NNFC: How does the renewables obligation banding review affect bioenergy? 25/07/2012
The Government's response to the Renewables Obligation banding review has been met with a mixed reaction from industry, here we break down the announcement and assess what the new bands will mean for bioenergy production in the UK.
The Government is clearly walking a tightrope in trying to control the costs associated with the Renewables Obligation (RO) within the Department of Energy and Climate Change (DECC) agreed levy-funded envelope, while trying to encourage lowest-cost low carbon development.
The announcement should have delivered some much needed certainty and confidence in the sector. However, much of the detail is still subject to consultation, so there is still some way to go.
The response reveals Government concerns at the rate that some renewable generation could come forward, reflecting the risk the levy envelope could be exceeded. The diversity of technologies and feedstocks involved makes interpretation particularly difficult, but some clear messages appear.
Co-firing of biomass
While support for enhanced co-firing is to be reduced below the previously planned 1 ROC per MWh, the Government is proposing to sub-band co-firing to provide support where it is most needed, in plants firing more than 50 per cent biomass.
DECC plans to monitor uptake and trigger cost reviews if uptake is greater than anticipated, which could be a source of uncertainty for industry.
Dedicated biomass
The Government remains concerned at the cost of new-build dedicated biomass plants and the cost effectiveness of supporting such developments (typically of <50MW).
Recognising it as a nascent sector, the Government plans to maintain current levels of support (1.5 ROCs per MW), though with plans to degress support gradually from March 2016 to encourage early deployment.
Again with an eye on the uncertainty over the potential for growth, the Government plans to consult on a cap on the amount of dedicated biomass deployment (excluding CHP plants) that it is prepared to support, suggesting a limit of 800MW-1GW of capacity added after April 2013.
Any cap on development will lead to a lack of confidence as the cap is approached. This proposed limit represents only a fraction (ca 25 per cent in the best case) of the 2020 deployment targets the Government is looking for as part of its renewable energy roadmap for biopower, the rest will have to come from co-firing, conversion and whatever advanced conversion can be stimulated in the timescale.
Gasification and pyrolysis of biomass
The good news is that advanced conversion technologies will attract double ROCs, though with some degression from 2014/15 onwards. It was decided not to discriminate between ‘standard’ and ‘advanced’ technologies and so it remains to be seen whether more ‘advanced’ and energy efficient processes will be favoured or undermined by this approac, if investors seek to favour more tried and tested technologies.
Anaerobic digestion
With anaerobic digestion (AD), the biggest issue is the hint of a proposal to exclude plants <5MW from the RO from April 2013. A further consultation on this is expected in Summer 2012.
It has always been expected that larger (>1 - 2MW) plants would eventually be driven away from the Feed-in Tariffs (FiTs), so as not to consume the FiTs budget too quickly and to focus the FiTs on smaller-scale generation.
This is a really surprising development and is likely to stall larger AD projects until this is resolved. There is a lack of certainty around rewards from the FiT after the revisions for solar PV and the structure of the degression mechanism is also likely to be an issue affecting investor confidence in this sector.
This is likely to favour development of only large-scale AD plants that can exploit both the FiTs and RHI support, the latter through gas-grid injection of biomethane, which seriously limits the number of suitable development sites.
Biomass sustainability
Government plans to consult on the RO biomass sustainability criteria in the autumn with a view to grandfathering the agreed criteria to 2020 to improve confidence in supply chain development, which is a positive move.
Energy crops
The Government has also expanded its list of eligible energy crops but intends to limit the award of the uplift (worth 0.5 ROC) to just dedicated biomass plants, though this will now be grandfathered.
Enhanced co-firing and conversion plants will not be eligible for the uplift. However, eligibility for standard co-firing will be retained for a short period for plants with existing long-term contracts, subject to further consultation.
Conclusion
All in all, in terms of support for biomass power, this looks like a boost for advanced conversion of biomass, a cautious scale back of support for the rapidly developing co-firing and conversion sectors, and in the case of AD a potentially serious hiccup in development. But there is still time to ensure views on the proposals are heard.