Select Committee on Environmental Audit Appendices to the Minutes of Evidence


Memorandum from Powergen

  1.  This note updates the evidence given to the Environmental Audit Committee in January 2001, in the light of developments since then, including the PIU review of energy policy.

  2.  The PIU report suggests that renewables present the most flexible supply option in terms of carbon reduction potential and compatibility with other energy policy goals and recommends that the DTI should immediately set a firm target of 20 per cent of electricity to be supplied from renewables by 2020, although the DTI should not establish the mechanism to ensure this target is met by 2008. We support a higher target to follow the 2010 target. This will help underpin the economic case for the investment needed to deliver that required by 2010 and will reduce its cost. However the implications for the UK power system and networks of a substantial growth in renewable energy, in terms of further investment and the need to retain flexible plant on the system to compensate for the intermittent and somewhat unpredictable nature of renewable energy, require further assessment.

  3.  The Government already has the necessary mechanisms, principally through the Renewables Obligations and fiscal incentives, to intervene in the market to achieve its target of securing 10 per cent of electricity from eligible renewable sources by 2010. The same mechanism could be used to deliver a higher and later target but this will need to reflect the cost and competitiveness of the technology and the wider market and fiscal environment at the time.

  4.  We believe the 10 per cent target is achievable and have ourselves announced that we are targeting a ten fold increase in our renewable capacity to 1000MW by 2010. Nevertheless a number of obstacles to the further development of renewable energy by the 2010 target and beyond still have to be addressed.


  5.  The impact on electricity distribution networks of the targeted growth in renewables and CHP "embedded" in them have not yet been adequately assessed although they are the subject of a working group chaired by Ofgem. As recognised by the PIU report, substantial investment is likely to be required to ensure that networks can accommodate increased renewable and CHP generation and can support the more active system operational role that network operators will need to develop to maintain secure supplies. There needs to be a debate about the longer term demands on distribution networks of these developments with the aim of developing some nationally agreed criteria which can inform future price regulation and capital investment.


  6.  It is still the case that a disproportionate number of wind projects are failing at the planning stage or are proceeding to a Public Inquiry. The planning regime needs to recognise the wider energy and environmental policy benefits of renewable energy. We understand the Government is pursuing the development of regional targets to identify the resources capable of economic development within particular areas taking account of local environmental impacts. This may assist in gaining more local acceptance for renewable development. The Government has also initiated discussions on revising the current Planning Policy Guidance (PPG) 22.

  7.  Progress is also needed on the proposed establishment of a one stop shop for offshore wind developers to secure the wide range of approvals required for such projects on which the Government initiated a consultation in February 2001. There is also no established procedure for obtaining an agreement to lease from the Crown Estate for an offshore wind project that is not part of the first round of offshore wind projects announced by the Government. These issues need to be addressed as a priority given the contribution that offshore projects can make to UK renewable development.

  8.  Significant planning issues will also need to be resolved if biomass is to make a worthwhile contribution to the UK's renewable target. Developers of generating projects using biomass will need to secure planning approval for new dedicated plants or for modifications to existing power stations plants to accommodate co-firing. The key issues of concern are likely to be transportation of fuel to the site and the environmental impact of changing land use to support growth of energy crops. Given the 2006 and 2011 deadlines for co-firing (see paragraph 11 below), the Government will need to help ensure that planning and environmental matters can be resolved swiftly.

  9.  We support the recommendations in the PIU report on planning:

    —  DTLR with DTI to update national planning guidance, making it clear when there is a national case for new investment in energy-related facilities (8.41).

    —  Regional planning bodies to give greater prominence to energy developments in regional planning guidance (8.42).

    —  Local authorities to ensure that greater emphasis is placed on proactive planning for energy developments in sub-regional plans (8.42).

    —  DTI should develop a policy on strategic offshore issues for new technologies to inform Government decisions (8.43).


  10.  Offshore wind power can make a major contribution to the UK's renewable capacity but requires support beyond that available under the Renewables Obligation to enable it to achieve its commercial potential. We welcome the additional capital grant funding made available to offshore wind and other renewable energy sources as recommended by the PIU. However we are concerned that the provision of support through capital grants, for which individual projects have to bid, will have the effect of bunching projects and constraining development by creating bottlenecks in the limited number of manufacturing facilities which support this sort of development. We have argued that the Government should shift to a system of enhanced capital allowances for offshore wind projects that will avoid this effect and create significant cash flow benefits. HM Treasury did not include offshore wind amongst the technologies selected following consultation on the issue in its "Green Technology Challenge". We hope the Government will re-examine the issue soon.


  11.  Although we were disappointed that introduction of the Obligations was been deferred to April 2002, we are broadly content with its basic structure. The draft Order permits the co-firing of biomass in coal-fired pants and we believe that this can make a potentially significant contribution to the Government's renewable target and to the rural economy. However the economics are highly uncertain and the market for energy crops is still undeveloped. We have argued that the restrictions in the proposed Order (prohibiting co-firing after 31 March 2011 and requiring 75 per cent of biomass to consist of crops planted primarily for energy use after 31 March 2006) are too tight and may prevent development. This is likely to require further discussion with Government.


  12.  The effect of NETA has been to attribute the costs of generating electricity without balancing it with contracted sales, to those who have caused the imbalance. This has affected wind power operators particularly as wind generation is (relatively) unpredictable. These risks can be reduced through the development of consolidation services and we believe these will develop as the market settles down. This will be facilitated by a period of stability in the market and by avoiding unnecessary rule changes. There is, however, no case for shifting the market rules to support particular technologies, as this will simply make the market less efficient. Following the Government's decision to establish a Consolidation Working Group to examine how small generators can co-operate within the market to reduce these risks, a number of simple rule modifications are being progressed to help smaller generators.

March 2002

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