Ironbridge emerges as major swing factor for ROCs market in UK

25 April 2014 16:37 Source:ICIS

Energy giant E.ON is unable to say when the 330MW biomass-fired unit 1 at its Ironbridge power plant will begin generating electricity, despite capacity availability data listing January as a possible date.

The uncertainty throws into question the value of clean power for all renewables generators regardless of technology, with Ironbridge having potential to influence the price of a renewables obligaiton certificate (ROC) by almost £1.00/ROC.

This is because the value of ROCs, which are issued to renewables producers per MWh generated, is partly set by the volume of supply in a given compliance period that run for 12 months from 1 April each year.

There was a fire at the 690MW two-unit Ironbridge plant in February, forcing it to close temporarily. Unit 2 returned to the grid in March ( see EDEM 4 March 2014 ), but unit 1, which even before to the fire was yet to run, remains offline today.

Availability data submitted by E.ON to balancing services company ELEXON indicates unit 1 will connect to the power grid in the second week of 2015. This would allow 11 weeks of generation before the ongoing RO compliance period (CP13) closes at the end of March next year.

And the RO headroom, which partly dictates the value of a ROC, is based on a Department of Energy and Climate Change (DECC) forecast of supply plus 10%. It is set 18 months in advance of a compliance period.

This means DECC would most likely have based its CP14 headroom calculation on an assumption of Ironbridge unit 1 being available.

The unit’s status is therefore a major swing factor that will determine the value of a ROC not just for CP13, but also CP14, which begins in April next year.

Damage

Despite the ELEXON-published data, E.ON was less sure of any return date on Thursday.

“The investigation into the incident at Ironbridge has now concluded. The damage to the affected unit is currently undergoing assessment, but we are unable to give an indication of its return to operation,” a spokeswoman said. “The remaining available plant has now returned to service and market availability will be shown as appropriate.”

One prompt trader suggested the damage done to the site appeared to be severe enough to leave the unit out of action for a prolonged period, based on photographic evidence.

The units were converted to burn biomass instead of coal. These conversions are large chunks of capacity by renewables standards, and as such a uniform load factor does not exist for the technology.

But assuming a conservative estimate of 66%, in line with other dedicated biomass plants, a 330MW unit would generate around 1.9TWh annually, earning 1.9m ROCs in the process.

This equates to 0.4m ROCs for the 11 weeks of generation in CP13 and 1.5m for CP14.

ICIS figures indicate that removing this volume of supply from these compliance periods would add £0.29/ROC to the recycle value in CP13 and £0.85/ROC in CP14.

ROCs in both periods are expected to recycle at around the £48.00/ROC mark, according to ICIS figures.

With the electricity system so finely balanced, a swing factor of £0.85 is enough to influence the generation strategies of many plants.

The recycle value is the cash settlement, priced per ROC, that participants with a surplus of ROCs at the end of a compliance period recieve, and those with a shortage pay.

Economic sense

To further complicate the issue the two units, as ex-coal burning, are required to close permanently by the end of 2015 regardless of the fire, because they fall under the EU’s large combustion plant directive (LCPD).

Therefore even if unit 1 was to return to service in January, it would have a lifespan of less than 12 months, raising questions over the economic sense of bringing it back on line.

However, the UK’s carbon price support mechanism, which rises noticeably in April 2015 before remaining frozen for at least four years, will mean the economics of burning biomass will improve considerably in relation to coal ( see EDEM 21 August 2013 ). This will provide an incentive to bring the troubled unit back online regardless of the LCPD closure date. Christopher Rene and Jamie Stewart

See sister publication European Clean Energy Markets (ECEM) for ICIS assessments of UK ROC/Nordic elcertificate valuations. For more details, call +44 207 911 1919 or email: sales@icis.com

By Christopher Rene Jamie Stewart