Renewable Energy (Hansard, 2 November 1995)

§ Mr. Page

Following consultation earlier this year with over 50 associations and individual bodies with an interest in non-fossil fuel obligation orders in respect of renewable energy, I can now announce my outline policy proposals.

Government policy is to work towards 1,500 MW DNC—declared net capacity—of new renewables-based generation capacity in the UK by 2000—and I shall continue with this broad aim. From current assessments, my Department expects that a total of 900 MW will commission and generate electricity under the first three renewables NFFO orders in England and Wales, from current Scottish and Northern Ireland—Sottish renewable order and Northern Ireland NFFO—orders, from prospective future SRO and NI-NFFO orders, and from capacity built outside NFFO/SRO arrangements. On this basis, a further 600 MW would be required to deliver the 1,500 MW policy and it is likely that this will be met by future orders for England and Wales. However, the working assumption is that only about two-thirds of projects, and capacity contracted under future NFFO arrangements will proceed to commissioning, with the implication that the level of obligations set in future orders beyond NFFO-3 will need to be about 50 per cent. higher than the capacity likely to be commissioned. I therefore expect that new NFFO orders for England and Wales of about 900 MW will be required to deliver the 600 MW of operational capacity. To the extent that it appears in later years that more or less capacity will commission under earlier NFFO orders or outside NFFO arrangements, I shall take that into account in setting the policy for future NFFO arrangements.

I have considered the representations made to my Department on past and future arrangements, and have taken into account the practical considerations in making a series of further orders. I propose to make a fourth renewables order—NFFO-4—in early 1997 in respect of the 12 regional electricity companies in England and Wales in their capacity as public electricity suppliers, and one further order in 1998. I currently expect each of these orders to be for approximately 400 MW to 500 MW of new capacity, but will review these levels in the light of further estimates of capacity likely to come forward under the third order—NFFO-3—the quality and cost of the proposal received, and the expected degree of convergence towards the market price represented by those proposals, relative to average and marginal prices paid under NFFO-3. This new round of bidding for electricity from renewables, launched today, is expected to stimulate further convergence between electricity prices under NFFO and the market price for electricity—bringing electricity from renewables closer to the point where they can compete in the open market against conventional generation. I expect proposals to be even more competitive than under NFFO-3. I will be taking into account estimates of the percentage of projects in each technology band likely to go forward to commissioning in NFFO-4, but on the basis of past 442W experience would expect the fourth order to lead to construction and operation of a total of 300 MW to 400 MW of new capacity from all technology bands.

In setting out the prospective technology bands, I have taken into account the extent to which available resources have or would be taken up by existing NFFO contracts, the extent of demonstration provided by those contracts, and the Department's priorities attached to demonstrating the use of other renewable energy fuels and technologies.

For the NFFO-4 order, I am considering separate bands for new generating stations, based on

Wind power: split into two bands, ie large windframs and small-clusters/single-machines, but with the split point at less than the 1.6 MW DNC used for NFFO-3;
Hydro: from stations with a total capacity of less than 5 MW DNC;
Landfill gas: from licensed sites where tipping was being carried our prior to 22 July 1993;
Energy crops and/or forestry waste: by gasification-by-partial-combustion or pyrolysis;
Municipal and industrial waste by fluidised-bed combustion: including the use of non-gaseous sewage-matter (up to 10 per cent. on a dry-weight basis);
Municipal and industrial waste with combined-heat-and-power technology: including the use of non-gaseous sewage-matter (up to 10 per cent. on a dry-weight basis)
Agricultural and food-processing waste by anaerobic digestion: food-processing waste limited to a maximum of 20 per cent. on a dry-weight basis.

During the parliamentary passage of the Environment Bill, my right hon. Friend the then Minister for the Environment and Countryside stressed that the Government attached great importance to CHP schemes to help carry forward their energy efficiency policies. He explained that that was why the Government were seeking a power to include in a future NFFO/renewables order a technology band defined by reference to heat as well as electricity. The Environment Act, with the new power, became law before the summer recess. The new power enables me to consider a band based on municipal and industrial waste with combined heat and power. This gives generators with suitable schemes, with prospects of supplying substantial quantities of heat, the opportunity to bid into a specific CHP band. If suitable schemes come forward at a competitive price, I should be prepared to use the new power to include such a band.

In order to promote diversity among developers of renewable energy projects, I reserve the right, as in NFFO-3, to limit the number of projects or capacity for which any particular developer can gain contracts in this fourth round of bidding.

As with NFFO-3, my intention is that the NFFO-4 order should run for 15 to 20 years—as from early 1997. This would enable the RECs to offer generators premium payments for up to 15 years, with the difference between the NFFO contract price and the pool price being financed through the fossil fuel levy, paid by licensed electricity suppliers and reflected in electricity bills.

I understand that the regional electricity companies expect to select projects through a competitive tendering process and that contracts will be offered to successful bidders at their bid price.

443W

I am discussing prospective arrangements with the Director General of Electricity Supply and the regional electricity companies, to whom I shall in due course provide further guidance about my proposals in respect of the proposed NFFO—4 order. Confirmation of my outline policy proposals on NFFO—4, and the details of that further guidance to the RECs, will be published shortly in "Renewable Energy Bulletin No 6"—REB—6. I understand that the RECs expect to initiate the competitive tendering process shortly thereafter.

Those project developers who have not already done so should contact:

Renewable Energy Enquiries Bureau, ETSU, Harwell, OXII ORA
(tel 01235 432450 or 433601, fax 012335 433131 or 432923 to put their name on the mailing list for REB-6. In addition, those project developers who have not already done so should also register their interest in NFFO-4, by letter or fax to:
Non-Fossil Purchasing Agency Ltd
Bamburgh House
Market Street
Newcastle upon Tyne
NE1 6BH
(fax 0191 210 2888 or 0191 210 2887)

Generators with existing NFFO contracts need not register with the NFPA, as they will automatically be sent a copy of the information notes.

The Office of Electricity Regulation has considered what site-specific evidence of the extent of the renewable energy resource it will require from developers when making their technical submissions for NFFO-4. I understand that Offer has decided that: developers of wind projects will be required to submit evidence of site wind resource over a minimum period of 12 months, which must include at least 13 weeks continual measurement on site which shall include measurements made over a winter period; developers of hydro projects will be required to submit evidence of site hydro capacity based on:

i) the mean flow data for the water course covering a period of at least 15 years, available from the Institute of Hydrology; or
i) 15-year rainfall data from a given catchment area, making due allowance for adsorption, run-off and evaporation rates, to calculate the river flow at the off-take point for the generating station; or
iii) on-site data over a period of two years, normalised to the mean average rainfall over a period of at least ten years.

developers of landfill gas projects will be required to submit evidence of on-site pumping trails over a period of not less than 30 days of continual measurement.

The municipal and industrial waste with combined heat and power—MIW/CHP—band is intended for schemes which are capable of delivering substantial qualities of heat. I understand that, to this end, Offer has decided that developers of MIW/CHP schemes will be required to provide evidence of conditional contracts to supply heat—such contracts to be conditional upon their schemes being awarded NFFO contracts and going forward to commissioning—when making their economic/commercial submissions to Offer. The 444W existence of such contracts will form a part of Offer's will-secure test for CHP schemes.

Developers will wish to ensure that they can meet these resource-determination/heat-contract requirements, when preparing their submissions.

The document "Consultation on the NFFO Process—A Summary Report (1995)", which summarises the 53 written submissions, is available from the Renewable Energy Enquiries Bureau at ETSU, at the above address.

The Government expect to decide the policy for the proposed NFFO-5 order after making the NFFO-4 order, in the light of the circumstances at the time. The NFFO-5 order will not necessarily have the same size or technology bands as the proposed NFFO-4 order.

In line with my Department's policy of stimulating use of electronic communications, this statement is being made available via the Internet on the DTI world wide web "server" at "http://www.dti.gov.uk/nffo".