Supplementary memorandum from the Renewable
1. What specific improvements would you like
a new PPG22 to contain?
We appended our written response to the DTLR
on PPG22, and the RPA would be happy to put forward individuals
to work with its officials on the revision.
The most significant change would be for PPG22
to strongly advise Local Planning Authorities to incorporate positive
policies for renewable energy in their plans. The whole tenor
of the guidance should be more in tune with this Government's
strong support for renewable energy.
More positive guidance does make a difference.
The Scottish Executive recognised that the regional and global
benefits were not being given sufficient weight when they revised
their planning policy guidance for renewables NPPG6. This guidance
has been very effective in stimulating growth in renewables capacity
by helping stakeholders address local issues in the context of
regional and global benefits.
The RPA suggests the Department of Transport
Local Government and the Regions (DTLR) be invited to revise PPG22
using NPPG6 as a model. Similarly, the Welsh Assembly should be
invited to revise Technical Advice Note 8 along similar lines.
2. Is the establishment of regional targets
for renewable energy going to be enough? Is there a need to implement
stronger mechanisms to ensure that the planning system discriminates
positively in favour of renewables? What might these be, and where
should responsibility be located?
Targets alone are not enough. The 7-fold increase
in deployment rate if the Government's targets are to be met demands
urgent action on planning. Action needs to be taken on a range
of fronts to deliver the necessary planning framework. The RPA
Action in the short-term to clarify
the status of the Government's targets for renewables. Planning
authorities and many stakeholders see these targets as aspirational.
We propose that DTLR provides an unequivocal statement that national
targets for renewables apply regionally. That the issue for planning
authorities is not whether these targets should be met but where
and how they will be met. Such a statement is consistent with
the aims of the Government's planning Green Paper for renewables
projects subject to an agreed national policy.
That PPG22 should be revised as soon
as possible, as elaborated in the answer to question 1.
In the longer-term a planning regime
which shares some of the characteristics of the minerals planning
regime should be adopted for renewables. The parallels are clearthere
is a national requirement that needs to be weighed against local
concerns. The RPA is examining this issue in more detail.
3. How can disparities between availability
of renewable energy and local needs for energy be reconciled?
Renewable energy resources can generally be
exploited only where they exist. Waste is generally more available
in urban areas, whereas wind and biomass are more available in
rural areas. At a regional level there are broadly similar high
levels of renewable energy resource in all regions, although the
mix may vary. This was confirmed by the regional energy assessments
referred to in question 4. Consequently, at the relatively low
levels of resource deployment envisaged by the Government's targets
the national targets are capable of regional application. This
is relevant to our answer to question 2.
Furthermore we all consume energy as individuals
both directly and indirectly through the energy embodied in the
goods and services we use, and therefore all contribute to global
climate change. It is this that makes deployment of renewables
essential. However, few people make this connection particularly
when faced with planning applications for renewables projects
near where they live or in areas that they visit. Hence the importance
of the urgent action outlined in our answer to question 2.
4. Are the figures in the DTI regional energy
assessment report published on 6 March 2002 produced on a consistent
basis? Can they form the basis for meaningful regional targets?
If not, what more do you think the DTI will have to do to produce
such targets? (cf 4246)
No, the figures in the original regional assessments,
which were drawn together in the report published in March 2002,
were not produced on a consistent basis. The objective at the
time was to encourage a "stakeholder buy-in approach"
so that the regions felt greater ownership and responsibility
towards the targets.
Whilst a nice idea, the result has been a collection
of assessments which has been difficult to draw together into
a meaningful picture. In retrospect clearer guidance at the outset
would have been helpful.
Renewable resources differ in their cost and
resource base. A logical approach for landfill gas, which is cheap
but constrained by the size of the resource, would be to utilise
as much as possible of the available resource. For technologies
which are neither cost constrained, nor limited by the overall
size of the resource available, eg wind, it makes sense to decide
on the total amount of resource to be exploited and then to disagregate
down to the regions. Obviously the disaggregation should take
account of relative differences in the wind regime and
constraints on land use between the regions. Any follow up work
will take time to complete. It would be an essential component
of the long-term work referred to in response to question 2.
5. Do you have any other comments or documents
relating to the environmental impact of wind farmsin terms
of both landscape issues and biodiversitywhich might be
useful to the Committee (4218-219 and 4239)?
The study volunteered by Keith Pitcher during
the oral evidence session has been sent to the committee. For
any further comments or documents we suggest that the Committee
contacts the BWEA for more information.
It is worth noting that difficulty with obtaining
planning permission is not confined to wind energy. All renewables,
with the exception of landfill can experience significant problems.
6. In the oral evidence which RPA gave, a
view was expressed that UK governments had been successful at
developing "technology push" incentives, but rather
less successful at developing "market pull" incentives.
It would be helpful if the RPA could elaborate on this and set
out in what ways current "market pull" mechanisms could
The Government's "technology push"
initiatives have worked well in bringing technologies to the point
where they can be deployed on a large scale by "market pull"
initiatives. The evaluation of the NFFO and supporting programme
recently published by DTI
provides some good examples of this process. However the Renewables
Obligation will inevitably result in the deployment of the cheaper
renewables until the accessible resources of those renewables
is exhausted. Only then will the market deploy the less mature
and initially more costly technologies.
The RPA believes that each of these less mature
technologies should have an appropriate entry strategy. An example
of an entry strategy for Energy Crops is described in answer to
question 9. The strategies are likely to vary, as each of these
technologies is at a different stage of maturity. Most other countries
have policies that provide incentives for renewables matched to
their need for support and consequently exploit a wider range
of renewables than is likely under the Renewables Obligation in
the UK. The RPA is examining a number of ideas, but these are
not yet at a stage where they are sufficiently developed for formal
presentation. We will keep the Committee informed of our thinking
on an informal basis as the ideas progress.
The only effective way of reducing the costs
of new and emerging technologies is to deploy them in numbers
and "learn by doing". This is exactly the lesson shown
by Denmark and Germany where "market pull" support over
the past 10-15 years enabled a large number of turbines to be
installed during which time their efficiency improved and costs
progressively fell. Whereas Danish market pull support allowed
the first 50kW turbines to be commercially viable, the UK approach
was to concentrate on a technology push programme to develop a
3,000kW turbine without parallel market deployment. Ultimately
the Danes were successful with market support leading to the progressive
development of larger and more efficient and reliable turbines
through a steady process of learning by doing, such that today
750-2,000kW turbines are being produced whilst at the same time
the cost of electricity produced has fallen fivefold. Over half
of the world's wind turbines are now manufactured in Denmark,
supporting a $5 billion per year industry and 15-20,000 jobs).
The effects of this are shown in the graph below
which shows the capital costs of various technologies
(ie fuel costs for gas turbines are excluded), and how costs of
these have dropped as installed capacity has increasedfirstly
through an initial deployment and deployment phase (typically
characterised by a learning rate of 20 per cent) then latterly
through a commercialisation phase (typically characterised by
a learning rate of 10 per cent:
The Government's mechanism for addressing those
technologies currently not likely to be sufficiently stimulated
by the Renewables Obligation the different stages of development
of different technologies is through Capital Grants. These are
given to reduce the capital costs of a project and hence the cost
of electricity produced.
This is in contrast to other countries such
as Germany which offers a fixed price tariff for PV of 30p/kWh
and Portugal, which is proposing to offer wave power a fixed price
tariff of 13-14p/kWh. It is likely that these countries are seeking
to emulate the Danish example and obtain the maximum industrial
benefits from creating indigenous industries in those areas. Whilst
from a purely financial perspective, capital grants or premium
prices can amount to the same thing, difficulties arise because
the means of accessing the government's capital grants on a project
by project basis is not clear, nor is it clear how much work needs
to be undertaken in advance on a particular project site before
becoming eligible for a capital grant.
If the UK wishes to capitalise on its undoubted
lead in a number of new energy technologies to secure the major
industrial opportunities then market pull support is required
in addition to technology push. Whatever the type of mechanism
employed to address this, a goal of the government's policy must
be to offer a clear and unambiguous route to commercial installation
of these new technologies.
The RPA recommends that the process by which
capital grants are made available is made clear as soon as possible
in order to permit the early deployment of newer technologies
and bridge the gap between initial costs and prices available
under the RO.
The RPA recommends an early formal review within
two to three years in which the effectiveness of the Obligation
as a means of stimulating both the cheaper and the more expensive
renewables is evaluated. This review should determine what if
any entry strategies are required for the more expensive technologies.
7. Can you provide details of the 25 sources
of funding to which you refer in both your memo and in oral evidence
(4234)? What kind of difficulties does the multiplicity of funding
Annex 1 lists just over 25 separate measures,
some of which are being brought together, a move that the RPA
The multiplicity of funding sources can have
a number of undesirable effects. These include:
The diversion of developers' management
time to the identification of relevant grants and application
for them. They can also delay projects if the project has to wait
for the result of the grant application. The RPA would prefer
developers to be focussed on devising projects that are environmentally
acceptable and capable of attracting finance under the Renewables
Obligation and not be distracted by a need to respond to a multiplicity
of funding sources.
The transfer of the risk of poor
performance from those best able to manage it, the developer and
its supplier, to the Government. This makes projects less attractive
for third party finance.
The obscuration of the true cost
of renewables and thus the cost of carbon abatement. We believe
national policies for renewables should be based on transparency
The distortion of the market for
renewables under the Renewables Obligation by only some developers
obtaining grants and thus being at a competitive advantage over
those that do not. We believe in competitive markets.
The RPA recommends that these undesirable effects
are addressed by the aggregate value of the capital grants for
some technologies (not already too advanced in the process of
allocation) being commuted into alternative entry strategies as
described in answer to question 6.
Such an approach would avoid all the undesirable
effects of the present arrangements and give the market the opportunity
to deploy the full range of renewables relevant to the UK.
8. Mr Byers suggested that a European model
for capital grants might be preferable (cf 4234). Could you elaborate
on these comments and highlight in what way such a model would
address deficiencies in the current systems?
The RPA believes that grants should be available
to provide an initial commercial scale demonstration of the technology,
gain experience and ultimately help reduce the costs of replication.
Another common European practice is to bridge otherwise unfundable
projects. Clearly, the UK Carbon Trust has a programme along similar
Our major point is that, from experience, many
EU Renewable Energy grants are made prior to financial closure,
and delivered in tranches that assist in development, with additional
tranches based on performance and project completion. Too much
of UK grant funding is potentially awarded to projects that must
effectively be financially viable in the absence of the grant.
This makes the capital grant approach poor value for money when
compared to the market based approach.
The RPA suggests that major banks be consulted
on this issue, as clearly several large lenders take a very sceptical
view of the volume and style of grant structures available in
Consequently, we propose that the provision
of capital grants is restricted to the initial commercial scale
demonstration and that the balance of the available funding is
used to stimulate the market as recommended in our responses to
questions 6 and 7.
9. Dr Pitcher referred to Rural Development
Certificates (4204 and 4214). What are these and what is their
policy context? It would also be helpful if Dr Pitcher could provide
more information on the Arbre project
Biomass features strongly in all the future
UK and European renewable energy targets. DEFRA has an energy
crops programme in place to establish 25,000 ha in the period
up to 2007 and have stated targets of 100,000-150,000 ha needed
by the end of the decade. Only 2,000 ha of short rotation coppice
have been grown in the UK, with the majority (1,500 ha, to provide
one third of the total fuel requirement) for the ARBRE project.
Biomass is the one sector that has an ongoing
fuel cost, and that cost is a significant percentage of the cost
of delivered electricity. At present both the technology and the
fuel supplies are in their infancy. The Renewables Obligation
has set a limit to the price of electricity that will be paid
by suppliers. New sectors have been offered capital grants to
help support the technology. However due to the price limit and
the immaturity of the sector there is need to provide support
for energy crops. This will enable biomass projects to be developed
and kick-start the supply of energy crops. DEFRA has stated it
wants to see a transition from the existing support to food crops
to the Second Pillar of agriculture (ie sustainable/environmental
farming) and this is an excellent opportunity. Rural Development
Certificates are the industry's name for this type of supportit
must be provided on an annual basis to growers to ensure projects
are bankable, and to reduce the cost of energy crops to levels
that are economic for such projects under the RO. It is anticipated
that the need for energy crop support will decrease through development
and operation of relevant projects. Rural Development Certificates
also acknowledge the other benefits that arise from energy crops,
including the boost to the rural economy of enabling farmers to
grow a new non-food crop and gains in biodiversity. As the sector
becomes mature the level of support will reduce accordingly.
Details of the ARBRE project are attached (see
10. Currently the implementation rate of NFFO
4 and NFFO 5 is extremely lownot least because the contract
prices were so low and have now become uneconomic in the light
of the Renewables Obligation. Do you expect any serious further
interest in the development of NFFO 4 and 5?
We expect to see serious further interest in
both NFFO 4 and 5 projects and projects under the Renewables Obligation.
It is not true to say that NFFO contracts have
now become uneconomic in light of the Renewables Obligation, although
some may now be less attractive to their owners than a similar
project developed under the RO. Although contract prices for many
NFFO 4 and 5 projects are less than prices which might be expected
under the Renewables Obligation, the majority of these projects
are still attractive for developers, not least because of the
relative ease by which they can be financed. The tables below
contrast average current NFFO contract values against the prices
achieved in the latest NFPA auction. The latest auction prices
reflect the full value of the ROC and CCL exemption. Although
some NFFO projects may appear unattractive in comparison, the
bankability of the contract has a value, although it is not easy
to translate into pence per kilowatt-hour.
|Technology||NFFO4 bid prices adjusted for inflation Lowest
|NFPA auction price|
|Wind >0.768 MW dnc||3.42
|Wind <0.768 MW dnc||4.50
|Waste combustion CHP||3.07
|Biomass gasification or pyrolysis||6.04
|Anaerobic digestion of Ag wastes||5.61
|Technology||NFFO5 bid prices adjusted for inflation Lowest Average
|NFPA auction price|
|EfW with CHP||2.49
|Energy from waste||2.54
The RPA wishes to see obstacles removed as far as possible
to enable the renewables industry to deliver the Government's
targets. This means sympathetic treatment by Ofgem with regard
to flexibility of NFFO contracts, both those which need amending
(see questions 11 and 12) and in termination of those NFFO contracts
which are genuinely uneconomic.
11. You state that a number of NFFO projects have not proceeded
because Ofgem has determined against them in one respect or another.
Could you elaborate on the role of Ofgem here, and the reasons
why it has blocked projects?
RPA members are under contract to use "reasonable endeavours"
to generate under their NFFO contracts. Generally the NFPA, the
counter party to these contracts, are sympathetic to changes that
the generator could not have foreseen when the original contract
was signed. Some of the contract conditions are fundamental and
have their origin in the statutory instrument and thus cannot
be changedie the technology, fuel, contracted capacity
and price. Some contract conditions are incidentaleg the
location and voltage of the grid connection, the size of particular
generators etcfor which the contracting parties see no
good reason why changes cannot be made.
Ofgem needs to be satisfied that the contract continues to
be what is termed a "qualifying arrangement" and thus
able to attract support from the fossil fuel levy. Ofgem claims
to operate strictly to its interpretation of the legal remit,
which can result in Ofgem declining permissions on technicalities.
Without such permissions projects become unbankable. This can
mean developers having to develop the project under the Renewables
Obligation at a higher cost to the consumer. This clearly detracts
from the achievement of governmental objectives and is perverse
given Ofgem's role in minimising the cost to the consumer.
We propose Ofgem agrees technical changes to contracts that
are incidental to the main purpose of the contract, ie securing
the renewable energy capacity required by the original statutory
12. You also suggest that Ofgem will have an important
role in evaluating contract changes when NFFO schemes are moved.
What are your concerns here? What kinds of changes to contract
conditions might be involved? Would these include changes to contract
The position is largely as described in our answer to question
11. Again where the contracting parties agree the project should
be re-located we see no reason for Ofgem to object to such a contract
amendment or to consequential amendments that leave the fundamental
contract conditions (including price) elaborated above unchanged.
Furthermore, where two NFFO projects are to be re-located onto
the same site it would be perverse for Ofgem to require, as has
been suggested, two totally separate power stations to be built.
This would undermine the whole point of allowing re-location to
give developers the flexibility of making their projects more
The issues of aggregation of NFFO contracts and the definition/classification
of biomass fuels as waste under the Climate Change Levy general
regulations are two current examples of Ofgem's continued intransigence.
We propose Ofgem agrees technical changes to contracts, including
their re-location, that are incidental to the main purpose of
the contract, ie securing the renewable energy capacity required
by the original statutory instrument.
13. The PIU report suggests that environmental objectives
should be given priority in energy policy. What practical ways
do you think this should be reflected in Ofgem's approach to regulating
the industry? Is the existing draft guidance issued by the Secretary
of State on Ofgem's social and environmental duties adequate?
The regulator has made it clear in the context of the damaging
effect that NETA has had on small generators that environmental
objectives are not a high priority for an economic regulator.
Our view is that such objectives need to be achieved through policy
instruments for which there is Parliamentary scrutiny and accountability.
It seems unlikely that the existing guidance on social and environmental
duties will have the desired effect, particularly where higher
costs on consumers might be the result.
The RPA recommends that Ofgem's duties as elaborated in the
Utilities Act be expanded to enable it to give environmental considerations
preference as recommended by the PIU Energy Review.
14. To what extent are you concerned about the multiplicity
of funding sources available for renewable projects, and the growing
number of organisations involved in this area? What practical
difficulties do these create?
This is largely covered in our answer to question 7.
15. Are you concerned about the growing number of policy
instruments in the energy area? Is there any scope for rationalisation
Firstly, there is a danger of assuming that "one size
fits all"equivalent to trying to use a golf putter
in a deep sand bunker. The main plank of government policy is
now the Renewables Obligation which is much welcomed, but the
deficiencies well recognised in the system lead to "policy
tinkering", which is often eschewed or patched up for fear
of undermining the stability of the system.
It must be recognised that different technologies, which
may contribute in the short, medium and long term, have different
characteristics. Each has a resource limited ceiling, an "economically
achievable" threshold of delivery given realistic constraints,
and a cost curve, weighted to capital or operating, dependent
upon volume and risk.
The plethora of instruments and sources of funding is a natural
result of confronting a complex industry. Knowledgeable policy
advisors have created "fixes" and short term discretionary
(and therefore unbankable) support to alleviate the "putter
in the bunker" scenario.
The many sources of funding listed in Appendix 1 in aggregate
add up to less than one-off payments to Railtrack shareholders
or a typical grant to keep a single factory open in a threatened
closure in a marginal constituency.
Scale of support is one issue, given the need to prove technology
and encourage a volume marketplace, but diversity is another.
Programmes are administered by a number of bodies including the
DTI, DEFRA, NOF, the Inland Revenue, Customs and Excise, the Energy
Savings Trust, the Forestry Commission and the Carbon Trust.
Navigation of this bureaucracy is, for small and medium sized
companies, a tedious and expensive process. Furthermore, the greatest
reported anxiety is when the requirement doesn't quite fit any
single category or pigeonhole. In these circumstances one simultaneously
deals with two different agencies, different criteria, rules and
sometimes competing political agendas.
The RPA therefore thoroughly endorses the PIU recommendation
that a single co-ordinating body be established for sustainable
energy. It approves of continued vigilance in proper allocation
of funds. A more co-ordinated and empowered (not necessarily centralised)
agency to administer support to the Renewables Sector would be
a step forward.
The RPA proposes that the Carbon Trust is the most obvious
candidate to administer technology "push support". The
"market pull" support from policy instruments will of
course continue to be the preserve of a Government department.
We need to see how the reorganisation of DTI progresses to be
able to take a view on where renewables policy is best managed
16. Further information on the comparative costs of PV,
and in particular the cost of embedded PV cells in cladding materials,
would be useful (4236). What changes would you like DTLR to make
within current planning regulations to promote greater uptake
of PV cells?
We would like to see building regulations used as a tool
for promoting renewables. Some energy efficiency measures (such
as cavity wall insulation) are obligated by building regulations.
Regulation is necessary as there is little economic incentive
for housebuilders to incorporate energy efficiency measures in
buildings as they add to the capital cost of the house, whilst
the benefit accrues to the householder.
Building regulations can increase the reliance of buildings
on self-generated renewable energy by requiring a proportion of
the building envelope to incorporate active photovoltaic or solar
thermal devices. For example it could be required that a certain
proportion of a housebuilder's homes should incorporate active
photovoltaic material on at least 50 per cent of all roof area
inclined to face within 60 degrees of true South. For typical
domestic houses this could provide typically 8 per cent to 30
per cent of electricity consumed. The RPA appreciates that the
case must be strong if renewable energy requirements are to be
incorporated in building regulations and it is intending to do
more rigorous analysis in this area.
Just by way of an example Intersolar Group has developed
a solar roof slate which is architecturally indistinguishable
from standard roofing slates. Analysis by PricewaterhouseCoopers
shows that at present prices the payback time for this product
is 27 years (half that of imported solar tiles), but reduces to
six years with the subsidy programmes now planned by DTI. We anticipate
future payback will come down to under five yearssimilar
levels to those now accepted for the fitment of double glazing,
17. Could Mr Byers provide the reference for National Grid's
view that up to 20 per cent renewables would not create any significant
network problems (4226)?
The following extract is from the National Grid Companies
initial response to the PIU Energy review.
It states it has no concerns in respect of being able to continue
to balance the electricity system securely at the levels of intermittent
renewable energy envisaged in the Government's current targets
for 2010 and then goes on to say that even at those levels advocated
by the Royal Commission on Environmental Pollution (ie "well
beyond 10 per cent of electricity supplies to cover a much larger
share of primary energy demand"). . .do not present insoluble
issues relating to transmission operation and intermittency.
Intermittency of Renewable Sources
27. Intermittency in operation is an inherent characteristic
of some (but not all) renewable energy sources. While existing
generators are not available 100 per cent of the time, requiring
outages for both routine maintenance and breakdown, the availability
of some renewable generators, eg, wind, will, inevitably, be weather
dependent. Our current modelling data indicates that the availability
of wind generators at times of system peak is about half that
of CCGT stations and a wind generator is likely to be available
in a typical year for about a third of the time. Intermittency
will also mean that while, with conventional power stations, the
timing of their coming on and off the system will be determined
largely by commercial factors, ie whether or not they have a contract
or whether their services have been purchased in the balancing
mechanism, the ability of wind generators to come on and off the
system will also be weather related.
28. This gives rise to two issues. The first (lower operating
availabilities) means that the plant margin (ie, the difference
between installed capacity and system peak demand) is likely to
look very different with respect to operating security in the
longer term. The second issue means that consideration has to
be given to the effect on management of the system of an increasing
proportion of energy sources where availability is determined
by the weather as well as by technical and commercial considerations.
We have no concerns in respect of being able to continue to balance
the electricity system securely at the levels of intermittment
renewable energy envisaged in the Government's current targets
for 2010. However, developments more in line with those put forward
in some of the Royal Commission on Environmental Pollution scenarios,
would most likely give rise to the need to develop new market
approaches to system balancing, but do not present insoluble issues
relating to transmission operation and intermittency. We are undertaking
further analysis and will make a further submission to the Review
In the NGC supplementary submission to Energy Policy Review,
"sufficient fast response and reserve services will be
available for a situation in which the entire 2010 renewables
target is met by wind".
The RPA takes issue with suggestion that Renewable Energy
is forever going to be expensive. Even the PIU analysis draws
conclusions about extra costs in the long term, which are challengable.
An informal correspondence from David Milborrow is attached (Appendix
2) which disputes the validity of long run cost arguments used
in the report.
Evaluation of DTI support for New and Renewable Energy under
NFFO and the Supporting Programme. Final Report to the Department
of Trade and Industry by Frontier Economics and Byrne O Cleirigh.
Main Report. December 2001. DTI Evaluation Report Series, No.
Sources: OPD and "Global Energy Perspectives" 1998,
IIASA/WEC, www.iiasa.ac.at. Back