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United Kingdom

TALKS START ON NFFO CHANGES

The Department of Trade and Industry (DTI) has embarked on a consultation process concerning the structure of the next round of the Non Fossil Fuel Obligation (NFFO). It is an opportunity for people engaged in renewable energy to come forth with suggestions for changes for NFFO-4. The British Wind Energy Association (BWEA) has prepared two proposals, one for a rolling programme of contracts, and the second for competitive bids for contracts based on maximum and minimum price limits.

Now that projects have been selected for contracts under the third tranche of Britain's protected market for renewables, many thoughts in the UK wind industry have already turned towards the next round of the Non-Fossil Fuel Obligation -- NFFO-4. The Department of Trade and Industry (DTI) has embarked on a consultation process to determine the structure of the next round of the process that awards a premium price to renewable energy schemes. It is already talking informally to some groups within the renewables industry and is writing to invite further comments from trade associations.

According to the DTI's Bob Meir, this is not a formal government consultation exercise, but an opportunity for people who participate in renewable energy to influence the rules of the next round. He does not expect a major rethink of the system of renewables support. "Personally, I would be surprised if there are radical changes to the NFFO as a result of this, but obviously there are some aspects with which some people are unhappy. Common sense dictates that the government will not consider changes that lie outside existing legislation covered, for example, in Energy Paper 62."

He believes one aspect of NFFO that the consultation process will explore is the question of whether planning permission should be required before a contract is applied for. Under the first three NFFO rounds developers have not needed planning consent before submitting bids for contracts. However, the planning issue is likely to prove the biggest single reason for NFFO-3 schemes to fail. Out of 67 contracts awarded to wind energy projects under NFFO-3 and the Scottish Renewables Order (SRO), so far only eight have successfully negotiated the planning process.

Planning consent should be one of the factors in place before developers can apply for future NFFO contracts, believes the British Wind Energy Association (BWEA). After a series of informal discussions with DTI officials about the future structure of NFFO, the association is putting forward two options for the government to consider.

Proposals for new approach

The BWEA's first proposal is for a rolling programme of contracts which would be a distinct departure from existing NFFO arrangements. Michael Harper of the BWEA explains that under this option the government would announce the price it is prepared to pay for each renewable technology for a period of, say, six months. But developers who bid for contracts at that price should demonstrate that their schemes have planning consent and finance. Harper denies this proposal would require a major change to NFFO. He claims the government could expect to set a rate for wind energy similar to the prices of schemes awarded contracts under NFFO-3. "The reason that we think this approach would be valid is because wind energy has reached its true value," he says. "If the contribution of 'embeddedness' and environmental benefits are also taken into account, then the value of wind comes up to around 4p/kWh."

The second option put forward by the BWEA more closely resembles the current NFFO set-up in that developers would have to bid competitively for contracts. But the BWEA wants to see contracts awarded more frequently -- every one or two years. It also calls for the government to set a price ceiling that it is prepared to go up to as well as a minimum amount of capacity from any technology that it will take. Harper believes these measures would help prevent too many people wasting time and money over bids which have no hope of being accepted. Under this option, the BWEA believes it would be unworkable to require developers to have planning consent and finance in place before applying for contracts.

As well as setting out its two options, the BWEA would like to see a more stringent "will secure" test -- this is the assessment of a project's technical and economic viability which takes place before developers are invited to submit final bids. To this end it is urging the government to increase the wind speed monitoring period from the present requirement of just three months up to a preferred six or even nine months.

It is also calling for clearer rules at the outset and less market intervention during the bidding process so that developers know exactly where they are when preparing bids. Harper cites the government's decision to create a higher-priced band for smaller projects of up to 1.6 MW DNC as an example of how the DTI changed the goal posts late in its selection of NFFO-3 schemes. "People were bidding in blind," he says. "The government should announce everything clearly in advance so that people know the size of the bands, and whether developers or the size of projects will be capped." These sentiments are echoed by more than one in the industry. "It is ridiculous to see how the government makes the rules up as it goes along, while we have to do our best to follow its ball of string," says a disappointed developer.

Harper hopes the consultation process will result in less bureaucracy for developers in the next round of subsidies. "We want to be able to have greater confidence in the NFFO and wish to see it provide wind energy with the proper recognition of its value."

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