Five years and three rounds of NFFO later there are now 27 wind farms operating in Britain, giving a total installed capacity of over 160 MW. What's more, 67 contracts for some 500 MW installed capacity, awarded to wind energy developers at the end of 1994 under the third tranche of NFFO, are waiting in the wings.
But not all is sun and blue skies on the UK market. Instead of being greeted with universal delight, the last round of NFFO subsidies provoked a barrage of criticism. No sooner had the ink dried on NFFO-3 contracts than many in the industry were crying "foul" (Windpower Monthly, February 1995)
Criticism of the NFFO process is nothing new. In July 1994 the Welsh Affairs Select Committee, a grouping of Members of Parliament charged to look into wind energy, put much of the blame for the rising unpopularity of wind energy development in Wales squarely on NFFO's shoulders. "A system designed to encourage the development of wind energy has provided such powerful weapons to its opponents," the committee's report concluded after its exhaustive investigation. The weapons referred to included the very high price paid for wind power, because of the limited period in which fair payments were being made, and the concentration of wind development in a few windy regions because only projects on the best sites can hope to maintain their footing in the forced competitiveness of the NFFO market. The anti wind lobby uses both these weapons to good effect to this very day.
With the announcement of NFFO-3, fuel was provided for even more dissatisfaction; criticism of the process reached new heights as many prospective wind plant developers fell by the wayside after failing to gain contracts. Perhaps during the long interval between the second and third rounds, expectations for a share of the goodies on offer were raised unrealistically. With over 270 applications for contracts there were inevitably going to be many losers. But disappointment was mixed with a variety of emotions: disbelief at the lowest bid prices; frustration for the many who lose out in the fiercely competitive bidding by mere fractions of pence; anger at the domination of the order by one company, National Wind Power, which as well as winning contracts for 16 projects is involved with a further 11; and regret for the millions of pounds wasted in pursuit of contracts which never materialised.
With a failure rate of 75% for all renewable technologies as well as for wind, the cost in wasted effort on applications has been particularly high for an emerging industry. Assuming an average cost spent on applications of around £30,000-£40,000, estimated by the Association of Independent Electricity Producers, the total cost of failed applications in England, Wales and Scotland could be well in excess of £15 million for all renewables.
Cheap at the price
Nevertheless, in one blow NFFO-3 has helped wind energy in Britain to shake off at least some of the more undesirable labels which stuck to it as a result of previous rounds of subsidies. Foremost of these was its price tag. With NFFO-2 projects receiving £0.11/kWh for their output -- compared with around £0.09/kWh paid for electricity by domestic consumers -- opponents did not hesitate to brand wind as ludicrously expensive. Supporters of wind would argue that since contracts ended in 1998 the high price was needed to compensate for the short pay-back period, but the damage to public perception was done. Today, however, as future schemes will be paid an average price of less than £0.045/kWh, this is no longer an issue.
The speed with which wind-generated electricity is converging with the market price has taken many by surprise, not least the government which had always made market convergence the aim of its programme of renewables support. As well as driving down the selling price of wind energy the fierce competition has had another effect -- this time on the shape of the wind industry. While the capacity awarded in contracts in England and Wales has doubled from the previous round, the number of developers successful in securing contracts has slightly decreased from 27 under NFFO-2 to 26 in NFFO-3. Moreover almost half of the total contracted capacity was awarded to just two companies -- both with the backing of large utilities.
Last year, Glyn England from small development company Windcluster warned the Welsh Affairs Committee that NFFO's reliance solely on competitive bidding to determine contracts could lead to one company or a limited number of companies "scooping the pool." At the time he probably had the challenge from American companies in mind, following the scooping of NFFO-2 by Ecogen, a small UK firm in league with American wind developer SeaWest and backed by Tomen of Japan. Although other Americans were waiting in the wings prior to the annoucement of NFFO-3 contractsm, their eventual impact was not on the scale many had feared. Nonetheless England's prediction still proved prophetic.
Instead of an American company dominating wind energy development in Britain, it was British big business in the guise of National Wind Power, backed by the dual might of National Power and construction giant Taylor Woodrow. As a result, another tag that is proving less than easy to shrug off is the claim that wind farms in the UK are being foisted upon local communities to the benefit of big business. While some companies such as National Wind Power now have a policy of setting up funds to benefit local communities, this is sometimes seized upon by opponents as a cynical move to buy the acquiescence of local people.
Today companies are having to adapt to take account of their changed fortunes. While National Wind Power is expanding to deal with its large number of projects, Ecogen, headquartered in Cornwall, has had to scale down drastically. NFFO-3 failed to deliver as many contracts as the company expected -- though some would say that this was no more than rough justice after Ecogen's outstanding performance in NFFO-2.
Although the contraction of companies like Ecogen may be looked upon by some as a regrettable by-product of an inevitable rationalisation of the wind industry, just as most other industries have experienced, others consider these growing pains to be taking place too early in the technology's development. Meanwhile a number of companies, like northern developer Border Wind, which won only one contract, has had to defer expansion in the hope of gaining more next time round. "We didn't downsize, but it did not allow us to increase the number of people as we had hoped," says David Still. "Two or three more sites would have made all the difference." In the meantime, to back up its development work, Border Wind has some security in a couple of operations and maintenance contracts on existing wind farms.
Diversification is the name of the game for more than one developer whose hopes were not fully realised in NFFO-3. Renewable Energy Systems (RES) has for some time successfully marketed its development expertise to other wind plant operators. Although the company came away with only two wind farm contracts, it has already built four of the five operating wind farms in Northern Ireland, acting as turnkey contractor. It has a similar arrangement in the Irish Republic to build a wind farm for Northern Ireland developer B9, in addition to its own successful bid for a renewable energy contract under Ireland's Alternative Energy Requirement.
Some tweaking expected
While no one disputes NFFO's achievements in creating a viable renewables industry, the near unanimous view is that there is still ample scope for improvement. The Department of Trade and Industry (DTI) has just conducted a consultation exercise to determine the shape of the next round of contracts -- NFFO-4. While this certainly will not result in any major changes, the renewables industry can expect a few tweakings here and there. Perhaps the most likely of these is greater clarity in the ground rules. A major criticism of the previous round was that developers were preparing their bids in the dark, not knowing for certain whether there would be developer capping or a band for small projects -- let alone the cut-off size of such a band. The DTI admits it has been sent a clear message from the industry that in future the goal posts should be set out as precisely and unambiguously as possible.
The British Wind Energy Association is one of many organisations that have been lobbying the government for changes. "Our judgement must be that NFFO is generally successful. It has encouraged the emergence of an industry from no wind farms at the beginning of the decade to 30 and rising now," says the BWEA's Hugh Babington Smith. "But there are some aspects that could be improved, such as making the system more regular to eliminate the very marked peaks and troughs in the industry, encouragement of small scale and community owned projects and for 'not on land' projects."
Like the BWEA nearly all who are involved in renewables would prefer to see a rolling programme of contracts to iron out the lumpiness of the present system of NFFO rounds every two years. This is almost certainly not going to happen. The structural changes to the system that would be needed to bring this about would delay the whole process by possibly years -- an eventuality considered too unthinkable by even the most ardent advocate of the rolling programme ideal.
But many throughout the industry are likely to be disappointed that the government is not taking full opportunity to effect more marked reforms of the process. Reservations about some of the features of wind energy development in Britain resulting from the purely competitive nature of NFFO are shared by many developers and wind turbine makers alike. The concentration of development in just a few areas of the country is an often-repeated concern. "It would have been nice to see some geographical diversity," says Tristan Mackie from Micon agent Windforce. "The industry is being forced down the route of large projects and high wind speed sites. Why should wind farms always be put on hills in Wales? There are lots of sites in England -- from Kent up to the border with Scotland -- which have the same wind speeds as parts of Germany and Denmark where they have developed wind energy."
Small developers Windcluster and Border Wind each have policies of seeking out sites they believe to be less sensitive. Both companies call for separate consideration to be given to projects that minimise their impact by targeting lower wind speed sites. Border Wind -- which built a wind farm at Blyth Harbour -- is now working on several projects with an eye on NFFO-4, says the company's David Still. "We are still developing industrial sites but they could suffer because of their comparatively low wind speeds."
At Windcluster Glyn England believes the pressure to develop on hilltops is acting against the national interest. "There is a real problem that no-one is going to look at less windy sites while contracts are decided on price alone. There should be a separate tranche for lower wind speed sites or some scope for a different type of development," he says. The company has been pressing for a different banding arrangement. However, it appears unlikely that the government will want to go down any route that strays too far from the path to convergence with the market price.
A limited life
The government's thinking on this and other renewable issues may become clearer when the broad terms of the fourth tranche of support are announced -- expected in July before Parliament's summer recess. For greater detail the industry will most likely have to wait until the DTI publishes its Renewable Energy Bulletin No 6 in October. The government may take the opportunity to confirm whether it is on course for a fifth NFFO order in 1997. After that it remains to be seen whether the government considers that it has done enough through NFFO to help renewables down the road to market convergence.
The BWEA is very conscious that the time will come when renewables are expected to compete fully in the open market. But it is concerned that at that time the value of wind energy should be recognised. "We must bear in mind that NFFO has a limited life," says Hugh Babington Smith. "Having welcomed the fourth -- and perhaps fifth and sixth rounds, we should be looking ahead to the transition from NFFO to the open market. It is essential for the industry to be sure, when the security of NFFO is removed, that the conditions necessary to allow successful competition -- such as recognition of the value of embedded generation, the value of the absence of pollution and the value to the economy of an infinite fuel -- are in place. This is new ground for the whole generation business and the BWEA has to ensure that its voice is heard in a fair way."