Energy Minister admits that renewable energy is suffering under NETA

The Energy Minister Brian Wilson has admitted in Parliament that the new electricity trading arrangements (NETA) are hampering suppliers of renewable energy by resulting in lower prices being paid to them, and announced a forthcoming consultation to address the concerns of small generators.


During a Parliamentary debate, Andrew Robathan, Conservative MP for Blaby, Vice President of the Combined Heat and Power (CHP) Association, and Vice Chairman of PARSEG – the parliamentary group on renewable and sustainable energy, called on the Government to follow up their statements in favour of renewable energy with two swift actions. “First, I suggest that both CHP and renewables should be taken out of NETA and given some special status – perhaps some transitional arrangements while electricity trading arrangements are again revised. Secondly, CHP exports should be exempt from the climate change levy,” he said.

Robathan cited a small wind energy producer in Leicestershire, for whom the unpredictability of supply from his two 25 kW turbines means that his contract with Powergen was cancelled in April, and so it is no longer cost-effective to run them. According to Robathan, this case is mirrored throughout the country, with large wind farms seeing a 27% reduction in the price of their electricity, and other renewable prices down by 26%. “The renewable energy price is being artificially depressed by NETA; far from encouraging renewables, they are being discouraged,” said Robathan.

“Another example, a report form the Tyndall Centre for Climate Change Research, partly funded by the Department of Trade and Industry, found that the imbalance penalties imposed by NETA outweighed the payments made for supplying energy,” said Robathan. “It suggested that a 10 MW wind farm would have had a net negative unit value of minus 0.41 pence per kW hour.” This means that the farm makes a loss by merely selling electricity, without even taking into account the capital costs of setting up the farm, he explained.

The intermittent nature of solar power also means that this energy source could be badly affected by NETA, he said.

Robathan pointed out that since 1999, renewables have produced only 2.8% of UK electricity, the result of a 0.8% rise in 10 years. However, by 2003, the UK has set a target of 5% of electricity from renewables, and if we are to achieve this, “there must be a great deal of encouragement”, he stated. Although the renewables obligation is coming, it is not yet clear how effective it will be, and it is not yet known how the extra £100 million for renewables announced by the Prime Minister in March will be spent (see related story), he said.

To add to the gloom, Robathan also noted that the CHP industry has recently been described as being in ‘meltdown’, with power exports falling by more than 60%, and British Sugar cancelling two major 70 MW CHP schemes representing £100 million in investments. Slough Heat and Power, a small energy generator, is considering writing off £60 million of investment because of the impact of NETA, which will lead to an additional 70,000 tonnes of landfill waste per year.

Even the Minister for the Environment has admitted that the CHP industry is in crisis, Robathan said, adding that a rise in gas prices has also added to CHP’s problems.

In reply, Wilson stated that although he had come to the issue only recently, he has a long-standing record of supporting renewable technologies, “so I have no interest in paying lip service to targets if events on the ground are running contrary to their fulfilment. If there is such a problem we must tackle it”, he said.

“I am keen to advance the development of NETA in an open and inclusive way, but I am also totally committed to renewables,” said Wilson. “We must somehow synthesise those two objectives and make them compatible.” The allocation of the £100 million publicised in March will be announced shortly, he said. Wilson’s new consultation on the problems faced by small generators follows on from an Ofgem consultation launched at the beginning of the month (see related story), and should be completed in the next two or three months, he said.

NETA has had positive results, cutting the artificially high prices for consumers that existed under the pool arrangements, by around 25%, although, he admitted that it has also cut prices paid to renewable generators by 17%. However, Robathan questioned these figures, stating that he believed them to be the other way round.

“NETA’s development will secure our longer-term aims for encouraging a move towards a more cost-reflective and efficient system, within which the benefits of embedded generation and renewables are recognised,” said Wilson. “In the longer term, there will also be benefits for renewables.”

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