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United Kingdom

New policy holds seeds of betterment -- Long term certainty welcomed

Many more sites in the UK will become viable for wind plant development if the UK government's new plans for supporting renewable energy -- an obligation on electricity suppliers to buy up to 10% of their power from renewables -- remain intact. Contract prices are set to rise significantly for wind power compared with the average achieved of late under the Non-Fossil Fuel Obligation (NFFO). Sites with lower wind speeds will thus become profitable, relieving the pressure on high wind areas of the country and opening the way to less contentious wind development.

Unveiling the new policy, the minister for energy and competitiveness, Helen Liddell, confirmed earlier Department of Trade and Industry (DTI) indications that a percentage obligation on suppliers will replace NFFO as Britain's main means of stimulating a market for renewables (Windpower Monthly, January 2000). Much of the policy detail is only provisional, however, and will not be determined until after further consultation with the renewables industry, among others.

Under the proposed economic framework -- which includes an effective penalty for not meeting the obligation of £0.02/kWh -- the price cap comes out at £0.043/kWh, presuming a base-load electricity price of £0.023/kWh. At this level, sites with wind speeds down to 7.5 m/s will become viable, says Alan Moore of National Wind Power. "It's better than NFFO, less complex and more certain," he adds. "Provided the details don't undermine financeability, the new renewables support mechanism should give a significant boost to on-land wind energy."

Offshore wind, with its higher price, is marginal. There are strong indications, however, that the government will provide a specific subsidy to ensure that construction of the first offshore wind power plants starts in the foreseeable future.

Planning tackled

Other key instruments for market stimulation are exemption from the Climate Change Levy for renewables electricity and for heat from renewable sources; and demonstrations of new technologies -- particularly in the heat and transport markets. The government is also tackling what has become a huge barrier to wind plant development: the British planning system for granting site permits. All regions are now to prepare renewable energy assessments of their resources and set regional targets.

The new policy forms part of a ten year renewables strategy to meet a sequence of targets rising to 10% of UK electricity from renewables by 2010. But the emphasis is squarely on keeping costs to the consumer to a minimum. Liddell warns that she does not want consumers to "pay through the nose" for achieving the 10% target. The next generation of renewable plant must be "lean and mean, as well as clean and green," she stresses.

For clever operators that should not prove a deterrent and there will be sizeable opportunities for wind under the market proposed -- if the details are right -- says Adrian Lloyd of Halcrow Gilbert. One of the more worrying details not yet decided is how the penalty system, a buy-out option, will work (page 44). Under the new arrangements, suppliers can each year buy out all or part of their renewables obligation at a fixed price.

Green credit trade

The Utilities Bill, now going through parliament, contains powers for an obligation on all electricity suppliers in England and Wales -- and a separate obligation for suppliers in Scotland. As well as buying or generating renewables power, suppliers will be able to meet their obligation by buying green certificates issued for each unit of renewables electricity.

The government expects a market in green certificates to develop allowing suppliers to trade with each other or intermediaries, with prices varying according to the balance of supply and demand. Spot, forward and derivatives markets in green certificates could also emerge allowing generators and suppliers to hedge their risks.

The statutory powers, or "Order," for imposing the obligation will specify the proportion of suppliers' electricity which must come from renewables each year. This will be based on the amount of electricity they supplied the previous year. The government expects their obligation to rise to 5% of their supplies by 2003 and to 10% by 2010, and to apply until at least 2025.

"That firm obligation will allow generators to invest in renewable energy technologies with confidence that they will have a market for their product," claims Liddell. The government is to consult the industry over the details of the obligation, including whether large hydro should be excluded.

The DTI's policy document, "New and Renewable Energy: Conclusions in response to the Public Consultation," is the culmination of a review of UK renewable energy that first began in June 1997, just after the present government took office. A public consultation on renewables was launched in March 1999, which overtook both the earlier renewables review and a separate consultation on offshore wind.

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