INTERVIEW - Energy firms bid to boost UK green certificate trade
Author: Stuart Penson
A group of firms including Innogy (RWEG.DE), Centrica (CNA.L), British Energy (BGY.L) and Powergen (EONG.DE) has drawn up a set of standard trading terms it hopes will kick-start a market marking its first anniversary yesterday and potentially worth hundreds of millions of pounds.
"We hope to have a final document in a week or so," said Sue Wheeler, business development manager for renewables at Centrica, and chair of the group working on the contract.
"The idea is that we need this framework in order to set the scene to develop this market and increase liquidity," she told Reuters.
The standard contract is for the trading of Renewable Obligation Certificates (ROCs), which verify the origins of electricity produced from specified renewable sources such as wind turbines.
To comply with the government's Renewables Obligation power suppliers need to get their hands on enough ROCs - either by running their own green power plants or by buying certificates in the open market - to prove at least 4.3 percent of the power they sell this year (starting April 1, 2003) is from renewable sources.
Companies failing to get enough ROCs have to pay a punitive "buy-out" charge.
The obligation forms part of the government's drive to boost the use of renewable energy as a way of curbing greenhouse gas emissions, a goal given high priority in a white paper on future energy policy published in late February.
Ministers want renewable plants to provide 10 percent of the country's power by 2010.
Last year renewables accounted for just 3.0 percent of the country's power and some analysts say the shortage of spare green power is one factor hindering trade in ROCs.
MANAGING THE RISKS
Wheeler said the new trading contract would help companies overcome some of the perceived risks involved in trading ROCs.
"One of the features of the Renewables Obligation is that ROC's can be revoked after they have been issued," she said.
This could happen if, for example, a power station granted ROCs on the basis that its furnaces burn a certain amount green fuel such as straw, uses too little straw in its fuel mix.
Energy regulator Ofgem said recently it had revoked some ROCs granted to a waste-to-energy plant.
Under the RMTA the liability for the invalid ROC, which could have been bought and sold several times since its issue, is passed back to the original holder of the certificate.
"The liability goes back to the original seller, this gives security to the ROCs trade," said Wheeler.
She said several ROCs trades were going through each week in a market in which over 20 companies have been involved at various stages. She expected the number of deals to grow once companies have the new contract to underpin trades.
"(The contract) will help give ROCs a proper price mechanism, this will help the whole renewables industry," said Wheeler.
Banks, which track the ROCs market as part of their assessment of the risks involved in lending money to renewable energy projects, were aware of the move to launch a standard trading contract, she said.