The Platts company Power UK is predicting that the price of Renewables Obligation Certificates (ROCs) could crash by nearly a third to just over GBP33/MWh by 2007. This comes from new research by the company.
At the moment ROC prices are trading around the £46/MWh mark. But changes to rules for co-firing biomass with coal in conventional power stations and plans to build more windfarms could see the value of ROCs plummet to just over GBP33/MWh in a few years, the Platts ROC price marker (a measure developed in conjunction with the Renewable Power Association) predicts.
Power UK forecasts that more than 8.7GW of new renewable plant could come online between April 2004 and October 2009. Of this, 3.4GW could come from recently announced offshore wind projects.
Such projects could crush the ROC price at the end of the marker range, that is, by 2009/10. However, a large tranche (4 GW) of new onshore wind plant being built earlier could cut the ROC price to around GBP33/MWh
by 2006/7.
An ROC price of GBP33/MWh should still make projects viable if this extra money comes on top of the basic wholesale price of power. Platts predicts that wholesale power prices will range from GBP22-27/MWh for 2005. Others believe that the introduction of carbon trading will increase prices further.
Given that offshore wind projects need to sell their output for between 40 and 45 GBP/MWh, and onshore wind plant for around GBP30/MWh, a fall in ROC prices to GBP30/MWh should not make them uneconomic.
Under the central/medium build scenario, prices do not collapse, rather they bubble around the GBP40-50/MWh mark. But the recent EU co-firing rule change will play a part in the decline in ROC prices post-2006.
In a bid to mitigate the impact, the government has cut the proportion of co-fired ROCs a supplier can submit from 25% to 10%. Although the marker assumes that each supplier will have no more than 10% co-fired ROCs, in practice such ROCs are unlikely to be evenly distributed between suppliers and so the price could be higher.
However, there now seems to be a risk that the ROC price could collapse from GBP30/MWh to nothing if considerably more renewable plant than set out in the Power UK tracker is built. It is predicted by some analysts that when a year’s obligation is met in full by all suppliers the value of ROCs falls to nothing.
Predicting that this could happen, however unlikely it is, financiers and vertically integrated companies may trim their support for new build, so allowing the price to recover. However, this can only happen after a considerable amount of environmental and other preparatory work has been undertaken by many developers, who may then be left with just a site to sell to one of the large suppliers.
It is understood that the National Audit Office is already considering an investigation of the effectiveness of the Renewables Obligation this year – perhaps as a precursor to the wide scale review of the RO due next year.
