The Government Response to the statutory consultation on implementing banding of the Renewables Obligation (RO) was published on 2 December 2008 (click here to view), along with the draft Renewables Obligation Order 2009 (click here to view), which is anticipated to come into force on 1 April 2009.

THE CONSULTATION

The statutory consultation on the Renewables Obligation Order 2009 takes forward the Government's proposals on banding as set out in the Energy White Paper 2007. Banding the RO is a fundamental change that removes the previous link between the amount of electricity that is generated and the number of Renewables Obligation Certificates (ROCs) received per Megawatt Hour (MWh). This is necessary to ensure that early stage technologies, which will now receive more than 1 ROC/MWh, are able to enter the marketplace.

BANDING THE RO

Banding the RO is seen as a significant step towards achieving Government targets on renewables generation. The Pre-Budget Report (published 24th November 2008) confirmed that the RO remains the Government’s main mechanism for incentivising large-scale renewable electricity generation in the UK. The Pre-Budget Report also announced a significant extension of the RO from the current end date of 2027 to "at least 2037". The Government aims that that the decision to extend the RO alongside the banding of RO should give the investment community the greater confidence and certainty it needs to plan ahead, though another announcement on the level of support the Government would provide until 2037 will be made in the final Renewable Energy Strategy due in spring 2009 which will further develop the framework.

KEY POINTS ARISING FROM THE GOVERNMENT'S RESPONSE

Definitions

The statutory consultation asked respondents to consider the definitions of all types of electricity generation that are eligible under the RO. Small changes have been made to the definitions for hydroelectric, offshore wind and wave / tidal stream and a revised definition of gasification/pyrolysis will be included.

Microgeneration

The statutory consultation proposed and accepted that microgenerators (50 kW and under) should receive 2 ROCs/MWh. The purpose of this is firstly to minimise complexity for microgenerators, agents and Ofgem and, secondly, to reflect that the capital costs of small generation technologies are, typically, significantly higher per MWh than for largerscale renewable technologies.

Grandfathering

Those facilities that are already up and running when the RO banding comes into play will continue to receive one ROC per MWh, rather than having their subsidies cut. The main exceptions to this are that:

  • Co-fired stations without CHP will not be grandfathered.
  • Microgenerating stations (50kW and under) will not be grandfathered but support at 2 ROCs/MWh will be maintained following the next Review in 2013.
  • Biomass and waste plants will not be grandfathered. They will receive the same band as new plants of the same description. There is an expectation that future banding decisions will move towards banding down as technology costs decrease and biomass supply chains mature.
  • Stations in receipt of a grant will be expected to repay this in order to be eligible for higher ROC support

Co-firing

This was much debated as the amount of co-firing in any year is driven by the cost of the biomass and the relative costs of fossil fuels so it introduces a level of unpredictability into the RO. Detailed banding has been used to try to introduce the right incentives, promoting co-firing with energy crops above that of regular co-firing with biomass. Further work will be carried out regarding the costs of different configurations of co-firing syngas, biogas and natural gas.

Good Quality Combined Heat and Power (GQCHP)

The UK’s CHP Quality Assurance Programme (CHPQA) indices have been revised to ensure renewable CHP is promoted.

Banding reviews

Bands will be reviewed periodically, with decisions on the banding levels taken by the Secretary of State and other Ministers based on the independent advice and responses to the statutory consultation. The next banding review is expected to come into effect on 1st April 2013.

Sustainability reporting

Provision of data is currently for information purposes only, but requirements may change in 2010 at the earliest, as a result of work going on under the Renewable Energy Directive. Ofgem will postpone or revoke ROCs in the event of generators not making the required return within a set period.