ECEM: ROC market cautious as 2015/16 quota unveiled

The size of the renewables obligation for the 2015/16 compliance period (CP14) has met with mixed feeling among participants in terms of market impact, with some warning the outlook is not good without suitable protection against oversuply for new investors.

On the other hand the new quota could in itself offer adequate support to lift the market from the oversupply that has plagued it since 2011, sources said.

UK electricity suppliers will be required to obtain sufficicient renewables obligation certificates (ROCs) to cover almost a third of their supplied electricity volumes from renewable sources in CP14, which runs from 1 April next year and lasts 12 months.

Suppliers in England, Scotland and Wales will be obliged to hold 29xROCs/100MWh of power supplied, the Department of Energy and Climate Change said earlier this month.

Recent CPs, along with ongoing CP13, have seen oversupply in the ROCs market with weather conditions boosting wind production and an unexpected high number of green installations, in particulatr solar power, joining the mechanism.

Market participants said the size of the quota increase, which rose from 24.4xROC/100MWh, or 4.6 percentage points, was prompted by the surprising over-production from renewable generation assets. Some said the move could halt the oversupply that has crashed the market in recent years.

One broker source told ICIS that future investment remains dependent on the system’s ability to absorb the ROCs produced. But he noted that an opposing scenario “could potentially lead to investors shying away from new investment”.

Solar

Uncertainty remains in the renewables sector as a whole regarding the outlook for solar power after a cut-off for units larger than 5MW, which is scheduled for April 2015, takes place. Solar will then have to bid into a new subsidy system, contracts for difference (CfD), which is replacing the RO long-term: “We will have to wait and see if [the renewabels sector] is still attractive post-RO for the big solar [units],” a second source commented.

A cautious market

A brokering source from New Stream Renewables reported cautious behaviour from market participants over the past few weeks. “We are seeing a number of buyers who are re-evaluating their positions. The market is taking a breather,” he said. “Given the large volumes traded over the summer, October has been relatively quiet.”

A second source reported that buying interest for long-term contracts had dropped. “We see interest from parties looking to fix ten-year contracts although buying interest for long-term deals is very low,” he said.

Between a ROC and a hard place?

With the RO in the process of being phased out in favour of CfDs, DECC’s calculations have taken into account the potential for some new renewables projects to seek CfD funding.

However some participants remain unconvinced by the two support options offered to renewables producers. “It seems that [choosing between CfDs or the RO] is a perceived choice between cholera and plague; none of the systems provide the full comfort investors are seeking,” a source with a second brokerage claimed.

Participants pointed out that a scheme using a feed in tariff would guarantee the return on the investments. Sophie Udubasceanu and Henry Evans