Saying Yes But Meaning No

We do want biomass CHP generation don’t we?

And government really does mean it when it says that its 2010 CHP targets are for 10,000 MW CHP capacity and that 15% of energy used by it will come from CHP?

If the answer to both those questions is yes, it’s hard to see why up to 5GW of biomass development in course at the end of last year was frozen by government and why any development of new projects is to be seriously limited by it for the foreseeable future.

In December DECC announced that support for biomass plants would not be grandfathered – so the biomass plant you build now might not get the same/any support post-2013. That news pulled the rug from under projects which were to start to generate post-April 2013.

It appeared to be news to DECC that changing investment rules and removing investment props undermines the market. Extraordinary though it may seem, the DECC officials who have been in place for some time seem simply not to have known the basic rules of markets, investments and government support, despite that being their main job in life.

With a cock-up on that scale one expects immediate action. What did we get? Nearly two weeks later Lord Hunt announced that he would make an announcement at a future date, but not now. Then just over two months later we were told that an announcement would be made later, but not now. Why the delay?

There are two possible answers. The ‘good’ answer is the one that makes us think government is devious and investors can’t trust it but it nonetheless knows what it’s doing. The ‘bad’ answer is that they’re out of their depth. It isn’t simple deciding which it is.

DECC said that the 2010 Renewables Order (the Order that dealt with the biomass issue) had already gone to the Joint Committee on Statutory Instruments and they couldn’t now change things until the next Renewables Order in April 2011. That is a ‘good answer’: it is clearly nonsense, so must be designed to do no more than deflect us all. These people are irritating, yes, but not stupid.

But there is now a consultation paper out and in it one is really hard pressed to find any reason for the problem except the inability to sort out how to allocate costs and subsidies so the two match up. It appears that DECC decided not to grandfather biomass plant “precisely” because it couldn’t manage to fathom a scheme to ensure that the biomass plants with cheaper feedstock got less support than the biomass plants with more expensive feedstock or that as feedstock changed, prices changed.

Why should that matter? According to DECC, grandfathering could result in future market distortion if bands were changed for new entrants. On the basis of such future perhapses, possibilities and mights, DECC has thrown in the towel and decided that it can only deal with non-fuel costs as the basis for the RO allocation – and it is asking us how that will work.
Why not look at what other countries do so much more successfully than us? Why not copy the rules in Germany where they will meet their targets, even if we won’t? Why not do anything other than pull the plug on current projects?

It’s worse than that. For other kinds of biomass – waste from energy and anaerobic digestion – government is to defer a decision until the next review of the Renewables Obligation. There is no possible glimmer of light here for the future.

The message has to be that although government says it wants biomass, it doesn’t.

But if that’s wrong, they’re going about it in the wrong way and I will arrange that they be given free entry to the conference run by the Energy & Utility Forum on 1st June which tells them what funders and developers need: www.fundingrenewables.co.uk/ and I will go out of my way to ensure that the investment community engages with them.

Sally Barrett-Williams
Partner - The Carbon Catalysts Group
Chairman - Energy & Utility Forum

(© Sally Barrett-Williams)

The Shape of Things To Come

Without substantial intervention in the energy market, the UK will miss its emissions targets and will find itself with insufficient power.

That is agreed by Government, the Opposition and the regulator. But they have different views about the cause and extent of the problems. It’s no surprise, then, that they disagree about the way forward. Each has set out the options recent policy announcements.

The regulator kicked off with Project Discovery. This sets out four 2020 outturn possibilities, which presuppose two economic recovery scenarios, slow and fast with, in each case, high investment or low investment in ‘green’ infrastructure.

It then outlines five options to overcome the inadequacy outputs of these scenarios. The options range from a central energy buyer to a mix and match of a carbon floor, a centralised renewables market, new purchase and sale obligations, etc. In other words, all the options discussed over previous months make their appearance in the mix of policies for the way forward.

What did Ofgem intend by this? It doesn’t have a policy remit (and has intensely irritated its current and potential future political masters in publishing.) Was it aiming to narrow discussion about the range of possibilities?

If so, it didn’t work. The Treasury followed behind with its Energy Market Assessment. This dismisses reliance on a carbon floor and dismisses a central buyer for all energy outputs. It insists focus must be restricted to:

• paying low-carbon generators more;
• ‘penalising’ high carbon generation;
• paying low-carbon generators a fixed amount.

Having read this document, one’s response is why bother? It has no argument and defers anything substantive to an autumn consultation. The only effect is to show that Government doesn’t yet have a policy on market reform.

The Tories, by contrast, are hugely ambitious — over-ambitious, perhaps? They have published a twelve-point policy plan called Rebuilding Security. The plans fall into three parts: substantial market reform, administration and tidying up. The heart of change, the main market-reform proposals, are:

• requiring electricity suppliers to buy capacity;
• requiring gas suppliers to have storage, contracted demand-side response and (contrary to the trend in European competition decisions) long-term contracts;
• implementing a long-term carbon floor price via the CCL;
• building an offshore grid, with associated marine park facilities;
• mandating a national network of recharging points for electric cars;
• limiting Ofgem’s powers and taking policy matters back into government (contrary to the decisions taken by the European Energy Council).

These policy outlines are quite different, with the Tories being the most interventionist.

But discouragingly, there is a huge similarity between the proposals.

• Ofgem’s options and consultations are irrelevant: it has no powers to be dabbling in policy and no government will give its options any credence.
• The Government has, as yet, only nascent policies.
• The Tories have policies which involve a disregard for EU powers and EU decisions that one cannot contemplate any government following through.

A senior Labour parliamentarian said we don’t have policies, we just muddle through. So far there are no signs that is changing.

(© Sally Barrett-Williams)