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United Kingdom

Britain goes for new support mechanism

The UK government's Department of Trade and Industry (DTI) has revealed the future shape of renewables support in Britain. After months of speculation it is now emerging that an obligation is to be placed on electricity suppliers to buy a percentage of their power from renewable sources. The obligation will replace the current system under which the government holds irregular auctions of contracts for the separate renewables technologies, with the lowest bids for supply of electricity accepted.

The government's decision to dispense with its auction system in favour of a Renewables Portfolio Standard was revealed by Anna Walker, who is in charge of Director-General of energy at the DTI, at British Biogen's conference on November 26. Walker said that under forthcoming legislation, government ministers will be given powers to set electricity suppliers' targets for the standard volume of renewables they must include in their supply portfolios. These will increase over time. The aim is to achieve the government's overall target of 10% of UK electricity consumption from renewables by 2010.

Officials within the DTI have been understood to favour a simple percentage obligation above all other options as the future system of support to replace the existing Non-Fossil Fuel Obligation (NFFO) auctions. Their reasoning was that it had emerged from the DTI's renewable energy consultation exercise as the preferred option of the renewables industry. Most renewable trades associations, however, including the British Wind Energy Association (BWEA), had asked for a percentage obligation to be coupled with a system of long term contracts to ensure continued support for less mature renewables.

Since rumours began circulating of the DTI's plans, the renewables industry has been concerned that the broad percentage obligation favoured by DTI economists, with no separate allowances for the different renewables, will promote only the cheapest technologies, leaving the less competitive renewables, such as offshore wind, without adequate means of support. Although Walker was silent on the issue of different technology bands, it is understood that the DTI is sticking to its original plans for a non-technology specific obligation.

Offshore disadvantage

The department's officials maintain that industry will bring the less market-ready technologies on-line eventually to meet suppliers' future targets. In the short term, however, offshore wind and energy crops are left at a disadvantage compared with the cheaper renewables. There is, moreover, little sign of a significant initial subsidy boost to get the more expensive technologies off the ground. Three main options for supporting offshore wind have been floated in discussions between the DTI and the BWEA. Current DTI thinking is hostile to a separate percentage obligation and equally to a sixth round of NFFO. The alternative, and most likely, option looks to be a system of capital grants funded through Climate Change Levy proceeds (Windpower Monthly, December 1999). But the annual £50 million available from the levy will not go very far. It is also to be shared with energy efficiency.

Green certificates

The obligation on suppliers is to be implemented through a system of green certificates. The size of the obligation will inevitably start low to reflect the limited amount of renewables available, later rising to 10% -- and beyond. Walker has reportedly reassured renewable energy operators that their existing 15 year NFFO contracts will be honoured. The Non-Fossil Purchasing Agency, which contracts with operators for NFFO capacity, needs to agree to a transitional arrangement.

Energy Minister Helen Liddell is expected to announce details of the support mechanism in early 2000. This is likely to be at a Confederation of Renewable Energy Associations (CREA) conference in London in February 17.

Meanwhile, a first reading of the Utilities Bill -- which will require supply businesses and distribution businesses to be licensed separately -- is expected in January and will become law in summer. The bill will contain a broad enabling power for a renewables support mechanism; details of the percentage obligation and green certificate trading will be set through secondary legislation. The Utilities Bill will also allow the introduction of the controversial electricity trading arrangements (NETA) to replace the existing electricity pooling system.

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