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United Kingdom

United Kingdom

GOVERNMENT TURNS THE SCREW ON PRICES AGAIN

Bidding is soon to begin in the UK for a further 400 to 500 MW of contracts for renewable energy under the fourth Non-Fossil Fuel Obligation (NFFO-4). Outlining the government's plans for the next round of support for renewables in England and Wales, junior energy minister Richard Page says he will be considering bids from wind, hydro, landfill gas, wastes and energy crops.

The announcement -- made in a written parliamentary answer -- held few surprises, even though it was several months late and followed a lengthy consultation process on the structure of the legislation. Continuing the government's policy of downward pressure on the price of renewables towards convergence with the market price for electricity, Page stresses that proposals should be even more competitive than under the previous order -- NFFO-3. He expects this new round to bring renewables closer to the point where they can compete in the open market against conventional generation.

NFFO renewables orders oblige the 12 regional electricity companies in England and Wales to secure a proportion of their electricity from renewable sources. NFFO-4 is the latest step towards the British government's aim of 1500 MW declared net capacity (DNC) of new renewable capacity by 2000. The Department of Trade and Industry (DTI) expects 900 MW to eventually be commissioned from the first three NFFO rounds in England and Wales together with the Scottish and Northern Ireland orders (SRO and NI NFFO). This leaves a further 600 MW before the government reaches its target.

Contracts will be awarded in early 1997. They will run for 15-20 years with premium payments for 15 years. This gives up to five years for development. After NFFO-4, Page expects to make one further order in 1998 -- also for 400-500 MW. Based on past experience with previous rounds of renewables support he anticipates that only 300 to 400 MW will result from each of the forthcoming orders. Therefore in setting the order sizes he is allowing for a third of contracted projects to fall by the wayside -- probably due to a failure to secure planning permission. However, he warns that he will review the levels of the orders in the light of capacity likely to be commissioned under NFFO-3. He will also be taking into account the quality and cost of the bids received.

As with past orders, there will be different technology bands. Wind energy will again be split into two bands: large wind farms and small wind clusters/single machines. The minister refuses to specify at what precise size a group of turbines becomes a wind farm, but does indicate that this time round it will fall at less than the 1.6 MW DNC used in NFFO-3. It seems that when published the DTI's Renewable Energy Bulletin No 6 -- which gives further details of the order -- will warn generators that any attempt to split sites in the hope of getting contracts in the smaller band will backfire.

Other NFFO-4 technology bands will be for small scale hydro, landfill gas, energy crops/forestry wastes, agricultural and food-processing waste, and municipal and industrial waste. In addition, making its first appearance in NFFO, is a separate band for combined heat and power schemes from municipal and industrial waste.

As with NFFO-3, contracts will be awarded at their bid price. Page warns that he will be prepared to limit the number of projects or capacity from any single developer to increase diversity. Under NFFO-3 one wind company, National Wind Power, scooped the majority of projects.

The British Wind Energy Association welcomes NFFO-4. Chairman Tim Kirby says NFFO had been the foundation of success for Britain's wind energy industry. "We must look forward, though, to a future beyond NFFO and seek a market in which the technology can compete on equal terms with polluting technologies," he says. However, Friends of the Earth believes the level of UK support for renewables is still not enough. FoE's Anna Stanford calls the government's 1500 MW target "measly." It compares poorly with the potential for renewable energy in the UK which has the best wind resource in Europe, she says. The environment group is urging the government to increase its target to 3500 MW by 2000.

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