The Scottish Government has introduced a new system of banding for its renewables obligation certificates (SROCs) in order to give incentives for technological development in the industry.

A SROC will now be issued for fractions or multiples of a MWh of electricity generated in Scotland depending on the method of generation.

Grandfathering provisions will preserve the old flat rate of one SROC per MWh for certain existing projects.

While ROCs have been around since 2002 in the UK, it is the new banding system incorporated in the Renewables Obligation (Scotland) Order 2009 (ROS 09), that will change the incentives for electricity generators and suppliers in Scotland.

The bands have been set based on the level of support which various technologies are thought to need in order to incentivise their development and are currently consistent across the UK.

So, where a technology is currently commercially deployable e.g. landfill gas, one MWh of electricity will attract less than one SROC (four MWh of electricity must be generated by landfill gas before one SROC will be awarded).

However where a technology is further from commercial deployment e.g. offshore wind or tidal power, one MWh of electricity will attract more than one SROC. In the case of tidal power, one SROC will be awarded for every ½ MWh of electricity generated (i.e. two SROCs per MWh).

Higher bands are proposed to provide greater support for wave and tidal power in Scotland only in place of the marine supply obligation. The new bands will award one SROC for every 1/3 MWh generated from tidal power and every 1/5 MWh from wave power.

However, the new bands need approval from the European Commission first as they will constitute state aid in excess of what has already been approved for ROS 09.

One other important change is that generating stations located in England, Wales and Northern Ireland are now specifically excluded from receiving SROCs. This will prevent a generating station in England, for example, taking advantage of Scotland’s proposed increased support for wave and tidal power.

The actual operation of the renewables obligation will remain the same as before although the calculations to establish the level of the obligation have changed. Electricity suppliers must submit a specified number of SROCs to Ofgem for each obligation period (i.e. each year commencing 1 April).

Suppliers can meet the obligation by submitting SROCs, paying a cash equivalent or a combination of both. Scottish Ministers will announce the level of the renewables obligation every October taking into account the amount of renewable generation available.

The obligation will generally be higher than the amount of renewable generation available to incentivise growth.

At the end of the obligation period, the cash paid in lieu of SROCs will be redistributed to those suppliers who submitted SROCs thus giving SROCs a market value.

by Sarah-Jane McArthur, associate in UK law firm Dundas & Wilson’s projects team.

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