Originally published 27th July 2010
DECC has today published the long-awaited government response to the consultation on the Grandfathering Policy of Support for Dedicated Biomass, Anaerobic Digestion and Energy from Waste Under the Renewables Obligation. It brings long awaited but very good news for the majority of biomass projects being or about to be developed in the UK.
Background
On 31 March 2010 the Secretary of State for the Department of Energy and Climate Change (DECC) launched a consultation on the grandfathering policy for dedicated biomass, anaerobic digestion and energy from waste under the Renewables Obligation (RO) for England and Wales. The consultation arose following representations from industry, and discussions with banks and equity investors suggesting that, without grandfathering, biomass deployment would not come forward as investors lacked revenue certainty.
Virtually all project finance transactions and acquisitions of biomass projects in the UK were placed on hold as the industry awaited the outcome of the DECC consultation. There was significant concern that the proposed split grandfathering approach whereby ROCs attributable to capex would be grandfathered and ROCs attributable to fuel costs would not would be overly complex, uncertain and could lead to further consultation and delay particularly as there is no single biomass index on which to base the fuel element. DECC has clearly listened to industry and finance concerns and this policy statement is largely a welcome clarification.
The decision
The Government has today confirmed it's decision to adopt a policy to grandfather RO support for dedicated biomass at the rate applicable at point of accreditation. This means that eligible projects will receive the ROCs accredited to them for 20 years subject to the 2037 end date of the RO. It is important to understand however that, as DECC points out, Grandfathering is the policy intention to maintain a fixed level of support for the full lifetime of a generating station's eligibility for the RO, from the point of accreditation. And a policy intention can change although this is highly unlikely.
The decision was also made to grandfather RO support for anaerobic digestion and energy from waste and advanced conversion technologies (ACT).
The Government considers that the fuel supply chain for anaerobic digestion and energy from waste is mature enough to deliver long term fuel supply contracts, reducing potential fuel price variability risk. The Government confirmed that ACT needed to be grandfathered to be able to compete fairly for fuel against other grandfathered technologies such as energy for waste, and to ensure investment in developing these emerging technologies is maintained.
Comments
"We are really pleased that this has finally been sorted. Biomass is the next big growth area and the UK badly needed this certainty." - David Williams, ECO2
However, support in other areas was not forthcoming:
Bioliquids
The decision was made not to adopt a policy to grandfather bioliquids at present. The Government does state, however, that it will continue to consider how best to support these technologies.
Energy crop uplift
The decision was also made not to adopt a policy to grandfather the energy crop uplift. The Government stated that it did not receive any evidence that long term 15-20 year contracts for energy crops could be delivered. This, coupled with the high volatility of energy crops prices and the fact that the energy crop uplift is intended to be a temporary measure, are the main reasons why it has decided not to change the policy on grandfathering the energy crop uplift.
To read the Government's response in full, please click here.
For further information or advice, please contact Michelle Thomas.
Michelle Thomas
Head of Eversheds' clean energy and sustainability group
Tel: 0845 498 7553
michellethomas@eversheds.com
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