United Kingdom

United Kingdom

Green trading pool ready to launch, start dependent on large players

Google Translate

Plans for a renewable energy trading pool for the United Kingdom moved a step forward when 40 renewable generators met in February for the launch of a proposal for a new company to market electricity from renewable sources. The generators are being invited to become founder members and shareholders of the Green Pool Company Ltd which would sell its members' electricity in the UK's post-1998 liberalised electricity market.

Proposals for the Green Pool have been developed by Orix Corporate Finance Ltd, electricity consultancy Ian Pope Associates and international law firm Mayer, Brown and Platt. Their proposal follows a feasibility study last year funded by the European Union's Altener programme and the Department of Trade and Industry, among others. John Caird from Orix explains that the venture's two main aims are to provide a home for existing renewable schemes and to create a larger market for renewable energy. It will be owned by renewable generators who will be able to sell all or part of their output through the Green Pool.

The primary target market for the venture is the domestic electricity sector which opens up to competition in 1998. Last year a MORI poll revealed that 86% of people would prefer to buy "green" electricity. Moreover, one in five is prepared to pay more for it. Yet the Green Pool's proposers claim the price of its electricity would be competitive with other supplies on the market.

The proposal admits that more work is needed to gauge domestic demand. It points out that marketing the Green Pool to domestic consumers will probably need to include an element of education about the environmental costs of electricity generation. Although the Green Pool will not always be able to meet its domestic customers' demand, it will guarantee that over a year it will generate enough energy from renewables to meet its customers' needs. To make up the shortfall at times of high consumer demand, the Green Pool will buy top-up electricity through the Electricity Pool, which operates in England and Wales. Likewise, at other times it will sell excess renewable electricity to the main pool.

Launch this year

To convince potential domestic customers in 1998 that it can operate successfully, the Green Pool is aiming its immediate sights on the existing competitive market. This consists of commercial and industrial consumers with an average demand of over 100 kW. Later this year the Green Pool hopes to launch itself in this 100 kW market, first of all targeting companies with a strong environmental or ethical background. The first step will be to secure existing renewable generation that is not already tied up in NFFO contracts. This renewable sector is dominated by large scale hydro power and amounts to some 1500 MW of capacity.

According to Caird, the reaction to the proposal from the renewable generators who attended the February meeting has been favourable. "We have had some very positive responses but it is too soon to say whether we can go ahead," he says. He is still waiting to see whether a few larger renewable companies will put their weight behind the Green Pool. "There are one or two people who are key to its success. They are crucial to give it substance and to give it size." Yet Scottish Hydro, Britain's largest renewable electricity company -- and no doubt one of the key players Caird had in mind -- says it will be a matter of months before it will decide whether or not to back the Green Pool. "We are still considering our options," says Scottish Hydro's Andy Mitchell. "It is not a quick snap decision we can make."

Meanwhile, Caird is worried that if Britain's major renewable energy players opt for an alternative means of selling their output, the renewable energy market is at risk of becoming fragmented. He points out that two businesses have already been set up to trade renewable energy: the Green Electron Company and the Renewable Energy Company. "If there are too many players it would become an extremely confused market," he points out.

Stepping into NFFO's shoes

From the end of 1998 there will be potentially many new entrants to the open electricity market offering renewable electricity. That is when contracts awarded under the government's first two rounds of renewables support through the Non-Fossil Fuel Obligation (NFFO) expire, leaving more than 320 MW worth of renewable energy schemes looking for a market for their output. These projects would be eligible to join the Green Pool and could boost its capacity just when domestic customer demand for green energy is beginning to take off.

According to the proposal, as the market for renewable energy increases over time, outstripping existing output, the Green Pool will encourage the development of new renewable generating capacity. It will do this either by inviting its members or other generators to provide new generation, or even investing in new developments itself.

But for now Caird and his colleagues can only wait to see how many generators embrace the Green Pool concept. "We the proposers have done as much as we can to make it a success, but we now need generators to commit themselves," he says.

Have you registered with us yet?

Register now to enjoy more articles
and free email bulletins.

Sign up now
Already registered?
Sign in