A government subsidy system is prompting a “wind rush” in which electricity generators are dashing to erect turbines across the North’s countryside.
The incentive scheme ensures generating companies which invest in renewable energy sources are paid lucrative sums by suppliers for each megawatt hour (MWh) of electricity they produce.
As a result, the companies bidding to erect turbines are offering landowners in the North vast sums as they try to cash in. Suppliers are told they must take an increasing portion of their energy from renewables – the Government’s broad target is 20% by 2020 – and the extra cash they need to pay for this is added to household bills.
Foreign generating companies have admitted they are now trying to set up wind farms in the UK because it offers the most attractive subsidy package in Europe.
And possible reforms to the system, which may be made in 2009, mean companies are hurrying to erect turbines before the present payments are halted.
Chris Lock, spokesman for energy industry regulator Ofgem, said: “The operators have got a guaranteed subsidy mechanism in place. They know that if they build their plant now, they’re going to have that subsidy – that’s a comfort for them knowing they can make profit out of it.
“We view it as quite an expensive way to get more renewable energy. All customers are paying for the obligation.” But companies involved in wind energy have defended the system, saying it is vital to ensuring environmentally friendly and secure sources of power are established in the UK.
Suppliers have to take an element of their power from renewables under a system known as the Renewables Obligation (RO). Generators which produce 1MWh of power from a renewable source are awarded one Renewable Energy Certificate (ROC).
Suppliers then buy ROCs to show they are meeting their RO target. ROCs are typically selling for about £46, which inflates the price of wholesale electricity for generators. That gives them a huge incentive to find sites where they can erect turbines – meaning landowners can be offered £100,000 a year for housing a wind farm.
For farmers in Northumberland struggling to make ends meet, it can be a lifeline.
John Constable, policy and research director for the Renewable Energy Foundation – a charity which supports renewables but is sceptical about onshore wind – admitted: “I can feel a certain amount of sympathy for the landowners, being offered a large amount of money for doing very little.
“This is almost unreal funny money – it’s tremendously tempting.” Mark Newton, a partner at land agents Fisher German, has said: “I find that when you sit down with a landowner and discuss with him the possibility of earning over £100,000 per year with a wind farm on his land, then there are very few who are not interested in progressing with the project.
“The largest project I have dealt with provided over £800,000 income per annum to the landowner, which is like winning the lottery every year.”
One of the problems identified with the ROC system is that it does not discriminate between different forms of renewable energy.
At present, onshore wind farms are the most cost-effective and well-advanced technology for earning ROCs, even though it is suspected other forms of renewable energy such as offshore wind and tidal would produce more power.
Mr Lock said: “Things like onshore wind have been trialled and tested, so that’s what’s getting built an awful lot.”
But Laura Schmidt, of the Association of Energy Producers, admitted: “The RO was designed to bring on the cheapest technologies first and it has been very successful in doing so.”
Alison Hill, head of communications for the British Wind Energy Association, which represents companies in the industry, acknowledged generators were cherry picking the cheapest technology. The Government has therefore suggested it may reform the RO in 2009 to introduce banded ROCs. Under this new system, generators who invest in more expensive, but potentially more productive, technology such as offshore wind or wave power could get more ROCs per MWh.
However, it plans to soften the blow for companies which have already set up wind farms by combining it with a concept of “grandfathering” – meaning any projects already in place will continue to gain one ROC per MWh. Privately, energy producers admit this is injecting a degree of urgency, as they try to get sites in place before the April 2009 cut-off point.
“It does explain why there’s a bit of a stampede,” said Dr Constable. But in fact, the rush may not prove worthwhile, as introducing new banded ROCs could affect the market price, meaning a ROC may be considerably less lucrative in three years’ time than it is today.
The changes are backed by Ofgem and the REF. But, perhaps unsurprisingly, the companies making money from the present system are less keen.
The AEP warned: “Introducing an element of technology banding to the RO could significantly increase complexity and damage investor confidence. This could compromise the Government’s short and longer term targets for renewables.”
The Government is likely to signal its proposals for reforming the RO when it publishes the next round of consultation on the issue next month.
How the Renewables Obligation works:
The Government sets annual targets for the proportion of energy that must be generated from renewable sources.
This is called the Renewables Obligation.
It stood at 6.7% last year and will rise to 15.4% by 2015-6. Every electricity supplier must meet this target.
To allow this to happen, generating companies are given a Renewables Obligation Certificate (ROC) for each megawatt hour of electricity they produce.
Suppliers then buy both the electricity and the ROC from generating companies, thus increasing the wholesale price of renewable electricity in order to make it attractive to generators.
This increases the price generating firms can afford to pay landowners if they rent their land as a site for a wind farm, for example. If suppliers do not buy enough ROCs to meet their obligation for the year, they must pay into a buy-out fund – effectively a fine for failing to hit the obligation.
This buy-out fund is then re-distributed among suppliers according to the amount of ROCs they have, meaning there is a financial incentive to acquire as many ROCs as possible. The price of these ROCs is then passed on to the consumer.
Industry regulator Ofgem estimates the RO system adds £7 a year to the average household electricity bill. This will rise to £20 as the RO targets rise.
At present, about £1.55 a year pays for ROCs bought from wind farms.
Ofgem has criticised the expense of the system, saying it costs £184 for every tonne of carbon saved.
Controversial subsidies defended
Representatives of companies involved in the development of wind power have defended the controversial Renewables Obligation subsidy system.
Laura Schmidt, of the Association of Energy Producers, said: “We consider that long term, stable, market-based mechanisms are the best way to assist the renewables industry.
“Renewables are an essential part of the energy mix as they provide carbon savings and can help to reduce import dependency.”
And Alison Hill, head of communications for the British Wind Energy Association, described the RO as “absolutely vital”.
She said: “What the RO provides is a helping hand – that start-up hand into the market that any new technology needs and every other power technology in the UK has had,” she said.
She backed moves to encourage development of other systems such as offshore wind farms and wave and tidal power in future years.
But she added: “In terms of meeting the targets for 2010, there simply aren’t other technologies available that can deliver that in that timescale.
“The simple fact of the matter that may not please some people is that onshore wind is the only technology we have now.
“There’s no one silver bullet that will solve this.
“It’s going to take a combination of measures. We still need to keep on developing onshore wind to maintain the market so others can some through.”
The Department of Trade and Industry said: “The Energy Review stated that expanding our renewables capacity can help tackle the twin challenges of reducing carbon emissions and ensuring security of supply.
“The Renewables Obligation is the major driving force delivering on our targets and it has tripled the amount of clean, green energy generated in the UK since it began in 2002.”
The executive vice-president of Norwegian energy firm Statkraft, Ingelise Arntsen, has said: “There are two fundamental reasons for us investing so heavily in wind power in the UK: there are good wind conditions here and also the best financial incentive schemes in Northern Europe today.”
Farmer seeks to save landscape
Northumberland farmer Andrew Joicey admits that the issue of wind farms is “in danger of taking over my life”.
The 51-year-old, who runs the 900-acre New Etal farm in Cornhill-on-Tweed, close to the Scottish border, is a member of the Save Our Unspoilt Landscape (SOUL) group, which campaigns against wind farms in the area.
He became concerned after becoming aware of an increasing number of plans for wind farms close to his family’s 15,000-acre Ford and Etal estates.
“I began to wonder why this area was being targeted, because it didn’t strike me as being particularly windy,” said Mr Joicey, who after being born and brought up in the county, returned to help run the estate in 1984. He now lives there with his wife Corinne, 40, and daughters Victoria, 10, Miranda, seven, and Alice, five. It was then he began to learn about the Renewables Obligation, which he says has provoked a “scramble” for sites in the county.
A neighbouring farmer was approached for a site next door to Mr Joicey’s own house – but to his relief, he recalled: “After being tempted by a spectacular amount of money, he decided it was inappropriate because turbines were going to be 125 metres tall.”
Mr Joicey said: “Developers can afford to offer a serious amount of money, and it’s very difficult for landowners to turn that down. I’ve got huge sympathy for landowners who do accept the money. You really can’t turn it down – and in any case the developer could then simply approach a neighbouring farmer instead.” Mr Joicey says the typical price offered to Northumberland landowners is £10,000 per turbine in ground rent. Often, they can be paid £5,000 a year just to secure an option on the land – but this ties the landowner into an agreement.
Mr Joicey himself turned down an approach for a wind farm by a German developer in the 1990s, before the Renewables Obligation system was set up. “If I was approached again now, it would be hard decision to turn it down on financial grounds,” he admitted. But he points out that, with 36% of the Northumberland economy now based on tourism, the cost of accepting the developers’ money could, in the long term, be far greater.
By Ross Smith, The Journal
26 April 2007
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