- On 13 May 2013 the Department of Energy and Climate Change (DECC) launched a consultation on a proposed notification process to enable developers to reserve capacity within a new non-legislative cap on Renewables Obligation (RO) support for new build dedicated biomass projects.
- DECC intends to begin administering the notification process from July 2013.
- Interested parties should consider replying to the consultation before it closes on 7 June 2013.
1. Background to the proposals
On 13 May 2013, DECC published a consultation on the notification process for dedicated biomass projects seeking government support under the RO (the "Consultation"). This follows DECC's response to its earlier RO consultation on biomass affordability and value for money in December 2012, in which it announced an intention to introduce a 400MW non-legislative cap on new build dedicated biomass plant. After this threshold is reached, DECC has stated it may consult on whether further capacity should be included in its grandfathering policy.
The notification process and cap will only apply to new dedicated biomass projects. Generating stations which are already commissioned and accredited under the RO before the notification process opens will be excluded from the cap. Furthermore the cap will not apply to microgenerators (being generators with a declared net capacity of 50kWe or less); stations using advanced conversion technologies or anaerobic digestion; co-firing or CHP plant; or stations fuelled by landfill gas, sewage gas or bioliquids.
2. The proposed notification process
Applications to be allocated a place within the cap are to be made through the notification process which will be administered by DECC. DECC intends to begin administering the notification process from July 2013.
A two-stage notification process is proposed for standard projects:
- Stage 1
Six weeks before the estimated financial close of a project, the developer may apply for provisional allocation of a place within the cap, conditional on the project actually achieving financial close within an eight week window.
The proposed definition of "financial close" is that the developer has agreement from their board (or equivalent) and financial institutions to provide 100% of the financing for the project. To evidence the latter, DECC proposes that a signed declaration from each financial provider covering 100% of the required funding be provided.
Developers are also likely to be required to provide a copy of the planning permission (or development consent order), environmental permit and a grid connection agreement as part of the Stage 1 application process.
- Stage 2:
The developer must confirm that the project has achieved financial close. Where a project fails to achieve financial close, or to provide the required confirmations within the 8 week window, its application will be rejected.
The developer will also be required to re-certify the total installed capacity of the project. Should this exceed what the developer specified in stage 1, it is proposed that the application should be rejected.
Where a project has reached financial close after 18 December, 2012 but before the notification process has commenced, developers may combine Stages 1 and 2.
3. Priority notification process
The Consultation proposes that projects that have reached financial close before or on 18 December 2012 and have made the decision to commence construction, or have commenced construction, will be prioritised for places under the 400MW cap. DECC will achieve this creating a priority window for such projects during the first two weeks after the notification process has opened.
Projects which reach financial close after 18 December 2012 will be awarded support on a first-come-first-served basis provided that there is capacity within the 400MW cap and that they fulfil the relevant criteria.
4. Process when the cap is exceeded
DECC has suggested that for the application that takes the cap over 400MW DECC ministers should be responsible for deciding whether to include the whole project within, or exclude it completely from, the cap. It proposes that the decision be made taking into account the projected lifetime costs of the project; forecasts of RO spending against the Levy Control Framework budget; and the UK's progress towards achieving its 2020 renewable energy target.
To enable developers to monitor the cap, DECC will establish an online database which will provide a running totals of the capacity applied for and allocated under the notification process.
5. Consequence of not following the notification process
As the notification process is non-legislative, projects may accredit under the RO regardless of whether they have participated. However, DECC warns that developers which choose not to follow the notification process after its commencement may risk losing the ability to be accredited with grandfathered support if they are not within the 400MW cap.
6. Interaction with Electricity Market Reform (EMR)
Under the proposals biomass developers will be able to explore the option of entering into early investment contracts/contracts for difference (CfD) to be introduced as part of EMR through discussions with DECC and remain eligible for the RO notification process. However, once developers enter into a binding application for an early investment contract/CfD, they will cease to be eligible under the RO notification process.
DECC also indicated in the Consultation that during summer 2013 it will consult on the operation of the RO during the transitional period before the RO closes to new accreditations.
7. Useful links