What’s the difference between a 10MW hydro power plant and a 20MW plant in the UK? Well, apart from the obvious difference in power produced, the answer is that up until July 2001, the 20MW plant was excluded from the UK government’s Renewables Obligation. That, however, has now all changed. While opening a refurbished hydro plant in Scotland, newly appointed UK Energy Minister Brian Wilson announced a new deal for hydro in a move which he claims ‘would give hydro its biggest boost in 50 years’.
The new measures will increase the size of refurbished hydroelectric power stations to receive support from the Renewables Obligation from 10MW to 20MW and ensure that all newly built hydroelectric power stations will fall under the Obligation. As part of the new deal Wilson also announced plans to broaden the scope for research and development to include environmental protection for hydro projects.
This extension to the Renewables Obligation is expected to result in the refurbishment of approximately 30 hydroelectric power stations and company investment of around US$356M into hydroelectric power.
‘Refurbished hydroelectric plants are roughly 10% more energy efficient,’ says Wilson. ‘These new measures will wash away the cobwebs on old plants. They will give companies the confidence to invest in this forward looking industry.’
So what exactly is the Renewables Obligation, and how will it affect the development of hydro power? According to John Dodderall, director of sustainable energy at the UK’s Department of Trade and Industry (DTI), renewable energy, including hydro power, is a key element in the UK government’s overall energy policy.
Speaking at the British Hydropower Association’s (BHA) Export Network Meeting, held in Nottingham, UK, on 30-31 May 2001, Dodderall said he was a strong supporter of the hydro industry. He believes that hydro will make important contributions to targets under the Renewables Obligation, a key instrument of the government’s policy for renewable energy.
Speaking to an audience of BHA members, including representatives of Newmills Hydro, Gilkes, Hydroplan and ge-hydro, Dodderall explained the reasons behind the Renewables Obligation, and how it will aid in the development of hydro power in the country.
Renewable energy
The government published its policy for renewable energy in February 2000. The main objective is to increase the contribution of electricity supplied from renewables to 5% by the end of 2003, and 10% in 2010.
Dodderall explained that the renewables policy is part of the government’s programme to tackle climate change and encourage a sustainable approach to energy consumption. Previous policy has been successful in introducing renewables to the UK marketplace and in reducing costs. The current policy has been developed to build on these achievements through a number of instruments, including the Renewables Obligation, in order to meet government targets. It is anticipated that the Obligation will come into effect in early 2002 and will remain in place until 2027.
According to it’s report New & Renewable Energy: Prospects for the 21st Century the DTI says that essentially, the government’s renewable energy policy has five key aims:
• To assist the UK to meet national and international targets for the reduction of emissions including greenhouse gases.
• To help provide secure, diverse, sustainable and competitive energy supplies
• To stimulate the development of new technologies necessary to provide the basis for continuing growth of the contribution from renewables into the longer term.
• To assist the UK renewables industry to become competitive in home and export markets and, in doing so, provide employment.
• To make a contribution to rural development.
Previously, the government’s main renewables policy instrument has been the Non Fossil Fuel Obligation (NFFO), the Scottish Renewable Obligation (SRO), and the Northern Ireland Non Fossil Fuel Obligation (NI-NFFO) arrangements.
The Renewables Obligation has been developed to move away from the NFFO approach and reflects the government’s belief that the way forward is to create market conditions for a thriving, competitive renewables industry, according to the DTI. Its introduction means that there will be no further NFFO contracts. Instead, all licensed electricity suppliers in England and Wales will be subject to the Renewables Obligation.
For those projects constructed under NFFO, saving arrangements have been introduced in the Utilities Act 2000 to ensure that existing contracts will continue. Responsibility for these arrangements will be transferred from public electricity suppliers (PES) to their supply successors after the PES licence split. The government’s overall aim, says the DTI, is to effect a seamless transition from the old to the new regime, so that generators will not notice any difference.
These saving arrangements will not apply to SRO projects. The Scottish Executive will put forward proposals for the treatment of SRO projects within the Obligation. In Northern Ireland, arrangements for existing NI-NFFO contracts will also be the subject of consultation planned later this year.
The Renewables Obligation for England and Wales and the Renewables (Scotland) Obligation (RSO) will place a legal obligation on all licensed electricity suppliers to supply a proportion of their electricity supplies from renewable energy to their customers in the UK. Renewable Energy supplied in Northern Ireland will count towards achievement of the UK target and will also be eligible for climate change levy exemption, although the Northern Ireland Assembly will be responsible for considering whether to introduce a mechanism similar to the Renewables Obligation.
Scottish electricity suppliers supplying customers in England and Wales will have to meet the terms of the Obligation, while Northern Irish and English companies supplying in Scotland will be subject to the RSO.
Licensed electricity suppliers will have to provide evidence to the Office of Gas and Electricity Markets (OFGEM) of their compliance with the obligation. The DTI says suppliers will be given a choice of options on how to comply with the obligation. One way they can demonstrate compliance is through Renew-ables Obligation Certificates (ROCs).
Each certificate will represent 1MWh of renewable electricity that has been generated and then supplied by licensed suppliers to their customers. Some suppliers can choose to meet their target completely with ROCs, while others may buy out some of their Obligation target by making payments to OFGEM.
According to the DTI, a supplier will have fulfilled their Obligation if they can produce certificates equivalent to a predetermined level of renewable supply by a specified date.
OFGEM will be responsible for the issuing of ROCs. It will monitor data on the output of each accredited renewable electricity generator. Certificates will then be issued to those generators, according to the quantity of electricity produced and supplied in the UK. Generators will then be able to trade these certificates to licensed electricity suppliers with whom they have contracted.
The certificate will be evidence that renewable electricity has been supplied by a licensed electricity supplier. In order to fulfil their obligation however, suppliers will be expected to inform OFGEM about the number of ROCs that they wish to redeem.
Size matters
Originally, it was decided that hydro exceeding 10MW was to be excluded from the Obligation because the government considered these projects to be commercially viable, and had the ability to compete with electricity from fossil fuels. However, the announcement by Wilson has extended the size of projects covered.
One company that has welcomed the news that output from hydro stations of 20MW capacity and below will receive ROCs is Scottish and Southern Energy. The company says that the new measures mean that it is now attractive to refurbish small to medium sized hydro stations, securing the long term future of this renewable resource for the UK. This will result in a refurbishment programme of up to US$356M over the next 10 years for these stations, beginning with refurbishment of hydro stations at Invergarry, Gaur and Orrin in Scotland.
Scottish and Southern has already completed US$64M of investment in its larger hydro plants increasing their efficiency output by 6%. This additional refurbishment of up to US$356M will not only secure the output from hydro to 2030 and beyond, but also deliver around another 200GWh of new renewable generation, said a spokesman for the company. This will make a considerable contribution to the UK’s target to achieve 10% of its output from renewable sources by 2010.
The extension to the Renewables Obligation will be good news for numerous other hydro companies and organisations in the UK. When the BHA held its meeting in May 2001, it was promised support by the DTI. With these new measures, it seems that’s exactly what has happened.
As Energy Minister Brian Wilson said: ‘This is a major signal that hydroelectric power still has a huge part to play in the government’s strategy for renewable energy.’
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