Timing remains crucial for renewable power industry
The REA welcomes the publication of Energy Bill today [1], which answers several of REAs top 10 asks, set out in October [2]. The REA is holding members meetings today to discuss the future for renewable power under the Electricity Market Reform (EMR) regime introduced by the Energy Bill, and will issue fuller analysis in due course.
Initially, the REA welcomes:
Ø The establishment of a Government-owned company to act as single counterparty for the Contracts for Difference (CfDs). This will ensure that the contracts are legally secure and bankable.
Ø The decision to allocate CfDs on a first-come, first-served basis and not on a six monthly allocation round as originally proposed. This is fairer and more transparent, and the REA warmly welcomes this development.
Ø The decision to awards contracts at an earlier stage in the project development process. Developers will not have to risk taking a project right through to the final investment decision with no guarantee that they would be awarded a contract.
While the REA strongly welcomes Governments commitment to renewable energy and the commitment of funds under the Levy Control Framework, we ask Government to give clarity as soon as possible on how these funds will be allocated across renewables, nuclear, CCS and potentially energy efficiency measures.
REA Chief Executive Gaynor Hartnell said:
The devil will be in the detail, which we have yet to fully examine. However, if the new regime is implemented sensitively, consumers and green generators should both win.
Electricity customers will only pay what is necessary to move the UK towards a more sustainable and secure energy future. Thats because, with these new contracts, if the price of electricity increases, the amount of subsidy required can fall. Generators should get a stable price, provided they achieve the fair market price for their electricity. Thats why its essential we have a route to market which guarantees this.
We cant afford to be complacent, however. It is vital that confidence in the policy framework is established quickly given the investment hiatus we face. There is still much work to do, to translate the legislation into clear and effective policy. We look forward to working closely with DECC to ensure our members can have full confidence in the new framework as quickly as possible.
The REA is keen to communicate the facts about the real costs to consumers of renewable energy policies, which currently make up approximately £22 of average consumer energy bills, with increases in wholesale gas prices being the key driver of energy bill increases in recent years. We also urge a consideration of the benefits of renewable energy investment alongside the costs [3].
The REAs attention is now focused on two critical areas of Electricity Market Reform (EMR) under the Energy Bill.
Ø Route-to-market. The term Electricity Market Reform is a misnomer, as the market itself is not being reformed. Independent generators must be able to sell their power into the market. In order to be financially viable under the new Contracts for Difference, generators must achieve the reference price for their power sales. Evidence suggests this is unlikely to be achieved in the UK's illiquid power market. Unless the route to market is clear and assured, Governments objective of achieving stable and bankable contracts for generators will not be achieved.
Ø On-site self-supply. Renewable energy needs to penetrate into the UK economy at all levels. Industrial sites and businesses can potentially meet much of their own energy needs through installing renewables on-site. Whilst the existing Feed-in Tariffs cater for on-site projects at the smaller scale, it is not at all clear that larger industrial scale renewables will be able to benefit from CfDs. Either the Feed-in Tariff must be extended to address this, or EMR must be made to work for potentially very large industrial users of on-site power.
On the exemption of energy-intensive industries from additional costs under EMR [4], REA Head of On-site Renewables Mike Landy comments:
The most cost-effective ways for energy-intensive industries to manage their energy costs are demand reduction and on-site generation, such as solar power and biomass- or waste-powered CHP.
Heavy industry remains a largely untapped opportunity for renewable energy deployment, and it is vital it is supported in the policy framework either through eligibility for the Feed-in Tariff up to 10MW or a simplified Contracts for Difference process or else this cost-effective renewables deployment opportunity risks falling through the gaps.
