United Kingdom

United Kingdom

A few clear signals in sea of uncertainty

Shivers of commercial anticipation cut through the general air of market uncertainty at this year's British wind energy conference, the focus of which was far removed from its academic traditions

"Challenges, challenges, challenges." That is what Britain's wind energy industry will be facing over the next couple of years, warned the British Wind Energy Association's chairman David Still at the start of the UK's premier annual wind energy event. Indeed, this could have been the unofficial theme of the 22nd BWEA conference, formally entitled: "Building the 10%." The UK government is aiming for 10% of electricity to come from renewables by 2010. Still outlined the uncertainties and opportunities facing wind and other renewables: new electricity trading arrangements to be introduced in November, a new drive on planning next year, a percentage obligation on suppliers, green certificate trading, the climate change levy which comes into effect next April, and the new UK offshore wind strategy. These issues provided the focus of the conference, held September 6-8 at Durham in north east England.

The challenges that the wind industry faces are not only political -- industry must challenge itself, said Dan Badger from Enron Wind Corp, sponsor of this year's conference. As the global wind industry has become more successful, it is increasingly competing with other energy sources, he said. "As the industry delivers more, so more is expected from it. It is only by continually seeking to develop new technologies and embracing innovation that it will be able to maintain this progress and continue to gain pace with competing energy sources."

His message was echoed by John Doddrell, director of sustainable energy policy at the Department of Trade and Industry (DTI). If there was an answer to "challenges, challenges, challenges" it is "innovation, innovation, innovation," he said. Doddrell, who was addressing a wind industry audience for the first time, is the architect of the government's proposed renewable energy obligation, which will require electricity suppliers to secure up to 10% of their power from renewable sources.

He told delegates he will be consulting the industry in October on the detail of the obligation. Among issues still needing attention are whether any small or new suppliers should be exempt -- "probably not," he thought; how quickly the obligation can be ramped up to 10%; the timetable for its introduction; the evidence needed to demonstrate suppliers' compliance; the level of the buy out price which electricity retailers will pay in order to opt out of their obligation; how buy out payments should be recycled; and how longer term technologies should be supported. In particular, he stressed, the cost to consumers is an important issue on which consumers' groups will be consulted.

Doddrell hoped to see the order for the renewables obligation passed by parliament before its summer recess in July 2001, with the obligation starting in October 2001.

The uncertainties still surrounding the renewable energy obligation (REO) made it difficult for any delegates to give it more than a qualified welcome. It is a much better mechanism than the Non-Fossil Fuel Obligation (NFFO), but the details are crucial, cautioned Alan Moore of National Wind Power. He warned of significant risks of a collapse in green certificate prices at the back end of the decade which could be caused by the supply of renewables exceeding the level of the obligation, by European generators selling green certificates into the UK, or if alternative carbon trading measures were allowed.

LOTS TO WORRY ABOUT

Adrian Lloyd of Halcrow Gilbert was even more sceptical. "The REO was conceived as a one size fits all mechanism under which there will be winners and losers," he said. He warned that in a pre-election year, the government is concerned about the perceived cost of supporting renewable plants, many of which are owned by energy utilities. "There are no votes to be lost in kicking utilities," he said. "The emphasis is not on maximising the amount of renewable energy. The emphasis is on minimising the cost to the consumer." Lloyd was also concerned about the small number of suppliers (retailers) who will be competing to buy renewable electricity: nine groups of suppliers control around 95% of Britain's electricity market, he pointed out.

The price level at which suppliers will be able to "buy out" of their obligation repeatedly emerged as an issue of concern. This "buy out price" -- or a proportion of it -- on top of the cost of cheaper conventional generation, is expected to be so low that it will effectively set the price of renewable generation, instead of this being set by market forces. Until the buy out price is known, generators will not know the price they can expect to command in the new market. The £0.02/kWh suggested by government is not set in stone, Doddrell emphasised. The DTI's October consultation paper will have more details, he promised. "I do not want to raise expectations too highly, but watch this space," he added. "People don't want a buy out price that could be reduced, but there may be scope for saying that under certain circumstances it could go up."

Moore controversially proposed a "tapered" buy out price, so that instead of an index-linked flat price, it would start at a higher level and decrease over time. This would have several advantages, he said. It would reduce renewable generators' uncertainty over future green certificate prices and the higher early returns would stimulate an upsurge in development. However, projects starting in later years would receive less support, reflecting the downward trend in the costs of renewables. Yet this lower buy out price by 2010 would make it easier to increase the obligation above 10%.

Peter Edwards from Windelectric voiced developers' fears that Doddrell had not given any sign that a solid market was near. The industry could immediately begin development towards the government's 10%, he said. "But no one is going to start developing at all until we get long-term contracts and long-term realistic prices."

Doddrell conceded that there had been a policy hiatus over the last couple of years. "There is about as much uncertainty today as there could possibly be." But the consultation document will give a clear statement of the government's intention, he pledged. "I want that to be a sufficiently firm steer to release the trigger on new developments, to get things going so that people will realise that this obligation is going to be here to stay for a very long time, and that if we are going to meet it, we'd better start putting arrangements in place now."

Offshore wave

A well-attended session on offshore wind revealed an industry champing at the bit to proceed, but held back by the lack of a support mechanism coupled with a tortuous consenting process that has yet to be put in place. So far in the UK, only one offshore wind project is being installed -- a 4MW scheme at Blyth in the north east with European funding and NFFO support. The renewables industry is still waiting to see what special provision is made for offshore wind and energy crops under the renewables obligation mechanism. Doddrell claimed that offshore wind would be critical to achieving the government's 10% renewables target. "We recognise concern about costs of offshore wind," he said, adding that capital grants could help together with "some flexibility on the buy out price." Moreover, the formula for recycling buy out payments could provide suppliers with a powerful commercial incentive for meeting their obligation by buying renewables, rather than by simply paying the buy out, he said.

Nick Goodall of the BWEA was confident that the government is committed to implementing the measures necessary to stimulate offshore wind. "It is not often that the government reserves 2% of the market for one technology, but that is effectively what it is planning as things stand at the moment."

The industry should be pressing for a larger amount of money for capital grants for offshore projects, said David Farrier of PowerGen Renewables who reported the findings of a working group on funding for offshore wind. Offshore developers will also need assuring that there will always be a demand for their output through the renewables obligation and that it will continue well beyond 2010, he said. Otherwise there is a danger that offshore projects will not be financeable.

The Crown Estate, owner of most of the seabed in UK waters, wanted to move forward in issuing leases for offshore sites as fast as possible, said Frank Parrish from the Crown Estate. But first, the single most important element that needs to be in place is a consenting system which is capable of meeting the UK's national and European requirements. It also needs to fit in with the new government mechanism for supporting offshore wind.

To get the ball rolling, the Crown Estate plans to start a pre-qualification process for site licences in November, Parrish reported. This should result in allocating sites to a number of pre-qualified consortia between January and March 2001. Meantime, Parrish invited the industry's views on what areas should be considered for sites, whether a minimum or maximum number of sites should be allocated in the first round, whether penalties should be imposed on consortia who do not develop sites within a certain period, and, crucially, how to ensure that the first development in an area does not prevent others from being developed in the same region later.

Streamlined program

Some 240 delegates and 22 exhibitors attended the conference held at Durham University in the city's historic centre. The program content was the most commercially focussed to date, with development companies dominating the list of delegates, and it was shorter than in previous years allowing ample time for delegates to network and conduct business outside the main conference arena -- a major reason for many to attend.

Technical and academic papers were notably absent, which led to an all-time low turn out by the academic and student contingent. Several delegates lamented the lack of technical content. John Twidell from the Amset Centre at De Montfort University believed the country's major annual conference should accommodate both academic and commercial interests. Another conference veteran claimed the move is part of a deliberate policy by the large companies. "It is a club," he said.

Some complaints were voiced about the university venue -- spread out over different locations and with its primitive student accommodation. "It's time to move to a more professional venue," said one disgruntled delegate. Some exhibitors also were less than pleased at their exhibition accommodation, in two rooms of the students union building and separate from the main conference. "They see us just as conference sponsors, commented Henning Kruse of Bonus. He believed more effort should be put into opening the exhibition to the public, "Given the problem with public acceptance of wind energy in the UK."

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