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WHERE DOES THE MONEY COME FROM FOR RENEWABLE ENERGIES?

A problem for many community councils find themselves just now is the barrage of applications for wind farms. They are a problem because they split communities into groups with pro and anti views that tend to be held with religious intensity.
The numbers of applications over recent months and years has increased markedly which leads to a number of questions:.
 where does the money come from?
 can any of the money be used to benefit the community?
 does accessing the money need the resources of large organisations?
 is the situation changing?

A number of meetings recently have suggested that it is possible for communities to access the same funds as the wind farm developers but there are an awful lot of hoops that have to be jumped through. Not least the need to raise quite large capital sums of money.

At Cameron, we suspected that the feed in tariff (FIT) introduced last year might have tipped the balance in favour of the little guy and we felt that we needed to understand all the implications of the changes. Our first analysis (and maybe our last depending on our spare time!) confirmed that the individual householder could now regard an investment in renewable/low carbon dioxide emitting energy (i.e. including but not limited to wind) as, thanks to the new tariffs, one of the best investments that she or he could make just now.

We thought that we could best discharge our duties to the people of Cameron by putting the basic information on our web site and publicising it as much as possible. This will allow anyone interested to try and get back some of the money that we are all paying through our electricity bills: about £92 a year according to "Which?".

 


The money for all renewable energy projects comes from your electricity bills. How it comes is not at all straightforward.

There are two main schemes one for small (up to 5MW) renewable and low carbon energy projects which began in April 2010 and one for large ones which began in 2002 for England, Wales and Scotland and 2005 for Northern Ireland.

1. Financial incentives for smaller renewable energy projects through the feed in tariff scheme

Electricity supply companies are divided into those with more than 50,000 clients (group A) and those with fewer than 50,000 clients (group B). Group A members have to join the feed in tariff (FIT) scheme. Group B members don't have to join but they can volunteer to join. Those who do make up group C.

Groups A and C ( "FIT licensees") have to take customers wanting to take advantage of the FIT scheme with windmills, photovoltaic cells, micro generation, micro hydro etc. ("Generators") through the registration process, and to pay for the electricity they generate and, if they make enough, the electricity they export to the grid (see table 1 ).

The FIT licensees have to make sure that any renewable energy installation:

is valid, properly installed and hooked up to the grid.
is registered on the central FIT register
has meters that are installed properly and accurate

and then they have to:

calculate FIT payments
make FIT payments
supply a reasonable service
allow generators to change their electricity supplier (and therefore their FIT licensee) without penalty.

Group A must offer these services to their own customers and to customers of electricity suppliers in Group B who wish to join the FIT scheme.

Group A must offer these services to off grid generators of electricity from renewable sources.

Group C companies are required to offer these services only to their own customers

What happens if everyone joins the FIT scheme using just one or two electricity supply companies who are FIT licensees?

That is dealt with by means of the levelisation processs. That and the FIT scheme central register are administered by OFGEM (The Office of Gas and Electricity Markets).



OFGEM also records electricity generated and FIT payments made for each of the members of Groups A and C for any period ( the periods are spelled out precisely but need not concern us here). These amounts are compared with each supplier's share of the UK electricity market. Those whose payments equal the average FIT electricity that OFGEM has recorded for the industry will get nothing and pay nothing. Those who have paid more than the average will get a compensatory payment from OFGEM. Those who have fallen short of the average will have to cough up the shortfall to OFGEM. If that seems complicated, it has skated over the need to keep separate FIT generation payments ( the electricity that a generator uses for themselves) from FIT export payments (the electricity that a generator sends to the grid), the need to add monies for administration and other costs of the FIT licensees and to make sure that these stay within the the range that other FIT licensees are claiming and you will realise that it can get quite complicated. And how much do those of us who decide to buy photovoltaic cells or micro generators or windmills get? That is given in table 2 which shows the payments due at present (the Government will change the amounts each year) for electricity generated on the FIT.

2. Financial incentives for larger renewable energy projects through the renewables obligation

The Government has two ways to encourage larger scale investment in renewables; mostly wind farms at present.

The two streams are the UK Renewables Obligation (RO) and the Climate Change Levy Exemption (CCLe).The latter is the smaller and is relatively straightforward. The Climate Change Levy is a tax on energy delivered to non domestic users. If the electricity is from a renewable source, the tax does not apply hence the exemption. Neither nuclear nor large scale hydro qualifies. The exemption means that renewable electricity is about £4.50 per MWh (0.45p/KWh) more valuable than non renewable. Wholesale electricity is around £70 per MWh (7p/KWh) so the amount is useful but not major.
The RO is seriously major and not at all straightforward. It means that suppliers of electricity must buy in a percentage from renewable sources. If they fail to achieve the target percentage they are fined. The evidence that they have been good boys is provided by Renewables Obligation Certificates (ROCs) which are issued by OFGEM who check with the suppliers of renewable electricity as to their veracity. One ROC is issued for every MWh of renewable electricity generated. In 2002/3 the target was 3%, in 2008/9 it was 9.1% and in 2015/6 it will be 15.4% reaching 20% by 2020.

ROCs can be traded so things get a bit complicated.

The price of one ROC is set by the market and reflects the size of the difference between the percentage of renewable electricity generated in the UK and the renewable obligation percentage (currently 10%). The more naughty boys around, the bigger the shortfall, the more expensive each ROC and the more green electricity generators are rewarded for their efforts and fossil fuel burners are punished.

In 2008-09 the number of naughty boys did not increase and the system kept pace with the increasing target (though it didn't catch up with it). This meant that the value of the ROC stabilised at around £54.

So suppliers of renewable electricity get £54 plus £4.50 CCLe: £58.50 per MWh in addition to the market price for the electricity.

The buy-out price for the 2008-09 obligation period was £35.76 (£37.19 for 2009-10). This is the price or fine that suppliers must pay OFGEM if they do not meet their RO.

OFGEM pools the funds from the “fines” and gives it back to those suppliers who met their ROs in proportion to their contribution to the total (i.e. if some one has generated 5% of the total RO, they will get 5% of the fine kitty back). This payback drives up the market value of an ROC.

Wholesale electricity prices are commercially sensitive and are accessible only after a decent lapse of time. In early July 2008 they were around £90/MWh and by December 2008 had fallen to £47.50/MWh. So the subsidy is certainly generous.

And you will,of course, have recognised that the source of all these tortuous funding streams is the poor old electricity consumer.

Summary

So now you know why there are so many developers wanting to build turbines. And why generating electricity from renewables can be so attractive for a community trust.

But the FIT introduces a new element into the decision process for communities. They can still go large scale and benefit from the RO payments and the CCLe or they can opt for lots of small scale, possibly individual, schemes and get paid from the FIT. Which is best? Per KWh produced the FIT scheme pays much more. The large schemes will generate many more KWhs. But they will cost more to build. The equation will have to be worked out in detail for each scheme. The basic point remains, however. You now have a choice. And, most importantly, there is no longer any need to be fobbed off by the miserly amounts (compared to what the developer makes) that developers offer to communities to induce them to support large scale schemes.

NOTE ON RECENT DEVELOPMENTS

Those interested in applying for the feed in tariff (FIT) scheme in the near future should note that the government intends to change the FIT allowances for photovoltaic cells from 42p/KWh to 21 p/KWh. The government's preference is to have the new rate apply, from April 2012, to all relevant installations built since 12th December 2011. However the courts have other ideas and, at the moment, have ruled against the government. The government has signaled their intention of appealing to the Supreme Court. Until this wrangle is resolved, the FIT allocations given in the table still apply.

 



 

 

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