GreenWise: Government to ease cost control red tape for biomass conversions and co-firing
05/10/2012The Government today promised to give investors in biomass generators a boost by scrapping a mandatory reporting process for co-firing and conversion projects.
New Energy Minister John Hayes said the changes would increase investment inrenewable infrastructure while keeping costs down for consumers by enabling the Government to better estimate how much financial support biomass schemes would need. The changes affect a process called 'grandfathering’, under the Government’s mainrenewable energy subsidy mechanism, the Renewable Obligation (RO), which impacts on the levels of subsidy biomass conversions and co-firing projects will receive over their lifetimes. The Government said today it would be introducing a voluntary cost control mechanism under the RO instead of a mandatory one for investors of co-firing and biomass conversions.
"The solution set out today means less new red tape for developers and enables Government to manage cost to consumers," said Hayes.
"Converting from coal to sustainably sourced biomass is good news for both investors and consumers. It provides a new beginning for our existing power stations, enabling them to achieve radical reductions in emissions, whilst providing affordable, secure andclean energy
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"I hope that by setting a simple process, we can help safeguard jobs and encourage new investment in biomass generation."
Today's announcement coincides with the release of a report by Ofgem that confirms there will a lower electricity capacity margin by the middle of this decade because of the need to decommission ageing power stations coupled with increase demand.
Voluntary cost control mechanism
The Department of Energy and Climate Change (DECC) has issued a fact sheet setting out details of the 'grandfathering’ arrangements for biomass generators and the new voluntary cost control mechanism, which it said would help the long-term stability and sound operation of the RO.
According to the Government’s Renewable Energy Roadmap, published last year, biomass electricity could provide six gigawatts of capacity by 2020. But biomass investors have warned the Government subsidy levels for biomass are too low and regulation too complex to justify the investment.
Under the new voluntary mechanism, DECC said operators of co-firing stations and biomass conversions will be asked to pre-notify DECC of their generating intentions in advance of each RO obligation period.
"DECC will write to generators annually to ask them for information on their generating intentions over the next RO obligation period including the expected output in the relevant bands over time. DECC will monitor this information for budgetary purposes and also use it to inform the setting of the Renewables Obligation each year," the fact sheet reads.
To ease the regulatory burden still further, DECC said there would no "explicit link to triggered reviews of support under the RO over and above Government’s pre-existing review powers. Nor do we propose to link our grandfathering policy to meeting the request for pre-notification".
Industry reaction
DECC's announcement was welcomed today by the renewable energy industry and coal-fired power stations alike.
"DECC has dropped its plans to subject co firing to a new cost control mechanism. Being a cheap source of renewable electricity, it made no sense to limit how much came forward. We welcome this pragmatic decision and are keen to work with the new Energy Minister on further areas where [...] there is scope to bring cost effectiveness and reduce complexity within the Renewables Obligation," said Gaynor Hartnell, chief executive of the Renewable Energy Association.
Eggborough Power Limited, which is planning to convert one of the UK’s largest coal fired power stations to biomass, said the changes removed "one of the major barriers" to investment in renewables by existing coal-fired stations.
"Ofgem’s report today shows an urgent need for shovel ready projects to keep the UK’s lights on in 2015. Today’s announcement by DECC removes one of the major barriers for biomass conversion projects like ours, which is now one step closer to making a significant contribution to energy security, growth and jobs, and renewable power," said Eggborough Power chief executive Neil O’Hara.
"With plant infrastructure already in place and ready to be converted, these projects offer a realistic and timely contribution to the capacity crunch looming for the UK in 2015."
already in place and ready to be converted, these projects offer a realistic and timely contribution to the capacity crunch looming for the UK in 2015."
"There are quite a few people looking to make investment decisions on conversions and co-firing and we want to ensure we are not going to make life too hard for them," a DECC spokesperson told GreenWise.
Boost to biomass investment
Today’s changes are part of a consultation the Government is carrying out on new banding levels for RO and follow the publication of Government statistics last month that show carbon-intensive coal accounted for a 36.1 per cent share of the energy mix in the second quarter of 2012 – its highest second quarter share in more than a decade.
in the second quarter of 2012 – its highest second quarter share in more than a decade.
Meanwhile, earlier this year, Drax confirmed it was scrapping plans for a dedicated biomass plant in Selby Yorkshire because the level of subsidies was making the investment case for dedicated biomass "highly challenging", while E.ON said it was reviewing plans for a £300 million biomass plant at Portbury Dock in Bristol in light of RO review.
Changes to Renewable Obligation
Under new RO rules, the support levels for dedicated biomass will drop from 1.5 Renewable Obligation Certificate (ROC) per megawatt hours, to 1.4 ROCs from April 2016, but ROCs for high range co-firing will go up from 0.7 ROCs to 0.9 ROCs from 2014/15, and 100 per cent biomass conversions will receive one ROC.
In July, Drax confirmed it plans to transform its existing coal-fired power station in Yorkshire into a predominantly biomass-fuelled generator with plans to cover the the first unit in the second quarter of 2013, and the second a year thereafter. Initial plans will see three of the six generating units at the coal power plant run on sustainable biomass, Drax said.
E.ON said today it was still 'considering the prospects for the [Portbury Dock] project in light of the Government’s recently published Renewables Obligation banding and consultations from DECC".