Select Committee on Environmental Audit Memoranda

Annex A


  Table D of the Consultation Document sets out the required contributions from both Eligible and Non-Eligible Renewables to achieving the target. The requirements are summarised in the table below.

Table 1

Non-Eligible TWh
Eligible TWh


  The output of Non-Eligible Renewables in 1999 was 6.0 TWh. The Consultation Document suggests that this output will fall to 5.9 TWh in 2000 and then rise continuously from 2001 to 2010.

1.  Hydro

  At present, the largest sector of renewable generation is large-scale hydro. Most or all of these plants were built many years ago by the nationalised electricity industry and although some major work has been done since privatisation to upgrade or re-power existing units, no new large-scale units are expected to be brought on line. Large hydro plants have high capital costs and despite having free fuel, investment in new hydro stations would have very long payback periods at the electricity prices now current. In addition, most of the available sites for large schemes have either already been developed or are in locations that would make obtaining planning consent very difficult. Thus, although existing hydro plant probably does not require support to stay in production it is unlikely that any new capacity could be brought on line without very large subsidies.

  The table below shows the output of energy from waste plants and hydro plants above 5MW from 1994 to 1999. The output from hydro plant varies considerably from year to year reflecting variations in rainfall rather than changing amounts of capacity. The output in 1999 at 5.1 TWh was at the highest level during the six year period and represents the output from a high rainfall year. The average output during the period was 4.5 TWh and this may be more representative of the expected output of this type of plant. Consequently, the long-term expectation could be for an output level 0.6 TWh lower than in 1999.

Table 2

Energy from Waste TWh
Hydro above 5MW TWh

  The definition of large hydro used in the Digest of United Kingdom Energy Statistics is plant over 5MW and the definition used in the Consultation Document is plant over 10MW. Thus, it is not possible to match precisely the published statistics with those set out in the Consultation Document. However, given that the output of energy from waste plant was 1.36 TWh, it would not be unreasonable to assume that of the 6.0 TWh of Non-Eligible Renewables in 1999 some 4.65 TWh were from large hydro. As discussed above, this output might be expected to fall in a year of more normal rainfall, and assuming that the reduction from large plants is proportionate to the total reduction, would give an estimated output of approximately 4.2 TWh.

2.  Energy from Waste

  The energy from waste plants that have been built to date have tended to be large scale and based on mass burn incineration. The economics of these plants are crucially dependent on the large size of the plants and projects have been either regional facilities or serving very large conurbations. The most recent plant to gain planning permission is at Allington in Kent with a capacity of 500,000 tonnes per annum of waste. Waste incineration plants need to be big to be economic, but large plants are strongly opposed by the public and many local authorities and it is very difficult to gain planning permission in any reasonable time. Project development costs are, therefore, high and there are very significant risks of not achieving a planning consent.

  There are a number of reasons why large energy from waste plants have been difficult to consent and build that are summarised below:

    (1)  In most cases, waste must be transported to the plant over long distances causing increased numbers of lorry movements with attendant high costs and increased pollution.

    (2)  The plants occupy a large area of land and have very large buildings and chimneys. Consequently, there are a limited number of sites where such plants may be suitably located.

    (3)  Technical limitations have meant that operators of existing plants have sometimes failed to meet existing emissions standards and emission standards will tighten substantially when the recently adopted Directive on Waste Incineration Plant is put into effect. Even where standards are met, local populations remain concerned about emissions—particularly of dioxin.

    (4)  Normally, little is done in plant design to ensure that recycling is maximised before the waste is combusted.

    (5)  The efficiency with which mass burn designs convert energy into electricity is low.

    (6)  The technology is best suited to regional facilities because its unit costs are high at small scale; it does not comply with the proximity principle.

    (7)  Disposal of the ash has proved difficult in some cases.

    (8)  Generally take a long time to design and build such projects.

    (9)  Local authorities have been resistant to contracting for these plants because of local opposition and because they perceive them to be much more expensive than putting waste in landfill. This perception of high cost is reinforced by industry forecasts that suggest thermal treatment of waste could be twice as expensive as disposal in landfill.

  The risks, high costs and long lead times associated with obtaining planning consent reduce the willingness of investors to pursue energy from waste and hence increase significantly the cost of capital.

  Since it is not envisaged that there will be any significant growth in the capacity of large hydro plants, the forecast output for Non-Eligible Renewables, as set out in the Consultation Document, implies that the output from energy from waste will need to be as set out in the table below.

Table 3

Output TWh
Cost of Electricity

  The most recent market evidence on electricity prices available from energy from waste plants comes from NFFO 5. Twenty two projects were contracted. The average size of projects was 19MWe. The average contract price was 2.43p/kWh (1998 prices indexed to RPI—equivalent to 2.52p/kWh at 2000 prices), which is approximately 40 per cent above the current market price for electricity of around 1.8p/kWh. However, more important than the average price is the price of the marginal contract at 2.49p/kWh, since to increase the amount of energy from waste it would be necessary to pay in excess of this level. The highest priced contract for energy from waste using CHP was 2.90p/kWh (equivalent to 3.0p/kWh in 2000 prices). None of this information suggests market convergence.

Prospects Post NFFO

  Eligibility for exemption from the Climate Change Levy will be helpful to energy from waste projects but its importance should not be overestimated and it will not be as effective as the NFFO system at enabling energy from waste plant to be built. First, in a market the value of the levy exemption must be shared between the generator, the supplier and the customer. Generators are likely to retain between 50 per cent and 80 per cent of the value of the levy. Even if the full levy benefit were retained by the generator, this would still leave energy from waste plants with lower electricity prices than were contacted under NFFO 5. Second, the new trading arrangements that are being introduced are widely acknowledged to increase commercial risks, particularly for small generators. This will increase the cost of capital, especially where a technology is unproven. Third, since there is no certainty as to the levels of the CCL or even whether it will exist in a few years, it is difficult to base a long-term investment on this benefit. Finally, it is difficult to obtain long-term contracts for electricity and, a fortiori, very difficult to obtain long term contracts for small quantities of electricity with creditworthy counterparties. The Obligation forces suppliers to enter into contracts with small renewable generators but it is difficult to envisage suppliers even bothering to have discussions with the developers of small-scale Non-Eligible Renewables unless they are prepared to accept prices well below the current market rate. Without long-term off-take contracts the developers of projects will have great difficulty in raising long term finance.

New Technology

  New technologies that involve building modular small-scale plants to a standard design and which improve significantly on the environmental performance of existing plant have the potential to overcome many of the problems experienced by large scale energy from waste based on incineration, but these new technologies are regarded as unproven and the cost of capital is, therefore, higher than for incineration.

  Local Waste Solutions is active in the waste markets today. Our experience suggests strongly that although there are a small number of areas that have particular problems and where waste gate fees might be high enough to enable low cost energy from waste plants to supply electricity at market prices, this is not generally true. In most circumstances, gate fees would need to be very much higher than at present to support the establishment of energy from waste plants. Thus, it will not be possible to build a sufficient number of plants using the new technology to achieve the contribution towards the Renewables Targets that is envisaged in the Consultation Document unless energy from waste is included in the Obligation.

Plant Efficiency

  One further matter is worthy of consideration. The developers of energy from waste projects have a choice in the type and the quality of the generation equipment that they build into the plant design. To date, plants have had low electrical efficiency. The Digest of UK Energy Statistics shows in Table 5.5 the fuel use and output of biofuel generators, which suggests an efficiency of approximately 22 per cent. It is possible to achieve higher efficiencies but if waste gate fees are the main form of income, developers have a strong incentive to minimise capital and operating costs rather than maximising the electricity produced from each tonne of waste processed.

  Achieving the target for 2003 implies a relatively modest success rate of 14 per cent of non-operational energy from waste projects contracted under NFFO/SRO becoming operational in the four years to 2003. However, although this is a small percentage of the contracted capacity it implies that the amount of capacity commissioned increases at more than twice the rate achieved in the previous four years.

  Achieving the target for 2010 implies a rate of growth in capacity between 2005 and 2010 that is triple the rate expected to be achieved between 1999 and 2003 and six times the rate actually achieved between 1995 and 1999. This rate of growth seems to be unlikely unless there is a fundamental shift in the application of the planning process or unless energy from waste plant can be made much more acceptable to local communities. New energy from waste technologies may potentially achieve planning consent more easily, but these technologies are not included in the NFFO contracts and hence will receive little or no support if they are outside of the Obligation. The Government cannot expect these new technologies to be built unless they are included within the Obligation.

  While it is true that the Landfill Directive will force local authorities to seek alternatives to landfill from 2006, it is by no means clear that they will pursue energy from waste as an option and the Government cannot rely upon the Landfill Directive to force substantial growth in renewable generation. Further, even where local authorities choose some form of thermal processing they will seek the lowest cost means of disposing of waste rather than the most efficient way of generating electricity. At current electricity prices it is not economic to increase capital and operating costs in order to maximise the output of electricity from any given quantity of waste. The energy contained within waste will continue to be used inefficiently unless there is some support for increasing the output of electricity. This support can only come from including new energy from waste projects in the Obligation.

Achievement of Non-Eligible Renewables Targets

  There seems to be widespread agreement that new energy from waste plants must receive support if the Renewables Targets are to be met. Table D of the Consultation Document forecasts that the increase in Non-Eligible Renewables would be 7.0TWh between 1999 and 2010. As was noted above, it is most unlikely that any increase in Non-Eligible Renewables will be obtained from new large-scale hydro because of a dearth of suitable sites and planning difficulties. Indeed, the output of hydro may be expected to fall significantly since 1999 was a year of high rainfall. The effect of returning to more normal rainfall levels could reduce output by more than 0.5TWh. Therefore, all of the increase must come from energy from waste without it being in the Obligation.

  Energy Sustainable Development Ltd in its recent report "Going to waste" considered it appropriate to assume that no further energy from waste projects from NFFO3, SRO1 and SRO2 would be built and that only 20 per cent of the energy from waste capacity from NFFO4, NFFO5 and SRO3 would be built by 2010—some 155MW equivalent to around 1.2TWh at 90 per cent load factor. It states "Based on both the current and projected output under NFFO/SRO contracts, the total energy from waste output in the year 2010 is likely to be around 3.0TWh." This output level would be an increase of less than 1.7TWh from the output in 1999. They go on to conclude that no new energy from waste projects would be developed outside of NFFO/SRO absent external factors such as the Landfill Directive.

  The ETSU report, R-122 (March 1998), which was published as a technical Annex to the DTI's initial consultation on renewable energy policy, estimated that the maximum output from energy from waste in the UK during 2010 would be 6.4TWh, based on an 8% discount rate, and that this maximum output would fall to 2.2TWh if a discount rate of 15 per cent were applied.

  Based upon the ETSU analysis, the Association of Electricity Producers has recently estimated in an internal document that a price of 4.5p/kWh would be required to bring forward 4.70TWh of electricity from energy from waste plants by 2010.

  The forecast in Table D of the Consultation Document for Non-Eligible Renewables implies that the output from energy from waste in 2010 would be around 8.8 TWh. This forecast would appear to be very optimistic.

Conclusions for Energy from Waste

  If energy from waste is excluded from the Obligation there will still be some small number of projects completed, but it is unlikely that the amount of new capacity will match the requirement set out in the Consultation Document. It is doubtful whether large-scale mass burn technology is capable of delivering the targeted output. Independent estimates suggest that the maximum output of energy from waste plants in 2010 will be in the range 2-5TWh, but output of nearly 9TWh would be required to meet the target. New, smaller technologies may be able to overcome the planning problems that have beset energy from waste projects, but these will require both support from the Obligation and a more favourable planning climate.

  The conclusion of this analysis must be that the forecasts for the growth of Non-Eligible Renewables set out in Table D of the Consultation Document are likely to prove to be hopelessly optimistic and, that on the basis of the policies set out in the Consultation Document, the Government will not achieve its Renewables Targets. However, if energy from waste is included in the Obligation, then it is possible that the targets will be achieved.


  The Consultation Document states that the increase in Eligible Renewables required to satisfy the Obligation during the period 2001 to 2003 is little more than might be expected to be provided by NFFO contracted capacity. However, evidence of the historic success rates of NFFO/SRO contracted capacity would suggest that the output set out in the Obligation may be difficult to achieve. The output of Eligible Renewables was around 4.2TWh in 1999. The output of these existing projects might reasonably be expected to fall by 2003 for two reasons:

    (a)  the high rainfall in 1999 made this a peak year for the output of small hydro;

    (b)  some of the existing landfill gas sites may be becoming depleted of gas by 2003.

  A reasonable assumption for the output of existing Eligible Renewables in 2003 is 3.9—4.0TWh. Consequently, to achieve the Obligation, a further 7.0TWh of output must be produced by new capacity. The most successful projects with NFFO/SRO contracts have been those for landfill gas and, assuming that virtually all of the contracted capacity becomes operational, the new projects would produce a further 2.0TWh in 2003. Most of the remaining 5.0TWh needed to meet the Obligation would need to come from on-shore wind projects, which account for by far the majority of the contracted capacity for Eligible Renewables that is as yet not operational. To have a reasonable chance of achieving the output required in the Obligation from NFFO/SRO contracted projects it would be necessary for more than 80 per cent of contracted on-shore wind capacity to become operational by the beginning of 2003. Only 11.9 per cent of contracted wind projects were operational by the end of 1999. The success rate for NFFO 2 (1991) was 64 per cent and the success rate for NFFO 3 (1995) was only 26 per cent after more than four years. Around 40 per cent of the non-operational contracted capacity is part of NFFO 5 and SRO 3 (1998) and by the beginning of 2003 these contracts will have been in place for less than five years. Thus, to achieve the output required for the Obligation in 2003 will require that a larger proportion of contracted capacity becomes operational and does so more quickly than historically has been the case. As such, current official targets appear heroic.

  Achieving the level of output suggested for the Obligation in 2010 would require an even higher rate of growth in Eligible Renewables between 2003 and 2010 than is implied in the period to 2003. The most promising energy source is wind power. However, we have already noted the difficulties that have been faced by onshore wind projects and offshore projects are at an early stage of development. The higher costs of offshore projects have been recognised by the Government in suggesting that early projects might benefit from capital grants as well as the benefits of being in the Renewables Obligation. It is too early to forecast the eventual costs of offshore projects, or the rate at which they can be developed. This would suggest that the forecast rate of development for Eligible Renewables in the period from 2004 is highly speculative.

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