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United Kingdom

GOVERNMENT HARD TO BUDGE

A wide-ranging consultation process, summarised in a report prepared by the Department of Trade and Industry (DTI), unearthed plenty of ways of improving the UK's Non-Fossil Fuel Obligation (NFFO) but little has been changed by government. However, the near unanimous call for clearer rules from the outset is most likely to be heeded.

Past orders issued by the UK government for renewable energy capacity have been successful in providing renewables with a market place. This is the main message from consultations earlier this year over the shape of future rounds of the Non-Fossil Fuel Obligation (NFFO) and Scottish Renewables Obligation (SRO), claims the Department of Trade and Industry (DTI). Nevertheless, a summary of results from the consultation exercise reveals plenty of suggestions for improvement.

While the dust was still settling after the third round of NFFO, Energy Minister Tim Eggar announced a pause for analysis and full consultation before embarking on any further orders. This came as sectors within the growing and more diverse UK renewable energy industry were increasingly voicing their unease over some aspects of the NFFO legislation, the government's tool for stimulating a market for renewables. Results from the consultation exercise are summarised in a report prepared by the DTI. It contains responses from 53 bodies comprising trade associations, environment groups, companies and individuals. The summary clearly shows that several of the recommendations were in direct conflict with each other -- with the standpoint of respondents most probably being determined by the size of their organisation.

The strongest message by far was the call for clearer guidance. Rules should be specified at the beginning of each bidding process and for these to be applied consistently throughout the exercise. This includes stating at the outset the capacity to be contracted for; any size capping of projects or of the capacity which can be contracted by any one developer; and giving strong price signals. Many believe NFFO-3 to be far too long winded. It should be shortened dramatically and subsequent orders should be more regular and frequent -- say every six to twelve months.

Most replies appear to have had something to say about the "will-secure" test. Dissatisfaction with the current test -- in which the Office of Electricity Regulation assesses the ability of a developer to complete its proposal -- is running high. Many agreed it is inadequate, but some -- probably larger organisations -- say the test should be applied more stringently; they were directly opposed to those who believed it should be relaxed. Although a few were in favour of making planning permission a pre-requirement of a contract, most responses held that this would unnecessarily burden planners, and deter small developers. The majority view was that it would only work where there was more certainty of gaining a contract.

A number of replies suggested moving away from the current NFFO system altogether -- with the majority of alternatives involving removal of the will-secure test. The most popular proposal was for a rolling programme, with a fixed price and size of order announced every six to nine months. Any project that bid beneath that price, having already obtained all necessary consents, should gain a contract. This system would operate on a first come-first served basis, with any spare capacity rolled forwards into the next six monthly batch.

Several developers proposed amending existing DNC factors which are thought to be too restrictive for Britain's windier sites. Other suggestions included a minimum of six months' resource data for wind schemes -- with a preferred measurement period of twelve months. In addition some called for the introduction of penalty clauses to penalise projects which having secured contracts but failed to generate for any reason other than not getting planning permission.

Junior Energy Minister Richard Page claims that in making the fourth order (see story page 14), he has taken into account representations made to the DTI during the consultation exercise. Yet on the evidence so far, NFFO-4 looks as if it will not be vastly different from the previous order. While there was never any indication from the DTI that it would consider a major overhaul of the NFFO process, the consultation appears to have resulted only in very minor tinkering with the existing system. Moreover, the competitive element of NFFO is very dear to this government's heart. It would have been unrealistic to expect it to move away from competitive bidding for renewables contracts -- particularly after it has already demonstrated spectacular success in driving down the price of renewable energy.

One welcome development, though, is that the near unanimous call for clearer rules from the outset is most likely to be heeded. In NFFO-3 many developers claimed the goal posts were being moved after bidding was over. The government has already gone some way towards giving clear advice in its announcement of technology bands, sub-bands and its resource estimation requirements. It is possible that more may be revealed when the DTI publishes its "Renewable Energy Bulletin No 6."

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