ANALYSIS: Electricity market reforms fail to ignite EfW
Fears are growing that the Government's proposed electricity market reforms (EMR) could have an adverse impact on the development of future energy-from-waste (EfW) infrastructure.
An in-depth study into the impact of EMR on the energy recovery market has highlighted numerous concerns around how the reforms will work in practice, especially the feed-in tariff contracts for difference (CfD) mechanism, which ironically is designed to make low carbon projects more bankable.
The report – a joint collaboration between Semple Fraser and Envirolink – warns that uncertainty over what technologies and feedstocks will be available for support, combined with a lack of final fixed (strike) electricity prices, could halt investment in new EfW capacity prior to the CfD regime coming into force.
It adds that the proposed point of closure for the current Renewables Obligations (RO) in March 2017 poses further risk.
“Those wishing to make investment decisions in the immediate term are only able to base these on a project obtaining support under the RO,” it points out.
“For projects not already in planning, there is such a tight window for obtaining consent, constructing and commissioning … the risks of missing the window for obtaining RO accreditation are simply too high.”
One leading EfW player, ENERGOS managing director Nick Dawber, says that this presents a real dilemma for developers.
“EfW plants have a long gestation period in their development phase and take 2+ years to construct. A new development today could take 2 to 3 years to get through the planning and funding phase, 2.5+ years to construct, so already they would be into EMR.
“On what basis do they assess their prospective revenues in order to understand whether to proceed or not?” he questions.
With no details on eligibility or pricing under the CfD, missing the March 2017 deadline could one gamble that most developers aren’t willing to take.
Myles Kitcher, managing director of Peel Environmental – an EfW infrastructure developer – believes that until there is clarity on how the system will interact with the Renewable Heat Incentive and strike price levels, it is simply “not possible” to make an investment decision on a project beyond 2017.
The study suggests that if the RO was extended to 2020 this would help to mitigate the problem, as well as introducing greater flexibility into the deadline for accreditation under the RO.
While the Department of Energy & Climate Change (DECC) has indicated there will be limited grace periods for those failing to meet this deadline, it seems that these will only apply where the project delay relates to an issue such as network connection, which is entirely outside of the developer’s control.
Interestingly, there is also trepidation among developers to be the first to enter the CfD mechanism, with no-one really wanting to volunteer as a guinea pig for any issues that may need ironing out in the initial stages.
This could create further delays for a sector tasked with delivering a significant hike in capacity if it is to meet its potential of contributing up to 17% of the UK’s total electricity consumption by 2020.
In the long term, other concerns lie waiting in the wings. These include a perceived failure by DECC to properly examine the likely impacts of EMR on smaller and independent generators, especially around the allocation of CfD.
There are also worries over route to market – many EfW observers believe removing the supply obligation will undermine power purchase agreements (PPAs) and make it more difficult to obtain these offtakes on commercial terms.
It remains clear that much needs to be done to ensure that EMR stimulates, rather than hinders, the EfW market. This is a sector already facing significant hurdles with regard to feedstock security and bankability. Half-baked reforms will only serve to heighten these issues.