RENEWABLES OBLIGATION

The Renewables Obligation (RO) is the Government's main mechanism for supporting generation of renewable electricity.

In the UK, the two primary legislative mechanisms for supporting electricity from renewable energy sources are the Renewables Obligation Order (the "Order") and a Climate Change Levy exemption.1

RENEWABLES OBLIGATION ORDER

The first Renewables Obligation Order came into effect in April 2002. New Orders came into force on 1 April 2005, 1 April 2006 and 1 April 2007. All these Orders have now been replaced with a new Order which came into force on 1 April 2009, which introduces banding and grandfathering and other changes to the Renewables Obligation. Generation that occurred prior to 1 April 2009 will still be subject to the requirements of the previous Orders. The scheme is administered by Ofgem.

The Renewables Obligation Order requires licensed electricity suppliers to source an increasing percentage of the electricity they supply from eligible renewable energy sources and provides financial incentives for them to do so. In 2008-09, the proportion was 9.1 per cent in England and Wales. From 1 April 2009, the obligation has changed from a percentage to an obligation to present a number of Renewables Obligation Certificates (ROCs) to cover their obligations. In 2009-10, this will be 0.097 ROCs for every megawatt hours (MWh) in England and Wales. Where suppliers do not have sufficient ROCs to meet their obligation, they should pay an equivalent amount into a fund, the proceeds of which are paid back on a pro-rata basis to those suppliers that have presented ROCs.

TECHNOLOGIES THAT ARE ABLE TO RECEIVE ROCS

The Order deals with the types of technologies that are able to claim ROCs under the RO. The legislation is explicit as to the types of non-fossil fuelled technologies that may be able to get ROC support and that were envisaged at the time the Order was introduced. The Order also explains the types of fuel, or combinations thereof that may receive ROC rewards. The legislation includes the expression 'other technologies' within the reference reward band giving the option for technologies not envisaged to apply for accreditation.

Biomass, waste and co-firing generating stations are able to claim ROCs subject to certain conditions being met. These include that operators of these generating stations having appropriate fuel measurement procedures in place. Biomass and waste generating stations are explored further below:

Biomass

To claim ROCs for electricity generated from biomass, the fuel used will ordinarily need to meet the definition of biomass in the Order. To meet the biomass definition, an individual fuel must have an energy content of at least 90 per cent that is derived directly or indirectly from "relevant material" (plant matter, animal matter, fungi or algae).

If less than 90 per cent of the energy content within an individual fuel is derived directly or indirectly from relevant material, it will not itself meet the biomass definition. However, if the fuel is one of two or more non-fossil fuels used at the generating station in any month, and the combined energy content of these fuels is more than 90 per cent derived from relevant material, then the combination of these fuels can be treated as biomass.

Waste

Waste is defined in Article 2 (1) of the Order. Article 2 (1) itself refers to the meaning of waste given in section 75(2) of the Environmental Protection Act 1990 but does not include gas derived from landfill sites or gas produced from the treatment of sewage.

Article 3 (1) effectively ensures that no ROCs are issued for electricity generation attributable to “non-renewable waste” i.e. waste that derives more than 90 per cent of its energy content from fossil fuel.

Article 22 (1) effectively excludes generating stations from claiming any ROCs when using waste unless the station meets one or more of the following criteria:

  • the waste by which it is fuelled in that month has been converted to a liquid or gas using either gasification, pyrolysis or anaerobic digestion;
  • it is a CHP generating station with CHPQA accreditation (see further below); or
  • the only waste(s) used are liquid fossil fuels (e.g. recycled fuel oil) and/or solid recovered fuel (SRF).

Under Article 22 (1) (c), a station will be excluded in any month (and will not therefore be eligible to claim any ROCs) where both a fossil fuel and any other fuel (other than biomass or SRF) is used.

Combined Heat and Power Stations Fuelled by Waste

Combined Heat and Power (CHP) stations that are fuelled by waste are eligible for support under the Order. CHP generating stations burning waste will need to be accredited under the Combined Heat and Power Quality Assurance (CHPQA) programme before seeking accreditation under the RO.

The CHPQA programme is a scheme run by AEA Technology on behalf of the department of Energy and Climate Change (DECC). A qualifying station will hold a valid Secretary of State Combined Heat and Power Exemption Certificate 2 (SoS Certificate) and a CHPQA certificate.

As part of the process of accreditation, a station will need to provide information on whether it has been determined as a partially or fully qualifying good quality CHP station. The certificate issued by CHPQA for the purpose of claiming ROCs differs from that used under the Climate Change Levy exemption. If a CHP station wishes to claim levy exception certificates as well as ROCs they will need to provide evidence of both certificates.

On an annual basis, Ofgem will receive details from CHPQA of the stations Quality Power to Total Power Output ratio, which they will use in order to calculate the number of ROCs to be issued on a station's eligible output.

BANDING

The Order now ‘bands’ the RO through giving different technologies different numbers of ROCs per MWh of banding, breaking the previous one MWh = one ROC principle. These banded technologies are listed below:

(Click here for table)

The exception to the banding principles above is grandfathering. This is based on the commissioning and accreditation date and is as follows:

  • Generating stations which had full accreditation on or before the date of the publication of the Energy Review Report (11th July 2006) will be entitled to 1 ROC/MWh only.
  • Generating stations which are granted full accreditation after 11th July 2006 but on or before 31st March 2009 and which, after the introduction of banding, would be banded up, will move to the appropriate higher band once they are introduced on 1st April 2009.
  • Stations generating electricity from Landfill Gas and Sewage Gas which are granted full accreditation after 11th July 2006 but on or before 31st March 2009, and which after the introduction of banding would otherwise be banded down, will be grandfathered at 1 ROC/MWh.
  • Stations generating electricity from Landfill Gas and Sewage Gas which are granted preliminary accreditation on or before 31 March 2009 and which commission before 1 April 2011, which after the introduction of banding would otherwise be banded down, will be grandfathered at 1 ROC/MWh.
  • Generating stations which were accredited as at 11th July 2006 and added additional capacity after 11th July 2006 but on or before 31st March 2011 will receive ROCs for electricity generated from this additional capacity at the banding level such a technology has been awarded, unless it is a sewage gas or landfill gas site where it will receive 1 ROC.
  • Generating stations which were accredited on or before 31 March 2009 and added additional capacity after 11th July 2006 but on or before 31st March 2011 will receive ROCs for electricity generated from this additional capacity at the banding level such a technology has been awarded unless it is a sewage gas or landfill gas site where it will receive 1 ROC.
  • Generating stations which are granted preliminary accreditation on or before 31 March 2009 and which commission before 1 April 2011 and subsequently add additional capacity after commissioning but on or before 31st March 2011 will receive ROCs for electricity generated from this additional capacity at the banding level such a technology has been awarded unless it is a sewage gas or landfill gas site where it will receive 1 ROC.

The Government has indicated that it intends to review the banding structure to make any changes at planned intervals, to be introduced in April 2013, April 2018, and 2023.

ISSUING ROCS

Ofgem will issue ROCs equivalent to the amount of electricity determined to be eligible according to the relevant provisions of the Order for each accredited generating station. As described above, the number of ROCs will depend on the application of grandfathering provisions, the application of banding according to the generation type and fuel mix that is used each month.

FURTHER INFORMATION

Dept of Trade and Industry: www.dti.gov.uk/energy/sources/renewables

Office of Gas and Electricity Markets: www.ofgem.gov.uk