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United Kingdom

Record low prices for British contracts

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The price of wind generated electricity in Britain is set to drop to record low levels when projects awarded contracts in the latest round of UK renewables support come on line. In the fourth and largest order ever of the government's Non Fossil Fuel Obligation (NFFO-4), electricity suppliers in England and Wales will be signing contracts for 790 MW of installed wind energy capacity with prices starting at just under five US cents a kilowatt hour.

Wind developers emerge from the competitive bidding process with the largest slice of the order for 843 MW of declared net capacity (DNC), scooping an impressive 40% of all the renewables contracts. Wind projects are spread over two technology bands; one is for 48 wind schemes larger than 0.768 MW DNC (or 1.79 MW installed capacity), while the other gives 17 small scale projects a look-in. Other renewable technologies supported through the order are landfill gas, hydro, municipal and industrial waste -- with either combined heat and power or fluidised bed combustion -- agricultural wastes and biomass. The contracts guarantee payment at the renewable developers' bid prices for 15 years. The 12 regional electricity companies (RECs) in England and Wales will then recover the costs of the order through electricity bills. The order will run up to 2017 allowing up to five years for schemes to be built.

To the delight of the renewable energy industry, NFFO-4 has turned out to be around twice the size of the expected 400-500 MW DNC. Junior energy minister Richard Page told parliament that lower than expected bid prices had allowed him to boost the size of the order to 843 MW. In the large wind band all prices are below the lowest contracted wind payment in the last NFFO round. They range from £0.0311/kWh to £0.038/kWh with an average of £0.0353 -- 18% lower than the NFFO-3 average. The 17 small wind schemes range in price from £0.0409 to £0.0495 with an average of £0.0457.

The relentless downward pressure on UK wind prices is due to the highly competitive nature of NFFO. The government's aim has been to bring renewables to the point where they can compete with other forms of generation. Page says: "This requires steady convergence under successive orders between the price paid under the NFFO and the market price, which is being achieved through effective competition in the allocation of NFFO contracts." He points out that the average price of £0.0346/kWh for all projects is almost one penny lower than the £0.0435/kWh achieved in NFFO-3. "Real convergence with market prices is clearly now within reach and our strategy of stimulating a competitive renewables market is working well. This has allowed me to do more and set an order which is larger than I envisaged when announcing NFFO-4 in November 1995."

Page warns that a NFFO contract does not confer any special privileges on developers in the planning process. "Generators will need to obtain planning permission for their projects if they have not already done so." Planning is one of the hurdles that the Department for Trade and Industry (DTI) expects a proportion of the contracted schemes to fail and it built in a margin for failure when setting the size of the order. The government is working towards an eventual 1500 MW of new renewable generation capacity by 2000, but Page stresses this target is not set in stone. Over 428 MW of capacity is already operational under the first three orders, and he expects to make one further order -- NFFO-5 -- in 1998.

Before the next order, the government is to review its NFFO policy, says Page. "Over the next few years I expect increasing numbers of renewable energy projects to be developed and be able to generate in the liberalised electricity market without needing support under the NFFO arrangements."

Speedy announcement

NFFO-4 was greeted with relief by renewable energy developers who had been anxious that the order would be delayed by the UK's prospective general election. The announcement followed closely on the heels of Electricity Regulator Stephen Littlechild's advice to the government over the make-up of NFFO-4, published only the previous week.

Littlechild had devised a two-stage approach to fulfilling the order. First, he looked at an order of 500 MW to meet the government's original target. He then increased its size to around 750 MW in response to the government's more recent request for advice on an order of up to 850 MW. For his first stage, Littlechild selected projects on a least cost basis to meet the 500 MW originally specified. This favoured landfill gas and municipal and industrial waste and included only two wind projects -- and none whatsoever from any other renewable technologies. Littlechild's second stage calculation added an extra 250 MW to include the full range of technologies.

Bidders were still digesting his advice when the government unveiled the order -- a mere six days after Littlechild's recommendations appeared. Moreover, the order proved to be considerably more generous to renewable generators -- by around 100 MW -- than the regulator's selection. The wind industry welcomed the size of wind's allocation despite some surprise over the low level of prices. Peter Edwards of the British Wind Energy Association calls the reduction in wind prices "phenomenal." He points out that more wind energy capacity had been bid in to the order than any other renewable technology, reflecting the huge wind resource in Britain. Altogether, wind developers bid a total of 152 projects for 886 MW DNC.

Critics of NFFO-4 include the Council for the Protection of Rural England, which complains of the amount of capacity allocated to wind. Energy campaigner Lilli Matson says the government's decision to give the lion's share of renewables support to wind turbines flies in the face of strong public concern about their impact on beautiful landscapes. "Rather than swamping the countryside in wind turbines, the government should be supporting a range of less damaging renewable energy technologies," she says.

Winners and losers

Inevitably, the announcement of NFFO-4 sparked a period of intense activity as the wind industry tried to discover the identity of the successful bidders. Secrecy has always characterised Britain's competition for renewables support: even after the first results of NFFO-4 had been announced, developers were reluctant to reveal how successful they had been.

However, at first glance the spread of successful bidders appears wider than in the previous order which was dominated by one developer -- National Wind Power. This time, Renewable Energy Systems Ltd, a division of the Robert McAlpine group, is understood to be one of the most successful, emerging with a large handful of contracts. Ecogen, which in has developed wind farms with Japanese and American backing, has secured two sizeable contracts, including its 80 MW Kielder project in Northumberland, which narrowly lost out in the bidding last time round. Other successful bidders are Zond of California, WindMaster Developments (with Dutch connections) and British companies, Wind Prospect, PowerGen, Wind Energy Group (WEG), Borderwind, Western Windpower, Colham Energy, The Wind Company and National Wind Power.

The order includes two offshore wind schemes -- both with WindMaster turbines. Two 750 kW turbines will be built one kilometre off the Northumberland coast near Blyth by small developer Borderwind. Further south, a much larger wind farm of 40 turbines off the Essex coast is planned by WindMaster Developments, the Dutch group's UK based development offshoot. But PowerGen, one of the Britain's largest generating companies missed getting a contract for its 37.5 MW offshore project of 25 turbines, three kilometres out to sea from Great Yarmouth in Norfolk. The company had more success on dry land, gaining one onshore wind contract.

Scottish order AWAITS

Prices bid by wind energy generators into Scotland's Renewables Order (SRO-2) were even lower than in the rest of Britain, reflective of the higher wind speeds there. Bids began at £0.0274 up to £0.06 with an average of £0.0368. Some in the wind industry were surprised at the lowest prices bid into the SRO. "It begs the question of what the obligation is for. At that price level the contract is just giving you security, not a subsidy," says Bill Richmond of Zond. Renewable generators in Scotland are competing for an expected 70-80 MW of capacity. As well as wind, bids were submitted for hydro, waste to energy and biomass. Wind developers submitted by far the most bids -- 142 out of a total of 184, or for 653 MW of 783 MW capacity. Wind projects are all between 1 and 10 MW DNC in size; with an average of 4.6 MW.

The Scottish Office expects to announce the results of SRO-2 shortly.

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