“uåX˜äŠÊ˜·³Ç

industry fails to build the megawatts expected of it under the Renewables Obligation in the next few months, nuclear says it is ready and willing to

deliver carbon free electricity. By coincidence or not, nuclear's drum beating has been accompanied by an unprecedented number of misinformed attacks on wind's ability to provide cheap, safe and reliable supplies of green power

As the UK government's review next year of its renewables policy looms, the pressure is on Britain's wind industry to prove it can deliver its share of the country's targets for renewable energy and reductions in greenhouse gases. The alternative, some warn, could be a renaissance for nuclear. Its increasingly vocal supporters are pushing nuclear as the only realistic option for large-scale carbon-free generation.

This summer the Department of Trade and Industry (DTI) is to publish its terms of reference for a major review of the progress of the Renewable Obligation (RO) towards meeting its targets. Wind, as the UK's most resource rich and commercial renewables technology, is expected by government to meet around 75% of the national target for 10.4% of electricity from renewables by 2010. This would mean some 8 GW of wind capacity, both onshore and offshore -- more than a ten-fold increase over today's installed capacity of 770 MW. Renewables will also play a key role in helping the country meet its Kyoto commitments of a 12.5% reduction in greenhouse gases by 2010 and the government's domestic goal of a 60% reduction in carbon emissions by 2050.

The present Labour administration has invested a large amount of goodwill in renewables -- wind in particular. It will want to see some payback from its investment in the RO, its main mechanism to promote green energy. The RO requires electricity retailers -- known in the UK as suppliers -- to buy a rising proportion of their power from renewables. The level of the RO started at 3% in 2001 and currently stands at 4.9%. The government has also initiated two licensing rounds for offshore wind projects and £350 million of capital grants to offshore wind, solar and biomass.

new investment

Despite these demonstrations of political goodwill, the regulatory details remain a significant obstacle course for wind project developers. The government is reacting to industry concerns. To increase investor confidence in renewables, energy minister Stephen Timms extended the Renewables Obligation in December to 15% by 2015 from its previous goal of 10% by 2010 (“uåX˜äŠÊ˜·³Ç, January 2004). New investment in the electricity grid to take increased flows of renewables power is planned and the government may introduce lower transmission charges for renewables generators in remoter parts of Scotland where much of the UK's best wind resource is located. New guidelines for site permitting for wind plant are also expected this summer, which should provide a more positive framework for local authority decisions. Only time will tell if these are the right actions for removing obstacles.

The British Wind Energy Association (BWEA) recognises the importance of demonstrating that wind can deliver, particularly in the face of a deluge of negative media and press reports attacking its technical and financial viability (see box page 36). A significant increase in working wind stations by the time of the renewables policy review in 2005 would indicate to government that its faith in wind is not misplaced. Almost 350 MW is slated to be commissioned before the end of this year, says BWEA, while work will begin on a minimum of 300 MW of onshore projects for completion in 2005. Construction of three more offshore wind projects totalling nearly 300 MW should be achieved next year. This new capacity represents a considerable scaling up from last year's installation of 154 MW, but is still a long way from the more than 1000 MW of new capacity needed each year to meet the 2010 target.

Moreover, the 300 MW due to come online this year is well down on a BWEA projection of 474 MW as recently as January, repeating the pattern of the past five years with actual annual development falling well short of that expected. The BWEA says that 982 MW of onshore projects with consents are awaiting construction -- excluding those being built this year. For some of these, three years have passed since they gained consent. So what is behind the failure of the industry to deliver as expected? Why the delay between gaining consent and installing turbines?

Siting delays

Most developers admit that projects take longer to complete than they expect. From AMEC, David Hodkinson says the vote by a local authority planning committee to grant consent for a project is not the green light to begin building; first, there are a range of siting conditions and performance bonds that have to be thrashed out with the local authority. Each project has its own unique issues, he adds. Hodkinson points to the company's 49 MW Edinbane project on the Isle of Skye, permitted in November 2002. Progress is being held up while AMEC applies to the Scottish land court for a "presumption" allowing it to take crofters' rights away for the footprint of the wind turbines. It is a whole new issue for the industry, he says. The land court's decision could have far reaching consequences for wind development in the Scottish highlands and islands.

A more typical basket of delays has held up the 58.5 MW Cefn Croes wind farm in Dyfed, Wales. Developer Renewable Development Company (RDC) received approval in May 2002, but then had to resolve a number of siting conditions, which included preventing interference with television reception, creating a £250,000 land management program, and setting up a community fund of £58,500 a year. The company sold the project earlier this year to Falck Renewables, the wind subsidiary of Falck Group of Italy, which hopes to complete it this year.

Obtaining finance takes time, too. The government's raising of the RO to 15% by 2015 to get investment flowing into renewables was widely welcomed by many in the industry. Several developers report that it is now easier to secure the all-important power purchase agreements (PPAs) to allow them to finance projects.

But Tony White from merchant banking group Climate Change Capital is not convinced that raising the obligation will free up sufficient investment to make real progress. "UK power is still not seen as the best place to invest," he says. This is a legacy of recent years when low prices for electricity and an oversupply of generation caused several company failures among the newer players in the market. "Going from ten to fifteen per cent does not really help much."

The major problem is still securing long term PPAs, White says. The big generating companies need the Renewable Energy Certificates (ROCs) that usually accompany PPAs to fulfil their obligations under the RO, but they are loath to sign too many long term contracts with renewable generators, he says. Uncertainty over the future of the ROC market -- particularly of the value of ROCs as the 2015 target date approaches -- means that most suppliers are looking at a variety of options for meeting their obligations, including own build. All the major players have their own renewables construction programs. The reluctance to commit to long term contracts could squeeze the independent renewable generator out of the market, removing the competitive pressure to get as many wind projects built as cheaply and quickly as possible, a main purpose of the RO.

Power purchase contracts

AMEC's Hodkinson disagrees with White's gloomy outlook. He says AMEC has been offered PPAs of up to 15 years for its projects. The long term deals on offer from all of the top six UK electricity suppliers, however, are based on sharing the risks of future volatility in the ROC market. The suppliers are offering a percentage of the face value of a ROC (currently £31.39 per MWh) plus a percentage of the "recycle" value, he says. "Recycle value" refers to the distribution of money collected each year from suppliers who buy out of all or some of their obligation. The money is recycled back to suppliers in proportion to their compliance with the obligation.

For short term PPAs, terms are more attractive, but AMEC prefers the security of long term contracts. Hodkinson reports high levels of interest in investing in wind among the financial community. "The appetite to lend or put equity into our projects is stronger than our ability to build them," he says.

In contrast, smaller developer West Coast Energy is having trouble financing its first wind cluster in Devon. "There seems to be a reluctance among banks to finance small projects because of the high cost of due diligence," says the company's Rob Tate, referring to the documentation required to demonstrate a project is a safe investment. "A £3 million project is not of much interest to them." Yet Tate believes the RO will stimulate a proliferation of smaller projects, either community owned or developed by individuals or small companies. He suggests that banks could lower the costs of due diligence. "There has to be some form of standardised approach by the banks."

confidence

One of the most important questions the review of the RO must deal with is how to maintain future confidence in the mechanism. Yet another increase in the level of the RO out to 2020 and beyond is not the answer, says White, echoing concerns of others prior to the extension to 2015. He points out that just extending the RO does not do away with policy risks such as change of government or potential oversupply of ROCs. He believes, however, that the risk of ROC prices crashing is overstated. "If you think hard and logically, the conditions you would need for prices to go to zero are so unrealistic, you can write them off." Ideally what is needed is for renewables plant to be able to gain financing without long term contracts, he says, indicating that "merchant" sales of power directly to the market might be the way forward. Amendment of the RO to achieve long term contracts was a hot topic of discussion at the end of last year, with one solution, dubbed 'vintage Roc n' Roll,' in particular promoted (“uåX˜äŠÊ˜·³Ç, December 2003).

Most of the future onshore wind capacity will be in Scotland, which hosts the UK's best wind resource. Scotland also offers an easier site permitting process, with a higher rate of success for wind projects than in England or Wales. But of growing concern, according to the Scottish Renewables Forum (SRF), is the length of time it is taking to gain consents. "Decision times are increasing rather than decreasing," says Maf Smith of SRF. He says part of the problem is lack of resources at the Scottish Executive. It deals with permit applications for large wind farms of 50 MW and above. Meantime, some local authorities are putting off decisions on smaller projects simply because they are unsure how to assess the applications.

Scotland OBSTACLES

Smith complains that once consented, Scottish projects, like those in the rest of Britain, are held up while the council and developers agree the planning conditions. "This takes time because local authorities are stretched," he says. The SRF is calling for standard terms and conditions to apply to all wind applications where possible, such as with regard to decommissioning and community benefit agreements.

The other big obstacle in Scotland is lack of grid capacity, says Smith. A lot of investment is needed to take power from the wind generation proposed. It will be years before planned grid reinforcements take effect. Scottish and Southern Energy plans a £200 million upgrade to its overhead line from Beauly to Denny, which wind power in the north of Scotland could feed into. Meantime, ScottishPower has just announced its plan for £400 million of grid upgrades in southern Scotland to take power flows from Scottish wind projects to England.

Meeting the targets

If the pre- and post-consenting procedures can be speeded up and the necessary grid upgrades installed, Smith believes the targets of the UK government could be met, at least on land. Developers have plans for 5 GW of projects in Scotland -- more than enough to meet wind's share of Scotland's 40% renewables target, and even more than is needed for onshore wind's share of the UK target. "We need to make sure the planning system is working properly, so that the good wind projects can get built," says Smith.

Onshore wind alone is not enough. The government states that offshore wind will be vital in meeting the 10% renewables target. Most of the first round of projects, each of 30 turbines, look set to get built -- thanks to support from capital grants in addition to income from sale of ROCs. Another matter entirely is the more ambitious second round of projects further out to sea. White points out that unlike round one projects, these will not receive capital grants. And there is perceived to be more technical risk. "I don't see how round two offshore is going to happen," he says. "I don't think that prices under the Renewables Obligation are high enough for round two."

Offshore project developers such as Centrica and AMEC say the second round offshore wind farms will be viable. Hodkinson says the experience gained in the first round will inform the next. It is several years before developers have to decide whether to make major investments in their round two projects, he says. Many round two developers are hoping for additional financial support. Some believe that spreading the costs of the offshore transmission grid across all network users would be the answer. Others would like to see support through the tax system -- as in the form of a tax credit.

Yet other commentators argue that a neater solution to supporting projects -- both onshore and offshore -- under the RO must be found. The RO is driving up wind's prices unnecessarily while not delivering the volume of build required (“uåX˜äŠÊ˜·³Ç, January 2004). "We have a real dog's breakfast of support with the RO, capital grants, the possible impact of carbon trading and the uncertainty of how BETTA will affect renewables," says one, referring to the new electricity trading arrangements.

Nuclear push

Meantime, the well-heeled pro-nuclear lobby is becoming ever more professional and vocal in urging government to reconsider nuclear power for plugging the energy gap that will emerge as today's older coal fired and nuclear plants close. In a recent television news report, scientist Crispin Tickell claimed that nuclear ought to enjoy a similar place in government energy policy as renewables.

Renewable energy information consultants Halo Energy point out that the government has never stopped supporting the nuclear industry. The company's Ralph Kappler comments: "Negative public perception is seen by nuclear advocates as the main obstacle to new nuclear build. Therefore the battle for hearts and minds is now on." He adds that it is high time the renewables industry took the initiative to communicate a clear message of its true potential to policy makers and the public.