ROCky road ahead

Andrew Dyne and Alistair Davison on the proposed changes to the allocation of Renewables Obligation Certificates

For some sectors of the renewable-energy industry, the proposed changes to the allocation of Renewables Obligation Certificates (ROCs) are viewed as a welcome fillip that will stimulate investment, but for others, a reduction in incentives and further pressure to cut costs makes for a gloomy forecast.

While some find the proposals electrifying, others may fear a damp spell in the doldrums is in store as the government reiterates its commitment to marine energy, but urges offshore wind to reduce costs.

DECC’s consultation on renewable-energy rebanding, which closed on 12 January, focused on scalable lower-cost renewable technologies that will deliver the majority of electricity the government needs to meet its 2020 renewables target – and outlined aims to ensure developers will continue to receive appropriate support when market conditions change and innovations develop.

New technology

The proposals are expected to cost in the region of £400 million to £1.3 billion less than retaining the current bandings, but drive a higher level of deployment. Overall, it means less of an impact on consumer bills, without reducing levels of ambition.

The ROC consultation’s suggestions confirm increased support for the emerging wave and tidal sector, moving from a 2-ROC allocation to 5 ROCs, until 2017. This is a clear signal that government is committed to supporting this rapidly developing industry.

Along with other funding initiatives, the proposed ROC upgrade helps the UK wave and tidal industry bridge the all-important gap between technology development to full commercialisation and industrialisation.

Support for the offshore wind sector is, however, more complex. The current arrangement would have seen a drop in ROCs from 2 to 1.5 in 2014. DECC’s new proposals greatly soften the impact, by reducing the ROCs to 1.9 in 2014, then dropping them to 1.8 in 2016. The offshore wind industry is already taking significant steps to reduce its costs and DECC recently created the industry-led Offshore Wind Cost Reduction Task Force to assist in this effort.

The onshore wind sector is also likely to see a reduction in support, from 1 ROC to a proposed 0.9 ROCs by 2017. The profitability margins available to some projects will be squeezed by this reduction and may result in schemes being less attractive or commercially unviable, perhaps even shifting a focus to those with a lower consent risk or larger scale.

Wind and marine energy trade body RenewableUK suggests the ROC reduction could result in a loss of 1.6GW of installed onshore wind capacity to 2017, enough to power almost one million UK homes. This depreciation may, however, act to bring about faster delivery through a more targeted approach by wind-power developers.

Mature sectors

Other proposals see technologies with low-capital expenditure (capex) and high-generating capacity, such as dedicated biomass, retain short-term ROC benefits up until 2014. This enables the extension of plant life on existing assets and reflects the maturity of the technology and investment risk borne by the generators, as well as a gradual reduction of support, similar to that for the onshore wind sector. Geothermal, for instance, which is linked to offshore in its characteristics, has a proposed and continued high level of support (2 ROCs), on the basis of technology maturity, high-capex costs, and potential generating capacity.

However, the energy-from-waste (EfW) sector seems to have been dealt another blow. EfW has been fraught with consent delays for some time, and its ROC allocations will be halved under DECC proposals, from 1 to 0.5, with the exception of some specialised technologies, such as advanced gasification and anaerobic digestion. With the exception of a few individual schemes, the EfW sector has still to mature, and a premature reduction in ROCs will do little to facilitate it reaching its full potential.

Meanwhile, a 2-ROC incentive (reducing to 1.9 (2015/16) and 1.8 (2016/17)) for anaerobic digestion, advanced pyrolysis and advanced gasification clearly recognises a shift from the large-scale centralised facilities to smaller, more localised operations.

Also, DECC clearly sets out in the consultation document support for “co-firing”. This will perhaps incentivise existing coal generators to switch to biomass on the basis that plants with at least 15% biomass content will receive 1 ROC. Meanwhile, fossil-fuel plants that are converted to run solely on biomass – cheaper than building a new plant by a factor of five – will see a reduction from 1.5 to 1 ROC. A move that is viewed as being a positive, albeit minimum, contribution in support of these investments.

While the above reflects the proposals for England and Wales, the only major difference in the Scottish consultation on new bandings is the decision not to incentivise large-scale biomass. This is presumably on the basis of concerns regarding biomass feedstock and long-term embodied carbon, given shipments and supply chain maturity in North America and eastern Europe.

Who wins?

Clearly, there are winners and losers under DECC’s proposals. The big winners are the tidal and wave developers and technology providers. They will now have the medium-term potential for increasing UK exports and longer-term benefit of the UK’s numerous waterside energy-generating assets.

Whether the new ROC allocation structure is suitable to drive investment, and, more importantly, achieve a robust and balanced portfolio of energy-generation infrastructure, remains to be seen.