Renewables Obligation • Government’s change proposals and likely final shape of the system • How long will it take to implement the reforms? • Impacts and conclusions

  3. The RO • An Obligation on suppliers to provide renewable power • Rises to 15.4% in 2015, flat to 2027 • Satisfied by presenting ROCs • Generators awarded a ROC for each eligible MWh generated • Sold to suppliers • Suppliers pay fine (buy-out) if not compliant • Recycled back to suppliers in proportion to the number of ROCs presented

  4. The Reform Package • Banding • Guaranteed Headroom • Buy-out Price Freeze • Ski-slope

  5. Banding • Breaks 1MWh=1ROC link • Some technologies get more, some less • Government looking to support emerging technologies without adding cost to the consumer • Aim to protect existing investment • Avoidance of ‘oversubsidisation’

  6. BWEA response • BWEA calls for a limited number of bands • Mature, near-market, emerging, etc • Government appears to have heeded this call • Banding levels need to be carefully set • Onshore wind should remain at 1ROC/MWh • Offshore wind needs a multiple that provides sufficient revenue to ensure build • Wave and tidal need ‘ROCs plus’

  7. Net neutral banding • Government is aiming to have the number of ROCs in the market roughly equal to the number of ROCable MWh • This will mean what is given through banding up will have to be taken away through banding down

  8. BWEA’s response • Convinced that numbers do not add up for net neutrality • You cannot take enough from cheaper technologies to properly incentivise more expensive ones without stopping the development of the cheaper, particularly onshore wind • Government still looking to implement net neutrality as a “broad aim”

  9. Additional Banding issues • Grandfathering • If onshore wind is moved down from 1ROC/MWh, then very important what criterion is used to judge when a project is grandfathered • Initial multiples • The Energy White Paper will include proposals on initial values • Based on external analysis

  10. Guaranteed Headroom • Obligation post-2015 • Levels set a year ahead at least 1% over expected generation of ROCable MWh • Up to maximum of 20% • Leeway to set Obligation at higher headroom further ahead

  11. BWEA’s response • Call for headroom to be based on a ROC forecast plus a percentage of that forecast • Headroom of 10% of ROC forecast suggested • Government to use ROC forecast; headroom level unclear at present

  12. Breaking the RPI link • For after 2015, Government proposed that the buy-out price would no longer rise with RPI • i.e. ROC value drops every year in real terms post 2015 • Thus rise in Obligation to 20% is not supposed to cost consumers more in real terms

  13. BWEA’s response • Government did not consult on the buy-out freeze • We are objecting anyway • Affects existing, grandfathered plant • Resources needed to fund investment beyond 2015 • Not realistic to expect to get 20% for the same cost as 15% • Hostile response has forced Government to reconsider

  14. Ski-slope • Mechanism to avoid price crash if Obligation met • Implications for RO compliance cycle and cash flows

  15. BWEA’s response • Suppliers strongly objecting • But, it protects against a key risk • Will not be needed for some time • Recommend Government takes enabling power but does not use it until necessary • Time to consult on precise solution that satisfies concerns • Appears to be position in White Paper

  16. Key Demands • Do not freeze the buy-out price • Abandon net neutrality • Keep onshore wind at 1ROC/MWh • Provide sufficient ROC income for offshore wind and marine • Do it quickly!

  17. Timing • Need the uncertainty caused by the reform proposals to be removed quickly • However, changes require primary legislation • Consequently banding cannot start before April 2009 at earliest • Once decision made to band, Government will aim to define multiples quickly • Still not until late 2007

  18. Analysis & Conclusions (1) • Government aims to safeguard current expansion of onshore wind while promoting offshore • We believe the intent • Watching detail carefully to see if it works

  19. Analysis & Conclusions (2) • Reform opens door to regular reviews, perhaps every 5 years • But RO has changed every year • Will have to deal with 2027 ‘drop dead date’ anyway • But uncertainty around change has affected development

  20. Analysis & Conclusions (3) • The EU ‘20% by 2020’ target may mean the UK has to get more than 20% electricity from renewables • Large opportunity, particularly for offshore wind • Will require further reform of the RO, or an additional mechanism on top • Current Energy Review process did not allow for this

  21. Thank you for your attention

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