Proposed renewable energy incentives in the U.K. are boosting companies that generate electricity from biomass fuel, waves and tides while prompting developers to rethink some wind projects.
The Department for Energy and Climate Change yesterday proposed doubling the tradable ROCs, or Renewables Obligation Certificates, given to enhanced biomass co-firing plants and more than doubling rewards for wave and tidal-power projects. The government said it will cut support for wind farms as costs fall.
The proposals, which will take effect in April 2013, or April 2014 for offshore wind, provide the “best bang for the bill-payer’s buck,” Energy Secretary Chris Huhne told reporters in London yesterday. They’re aimed at ensuring the U.K. meets its European Union target of getting 15 percent of all energy for heat, power and transportation from renewable energy in 2020.
“The net result is 7 percent more renewable energy than previously forecast, with 2 pounds ($3.15) off the energy bill for each household,” Huhne said. “Renewables are at the heart of the U.K.’s long-term energy strategy. They will help keep the lights on and our emissions down.”
The proposals boosted Drax Group Plc (DRX) 10 percent to 529 pence in London, its biggest gain since November 2008. The company operates Western Europe’s largest coal-fired power station and already uses biomass fuel.
The increased incentives will let Drax increase its use of co-firing biomass, Chief Executive Officer Dorothy Thompson said in a Regulatory News Service statement.
That’s one of the goal’s of the U.K.’s energy strategy. “We’ve particularly tried to encourage where there’s going to be a conversion from coal to biomass,” Energy Minister Charles Hendry told reporters.
The government proposed awarding 1 ROC for every megawatt- hour produced by enhanced biomass co-firing plants, double the current rate. Incentives for other forms of biomass power were mostly unchanged.
Thompson said that she was “disappointed” that incentives for dedicated biomass plants weren’t affected, which may make it “highly challenging” for Drax to carry out plans with Siemens AG (SIE) to develop three projects.
Each megawatt-hour of electricity generated from wave and tidal stream power will garner five ROCs, up from two now.
“This has opened the door for us now to go and take our first two projects to market,” Marine Current Turbines Ltd. Chief Executive Officer Andrew Tyler said in a phone interview. Siemens owns about 10 percent of the tidal-current turbine maker.
The government said in July that Britain may install as many as 300 megawatts of wave and tidal-power devices by 2020, up from 4 megawatts of prototypes now. “It’s an industry where the U.K. could be a world-beater, precisely because we have such a good natural resource,” Huhne said.
The government plans to generate 30 percent of its electricity from renewable sources by 2020, including 31 gigawatts of wind power, up from 5.6 gigawatts now. Of that, 18 gigawatts would be offshore wind, according to the July plan.
Impact on Wind
Yesterday’s proposals reduced support mechanisms for onshore wind farms to 0.9 ROCs a megawatt-hour from one. The biggest impact of the cut will be on small-scale community projects, according to the RenewableUK industry lobby group. ‘Any reduction in support mechanism means that projects that are at the margin will not be built. The question is how many and how much,’’ said Maria McCaffery, RenewableUK’s chief executive officer.
The cuts to incentives may threaten a community-owned plant in Scotland planned by Energy4All Ltd., Tammy Calvert, office manager at the Barrow-in-Furness, Cumbria-based developer said in an e-mail.
“The reduction in ROCs could cancel the project,” she said. The incentives are expected to generate revenue for nearby residents, who will own stakes in the project, and cutting them means there would be little or no money left for the community, she said.
“The decrease in tariffs for onshore wind follow the same trend in other European markets, and are in line with the decrease in turbine prices we have seen in the last couple of years”, Eduardo Tabbush, an analyst at Bloomberg New Energy Finance, said by e-mail.
Incentives for offshore wind will remain unchanged for now at two ROCs a megawatt-hour, and will fall to 1.9 for the 2015-2016 tax year, and to 1.8 the following year. That’s not as steep a cut as an earlier plan, under which they would drop to 1.5 ROCs a megawatt-hour in April 2014.
Re-examining Some Projects
“The proposal to reduce the support mechanism for offshore wind and other technologies means we need to re-examine the economics of the projects we have in our planning pipeline,” Mark Hanafin, managing director at Centrica Energy Plc, said in an e-mailed statement. That includes two offshore plants the U.K.’s largest retail gas and electricity supplier is planning that may generate as much as 1 gigawatt of capacity.
Chris Hill, general manager of Smart Wind Ltd., a group led by Mainstream Renewable Power Ltd. and Siemens Project Ventures that’s planning the 4-gigawatt Hornsea wind farm offshore the U.K., said any reduction in support was “clearly challenging.” Mainstream is committed to reducing costs to make the projects work, and “it’s going to squeeze at every level,” he told reporters in London.