ILEX argues that a flood of ROCs from co-firing of biomass in conventional fossil fuel power stations will pull down prices in the second year of ROC trading, which begins next month. In its first edition of a bi-monthly briefing on the ROC market, ROCstar, ILEX points out that for a limited period, large generators are able to earn ROCs by introducing crops specifically grown for energy production into their conventional fuel supply. This could increase the availability of ROCs by up to 40% and decrease their value by up to 30%.
Liz Reason from ILEX warns: "We will be closer to meeting the obligation target, but care must be taken that a successful expansion of generation from co-firing does not occur at the expense of investment in other renewables. If ROC values drop significantly, investment in other renewable technologies will be discouraged and the performance of the obligation significantly weakened."
Her fears are not shared by Platts and the RPA. According to their ROC Price Marker, a shortage of renewables capacity and a slippage in the start dates of some projects means that ROCs will remain in short supply. In January, the Price Marker forecast a rise in ROC prices to around £56 from April 2003.
The marker does not anticipate a large uptake in co-firing of biomass, but Gaynor Hartnell from the RPA explains that the Department of Trade and Industry (DTI) is consulting the power industry on possible changes to its rules on co-firing, which could extend the period for which conventional generators would be able to earn ROCs for burning a proportion of biomass in their plants. "When we see what the rule changes are, we will do a different analysis," she says.
In the current RPA analysis, ROC prices will fall for the two following years to around £45, they will rise again in 2006/7 to around £56 under the Price Marker's medium build scenario. Under the marker's low build scenario, prices could rise as high as £78 by 2007/8. Even if all the renewable projects currently put forward go ahead, the price of ROCs will still reach £55 -- well above the baseline value of £30/MWh, says the marker.
Platts points out that its marker prices tie in with January's auction price for ROCs, when companies paid an average £47.46 per ROC -- matching almost exactly the figure predicted by the marker for the current year.
ROCs are awarded to generators for each megawatt hour of renewable generation they produce. Under Britain's Renewables Obligation, electricity suppliers must buy ROCs equivalent to 3% of their electricity, rising to over 10% in 2010.