ENV-2E02 Energy Resources Non-Fossil Fuel Obligation: Renewable Obligation Keith Tovey Н.К.Тови М.А., д-р технических наук Energy Science Director CRed Project

NFFO-1 Introduced at time of privatisation, levy on all energy generated from fossil fuels. used to subsidise the non-fossil fuels. REC's expected to purchase a minimum percentage of their electricity from such sources. original proposal seen as solely a subsidy for the nuclear industry as there was little renewable energy …………………………….(but needs qualification) changed to a separate section for Renewables and Nuclear, Renewables section was subdivided further by technology type. 5.1 Non-Fossil Fuel Obligation: Introduction NFFO-1

The NFFO-1 (1990) required a minimum contribution of 102 MW from new "renewables". Fixed price per MWh was paid for renewable energy. Price paid per unit varied significantly with technology Wind energy had the highest price at 11p per kWh compared to a typical consumer price of 6 – 7 p and a generating cost from fossil fuels of around 3 – 4p per kWh. a substantial subsidy for wind. Potential generators had to submit applications for the subsidy, many did not receive planning permission, or failed through lack of finance. Subsidy was paid until 31/12/1998 –limit placed by the EU 5.1 Non-Fossil Fuel Obligation: Introduction: NFFO-1

As with NFFO-1 a fixed price was paid to all generating capacity NFFO-2 (1991) was further divided by technology type 5.2 Non-Fossil Fuel Obligation: NFFO-2 The payments under NFFO-2 expired on 31/12/1998

5.3 Non-Fossil Fuel Obligation: NFFO-3 Note: substantial shortfall again

Many schemes failed through planning permission etc. DTI "size capped" schemes Ensured a sensible spread between Technologies. Clearance given from EU for NFFO-3 to extend beyond 1998, (to 30th November 2014, NOTE: this excludes NFF0-1 and NFFO-2 projects. Unlike NFFO -1 and NFFO-2, price paid for renewables was NOT a fixed price. Different bids for each supplier within each technology band Lowest bids got subsidy Declared intention of MW but only MW by end of Non-Fossil Fuel Obligation: NFFO-3: January 1995

NFFO orders 4 and 5 came into force in 1996 and 1998 given subsidy for 20 years to finish in 2016 ande 2018 respectively bids significantly lower than for NFF0-3 Overlap with Renewables Obligation - some schemes still coming on line Delays in inplementation even after subsidy available. 5.4 Non-Fossil Fuel Obligation: NFFO- 4 & Non-Fossil Fuel Obligation: General Comments In 1995 declaration made by Government to have 1500MW of new renewable generation by 2000 by December 31st 2003, figure was only MW a total of 97.92MW under NFFO 1 & 2 are no longer operational

NFFO Projects in Operation on 31st December 2003

BUT: 142 projects with a total of MW were contracted Actual installation of Wind is only 28% of contracted figure in 1996.

NFFO Projects in Operation on 31st December 2003

Electricity Generation by Renewables Solar 3 GWh

Electricity Generation by Renewables

15.7 Renewables Obligation First Consultation Second Consultation Implementation on 1st April 2002 –(one year after NETA implemented) –NETA favour flexible generators and had adverse effects on renewables until RO was implemented Aim to replace NFFO and provide a long term mechanism to stimulate renewables Initial target: 10.4% renewables by 2010 later increased to 15.4% by 2015 aspiration of 20% by 2020.

15.7 Renewables Obligation On whom should the Obligation be? The Generators? The National Grid Company? The Distributors (e.g. EDF in this region)? The Suppliers (not generators) (e.g. nPower, PowerGen, etc).? The Consumers? Ultimately it was decided that Suppliers should be liable and that they would be required to demonstrate comnpliance

15.7 Renewables Obligation

5.9 Renewable Obligation Certificates -Operation The Regulator OFGEM SUPPLIERS Trader and Brokers Renewable Generator Notifies Regulator how much generated. ROCs issued Sells ROCs to Trader Sells Electricity with or without ROCs Notifies OFGEM of compliance - i.e. ROCs or pays FINE Buys ROCs from Trader FINES recycled in proportion to ROCs held

£ per MWh Recycled fines £1.50 per MWh Embedded benefits - less losses £4.30 per MWh Climatic Change Levy £31.39 per MWh Value of ROC £20 - £22 per MWh Wholesale Electricity Price Less Neta Imbalance charges ~ £2 per MWh Value of Renewable Generation £56- £70 per MWh i.e. 2.5 to 3 times of normal price. 5.9 Renewable Obligation Certificates -Operation

Auction Prices by Non Fossil Purchasing Agency This are prices paid for ROCs generated under NFFO-3, 4,and 5 which by themselves do not qualify for ROCs. Buy out Prices April p per kWh April p per kWh April p per kWh

15.10 Renewables Obligation: B & B Banking up to 50% of certificates in any one year Borrowing up to 5% of certificates in any one year. Since Certificates available fall well short of demand, these have not really been an issue Banding Some Technologies are more cost effective than others. Government rejected idea of different level of banding for different technologies Capital Grants available for 2 technologies

15.13 Renewables Obligation: Amendments Amendments: 1st April 2004 Two issues were addressed: Co-firing This involves firing power stations with both fossil fuel and biomass (Ironbridge Power Station) Threshold for ROCs Prior to Amendment, a minimum of 0.5 MWh had to be generated in each and every month. One ROC was allocated for each 1MWh, but an odd MWh would qualify.

15.13 Renewables Obligation: Amendment Co-firing –Until 31/03/ 2006 all biomass co-firing qualify for ROCs –From 01/04/2006 to 31/03/2011, 75% of biomass must come from crops specifically grown for purpose –Co-firing not eligible for ROCs after 31/03/2011 i.e. agricultural wastes do NOT come into this category Problem: Not sufficient development in crops Amendment –Until 31/03/ 2009 all biomass co-firing qualify for ROCs –From 01/04/2009 to 31/03/2010, 25% of biomass must come from crops specifically grown for purpose –From 01/04/2010 to 31/03/2011, 50% of biomass must come from crops –From 01/04/2011 to 31/03/2016, 75% of biomass must come from crops –Co-firing not eligible for ROCs after 31/03/2016

15.13 Renewables Obligation: Amendment Co-firing Amendment To prevent abuse with most ROCs coming from Co-firing –from 01/04/2006 to 31/03/2011 a maximum of 10% of ROCs can be obtained by co-firing –from 01/04/2011 to 31/04/2016 a maximum of 5% of Rocs can be obtained by co-firing Many species can be harvested every 3 years proposals allow 3 crop cycles during eligibility for ROCs

15.13 Renewables Obligation: Amendment Threshold for ROCs –ZICER could not qualify as output in November > February could not be guaranteed to exceed 0.5 MWh Amendment –Average over whole year to be in excess of 0.5 MWh per month. –ROCs based on annual output –based on number of MWh (odd 0.5 MWh and above qualifying) –Available only for generators < 50 kW peak Further amendments under discussion late 2004 – Renewables Obligation Review: terms of Reference Published – One suggestion: offset CHP against Renewable Obligation – Would make target more likely to be achieved, – Would considerably water down renewables see DTI Energy Group WEBSITE