UPDATE - UK Ofgem says green energy may need help
Date: 04-Sep-01
Country: UK
Author: Stuart Penson
Ofgem said sliding electricity prices under a new power market launched earlier this year meant ministers may need to give more support to renewable energy schemes which are key to the government's bid to slash emissions of greenhouse gases.
The government ordered Ofgem, which designed the new trading arrangements, to look at their impact after complaints from green generators that they are being penalised by the new system and that their calls for change have gone unheeded.
"With lower prices for all generators, including those producing green energy, there is a need for the government to review whether its targets for renewables can be met within the levels of subsidy now proposed by the government," said Ofgem Chief Executive Callum McCarthy in a statement.
Britain wants to cut greenhouse gas emissions by 23 percent on 1990 levels by 2010. It wants half the reductions to come through greater use of renewable energy.
New electricity trading arrangements (NETA), launched in March, have triggered a 20-25 percent drop in wholesale electricity prices, with smaller generators reporting a 17 percent drop, Ofgem said.
Renewable generators, like wind farms, complain they have been hit particularly hard because NETA penalises producers which cannot predict their power output.
CALLS FOR CHANGE
National Wind Power, the UK's leading developer of wind farms, said changes to NETA's design - not extra subsidies - were the only way to help the industry.
"We don't see the need for the government to change the basic Renewables Obligation support mechanism," said Peter Musgrove, the company's head of development.
"There is a need for NETA to be improved. The problem with NETA is the penalties for intermittent generators are disproportionate," he told Reuters.
He said penalties under NETA were several times higher than the company had been expecting and unless the system was changed, the development of wind power would be restricted.
David Green, director of small generators' lobby group Combined Heat and Power (CHP) Association said NETA was failing to encourage the development of energy-efficient projects. CHP cuts down emissions and increases efficiency by re-using surplus heat.
"...Ofgem has passed the buck to the government - and the challenge is now to ensure that the government does put in place all the measures needed to secure its targets for combined heat and power and renewables," he said in a statement.
Green noted that consolidation, where small generators pool their output and sell it via intermediaries, had failed to take off.
Ofgem, which promoted consolidation as a way to help small generators avoid grid imbalance charges under NETA, said only one company had taken up the role. Prior to NETA's launch eight companies said they would become consolidators.
Green said his group would meet ministers shortly to discuss the plight of small generators.
But Ofgem's McCarthy ruled out fundamental changes to NETA, saying they would put benefits to customers at risk.
Britain's new support mechanism for green energy was set out under the governent's Renewables Obligation (RO) scheme, announced in early August.
Under the RO, electricity suppliers will have to buy three percent of their power from green producers from next year, a figure rising to just over 10 percent in 2011.
A number of studies have warned the government that it would not meet its renewable production targets unless more help was given to green electricity producers.
