ECEM: British energy regulator set to become major ROC purchaser
The UK government has unveiled plans to compel British energy regulator Ofgem to purchase renewables obligation certificates (ROCs) over the final decade of the scheme.
Powers are to be included in the energy bill, which is expected to become law by the end of next year, allowing the government to place an obligation on Ofgem to purchase ROCs from generators, suppliers or traders at a fixed price beginning in 2027.
This means the variable pricing that has been a defining aspect of the RO since its launch will remain in place until this date.
The intention is that a fixed price "will reduce volatility in the final years of the mechanism", Ofgem said in a guidance note for generators published on 20 December.
It remains unclear whether Ofgem will be permitted to purchase ROCs before the 2027 date, but, according to market sources, the regulator is looking into the possibility, although the talks are believed to be "at an early stage".
Such a move could present the RO as a more attractive option to new generators, should price volatility be reduced prior to 2027. An Ofgem spokesman opted not to comment, indicating that he was unaware of any pre-2027 buying discussions.
The proposal was broadly welcomed by ROC traders because it would guarantee that demand remains in place post-2027 for any generators that choose to enter the scheme.
The RO closes to new generators in 2017, with the Department of Energy and Climate Change's (DECC) new subsidy scheme for low-carbon generation - long-term feed-in tariffs with contracts for difference (FiT CfDs) - replacing it. Over the next five years, generators can choose between the two.
One ROC trader said the retention of a variable price over the next 15 years would see generators opt for the replacement scheme, which will offer a fixed return hinging around a "strike price" over the duration of the contract. "They have taken that decision to push people towards CfDs," he said.
And early signs are that generators are taking the bait. At the end of November ICIS revealed that Drax Power, the UK's largest independent electricity generator, is in advanced discussions with government over the setting of a strike price for its biomass conversion projects (see sister publication EDEM 29 November 2012).
In addition, a number of offshore wind developers have also opened talks with DECC, energy secretary Ed Davey said, while strike-price negotiations with EDF Energy over its Hinkley Point nuclear power plant continue. "We've already had quite a lot of interest from developers in different sectors," Davey said.
The news came days after DECC revealed the size of its subsidy pot for low-carbon power generation, which includes new nuclear plants and carbon capture and storage-equipped coal- and gas-fired plants.
In 2020 the figure has been set under the Treasury's Levy Control Framework at £7.6bn (€9.3bn) in real 2012 prices, which corresponds to £9.8bn in nominal 2020 prices.
The aim is to ensure the UK reaches its target of generating 30% of its power from renewable sources by 2020. "This is proof that the Treasury really does get it," RenewableUK chief executive Maria McCaffery said.
But the energy bill will not include a firm 2030 decarbonisation target for the power sector, which a number of government advisory bodies have been pushing for.
That decision will be delayed until 2016, once government advisory the Committee on Climate Change has reported on the UK's fifth carbon budget, which covers the corresponding period. JS
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