United Kingdom

United Kingdom

Auctions opened up to all players -- New system for ROC trade

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The UK's online auctions of Renewables Obligation Certificates (ROCs) are being expanded by NFPAS Limited, a subsidiary of the Non Fossil Purchasing Agency, to extend the service beyond a limited number of projects in Scotland and Northern Ireland to all renewable energy generators. At the same time, it is renaming the service e-ROC. "We wanted to re-brand it to something that might be recognised as an auction service," says the NFPA's Peter Miller.

For the past three years, NFPAS has auctioned ROCs from Scottish renewable generating plant contracted under the UK's previous support system -- the Scottish Renewables Order (SRO). Last year the system was also opened to ROCs from projects contracted under Northern Ireland's previous support system, the NI Non Fossil Fuel Obligation. With the introduction of e-ROC from January 2006, however, any renewable energy generator in the whole of the UK can now choose to auction its ROCs with NFPAS.

A tradable ROC is issued to producers for each megawatt hour of renewable energy generated under Britain's Renewables Obligation. The NFPAS auctions were set up to raise money to support projects built under the now expired SRO in Scotland and Non-Fossil Fuel Obligation in England and Wales. For NFFO projects, the ROCs will continue to be auctioned off for the coming six months in a package that includes the wind electricity and the carbon levy exemption certificates. In Scotland, however, only the ROCs are auctioned.

Providing confidence

The RO, which replaced NFFO and the SRO, obliges retailers to demonstrate they are meeting the annual obligation to buy green power by submitting ROCs to energy regulator Ofgem. In practice, most ROCs from wind plant are sold to electricity retailers as part of a long term power purchase agreement (PPA) negotiated before the project is built. Selling them into the future helps provide the visible long term revenue stream essential for securing finance. The financial community has been wary of projects that do not have a PPA with the upshot that no large projects have so far been financed on a purely merchant basis.

"What the ROC auction process is doing is establishing what ROCs are worth on a short term basis, but that provides confidence back to financiers," says Miller.

Lots of interest

The NFPA expected the e-ROC auctions to be of most interest to small producers and businesses generating for their own use, but Miller says that companies showing interest in putting their ROCs up for bidding range from "very small generators to enormous ones."

The average price for ROCs sold through all NFPAS auctions so far is £46.73. With the agency's fee of just £0.50 per ROC, sellers can be confident of an "excellent return," says the NFPA. The NFPA's minimum charge will be £300 for any quantity up to 600 ROCs. But generators can save their ROCs until they have enough to auction them off, says Miller.

From the UK's Renewable Energy Association, Gaynor Hartnell has reservations about the timing of the NFPA's initiative. "At the moment, liquidity in the ROC-only market is very low and getting lower all the time." She also points out that ROCs provide an incentive for retailers to buy output from small renewable generators. "If you are very small, it is going to be very much more difficult to sell your power separately."

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