Onshore wind farm developers are concerned about the government’s decision to review the system for ensuring that utility companies are using enough electricity from renewable sources.
Philip Bowman, chief executive of Scottish Power, said at the British Wind Energy Association (BWEA) conference in Glasgow last week that he was concerned any new structure would undermine investor confidence.
Alistair Darling, trade and industry secretary, also announced last week plans to consult on how to achieve the 20% target for electricity from renewables by 2020.
As part of this process, the government’s Renewable Obligations (RO) system will be looked at with a view to adapting it to encourage alternative sources of power over and above onshore wind.
Under the scheme, administered by Ofgem and introduced in April 2002, utility companies are required to show evidence that they have sourced a specified proportion of their electricity from renewable sources.
Evidence can be provided through certificates, called Renewable Obligations Certificates (ROCs). Each ROC represents one megawatt hour (1000 units) of electricity generated from appropriate sources.
Each supplier has an obligation to ensure a certain percentage of the electricity they sell comes from accredited sources ““ increasing from 3% in 2002 to 10.4% in 2010. Currently, there is an obligation to produce around 5.5% of electricity from renewable energy sources. Utilities who fail to meet their targets will have to buy out their obligation by paying Ofgem a fee. Utilities can also buy ROCs from alternative energy suppliers to meet their obligations.
The DTI wants to change the system to encourage use of other forms of green energy, such as offshore wind, biomass and marine. The National Audit Office believes onshore wind farms are attracting good levels of support.
Producers are wary of any changes to the system because their plans are based on selling ROCs and they fear investors will be put off by any retrospective changes to the business model.
Bowman said: “I have often learnt the hard way that investor confidence is a rare and delicate commodity, and not one to be treated lightly.
“Unless managed very carefully, adjustments to the RO will erode that confidence ““ undermining the appetite not just of Scottish Power, but of all developers, and damaging not just onshore wind but all renewable technologies.”
Bowman said that when he first heard the system was to be reviewed he met with his board. He said: “The RO banding proposals raised concerns and placed a cloud over the perceived economics of past and future UK-based onshore wind developments.”
Airtricity Scotland, which has wind farms in both Scotland and England, said that it too was concerned that changes may be made to the ROCs system. However, its concerns are with the effect any tinkering would have on their Scottish projects.
Alan Baker, chief executive of Airtricity Scotland said: “We would be very concerned if they changed the ROC arrangement in Scotland. Projects that are marginal will drop off the radar.”
He said the company’s £480 million 1200MW wind farm in the Upper Clyde Valley, between Biggar and Moffat, would not be put at risk, but smaller projects of around 30MW would not survive.
Baker said: “Offshore wind farms are still some way off. The problem is that these will be sited in very deep water and will face massive engineering issues.
“We have an opportunity to exploit Scotland’s onshore wind resource. But we need to deal in the short to medium term.”
Baker passed on his concerns at a meeting he had with DTI civil servants last week.
The industry body, the BWEA, said it was concerned the sector would be in no man’s land until a new regime is in place and that the momentum to develop onshore wind farms would be lost.
A BWEA spokeswoman said: “We would hope that a new system to include banding for other forms of alternative energies could be in place before March 2007 to allow companies to complete business plans.
She added: “A grandfathering [exemption] scheme will protect schemes from retrospective legislation if they are up and running by 2009. This is the earliest date that parliamentary changes to the RO scheme could be made.”
However, Bowman warned there was a danger that schemes that were caught up in planning delays would receive no protection from grandfathering.
By Antony Akilade, Deputy Business Editor
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