Posts Tagged ‘trading’

So, today’s ministerial statement from the Department of Energy and Climate Change (available here has confirmed that the subsidy available for onshore wind farms will drop by 10%.

Now, while I work in the wind industry, my expertise is on the measurement and analysis of the wind itself rather than the funding mechanisms used to support it. In their coverage, BBC News are grudgingly positive about this, and the tone of their article matches pretty closely my own appraisal of this. It is good that the funding has not been slashed 25% as was previously suggested as that would be a very steep climb in a very short time and such things tend to have strong impacts. I have far less concerns about a 90% subsidy.

The UK’s system for subsidising renewable electricity generation for large-scale projects is based on a ROC: a Renewables Obligations Certificate. This is an unusual scheme internationally, where the more common form is a simple feed-in tariff which pays a bit extra for every kilowatt hour from a particular source.

ROCs are distributed based on generated energy, and different sorts of generation earn different amounts; the amount of ROCs earned is loosely tied into how mature the technology is. The “renewable obligation” referred to in the title requires suppliers to generate a proportion of their electricity by means of renewables, a proportion which then increases year on year. Suppliers then have to present their ROCs as evidence that they have met their legal commitment. However, the certificates are not tied to the supplier themselves, but can be traded with other suppliers. While my understanding of the whole process is pretty sketchy it actually seems quite ingenious because of course from a government perspective they don’t care if individual suppliers meet an arbitrary percentage target: they care that the country as a whole meets that target.

Today’s announcement says that onshore wind will no longer earn one ROC but instead will earn 0.9 ROCs.

I first heard this suggested a few months ago, and I was rather surprised at the idea that the number of ROCs would drop below 1. (Which demonstrates my failing to pay attention as other technologies have earned less than 1 ROC per MWh before now.) After all, what is the certificate supposed to be saying? The whole point of the system was not so much to support emerging technology (although they worked that in), but rather to incentivise electricity suppliers to support the UK’s legally binding targets to reduce our CO2 emissions. I therefore assumed, wrongly as it turns out, that a non-thermal plant with no direct CO2 produced during operation would not earn less that one full certificate per megawatt hour, representing 100% renewable electricity.

The way the system is set up, there are knock-on effects from reducing the ROCs earned by onshore wind, above and beyond the financial implications (and my feeling is that the technology is now mature enough to weather this small loss of subsidy). Energy generated from onshore wind will now count less towards a supplier’s renewables obligation than their generated output would suggest. But the targets remain legally binding.

The reduction in subsidy is partially justified in the ministerial statement with the followeing text:

…delivering the best possible deal for consumers has been at the heart of the RO banding review. In considering the final shape of the banding package, we have focused on the need to balance cost-effectiveness with the range of objectives that the RO must deliver.

Any gap between current generation and the legal target, this year or in the years ahead as the target increases, will have to be met by some form of generation if we are to meet our legally binding targets. It may be more wind farms, or companies may risk more on offshore wind or emerging marine technology: all of which are more expensive than onshore wind and which will cost the consumer more in subsidies.

I think it is probably right, all in all, that the subsidy for onshore wind should decrease. I’m very interested to see how it plays out from here though.

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