Renewables will need further support to meet targets, says energy regulator

The regulator has arrived at this view following the publication of two reviews of the first few months of England and Wales’ New Electricity Trading Arrangements (NETA). One of the reports specifically looks at the experiences of smaller generators, and comes hot on the heels of another report stating that, on current trends, the Government’s target for 10% of all electricity generation to come from renewable sources by 2010 will not be met until 2015. Ofgem has concluded that lower prices for green generators may require the Government to review whether its environmental targets can be met within the levels of subsidy now proposed, and that as NETA is rewarding reliable generation, additional Government support may be required if less predictable generation is to be encouraged for wider environmental reasons.

One of Ofgem’s reports, Report to the DTI on the Review of the Initial Impact of NETA on Smaller Generators, which includes renewable and Combined Heat and Power plants, found that output has fallen substantially, with lower prices, but also higher fuel costs – which have risen by 14% in the last year – being blamed. Other than wind power, the output of smaller generators does not appear to be significantly less predictable than for other generators, the report concluded. It also found that export prices achieved by smaller generators are 17% below those achieved last year under the former Pool system, with these reductions being somewhat smaller than for generation prices overall.

The other report, The New Electricity Trading Arrangements – A review of the first three months, which surveyed the experiences of more than 100 generators of all sizes, concludes that wholesale electricity prices are 20-25% below prices that would have been produced under the Pool system. It also found that market liquidity has been established with a threefold increase in the volume of trades, and a doubling of the number of contracts struck compared to this time last year, and that the daily costs of National Grid Company, which balances the system, have halved.

Ofgem’s Chief Executive, Callum McCarthy, recognizes that the lower wholesale prices are making life harder for all generators. “With lower prices for all generators, including those producing ‘green energy’, there is a need for the Government to review whether its targets for renewables can be met within the levels of subsidy now proposed by the Government,” he said. “In particular, if, for wider environmental reasons the Government wishes to encourage forms of renewable generation whose output is less predictable or less reliable, there is a need for the Government to consider additional support for these types of generators”.

A spokesperson for the Government’s Department of Trade and Industry told ediethat as a result of the reports “the Government will now consult urgently on action necessary to address any adverse impacts of NETA on smaller generators.”

An Ofgem spokesperson told edie that the “additional support” suggested really meant extra subsidies.