Environment Law Update – Energy

United Kingdom

Energy efficiency

DEFRA has launched a consultation on the proposed EU Directive on Energy End Use Efficiency and Energy Services. The proposed directive covers all end users and affects non-energy intensive industries and transport, but not aviation or foreign shipping. Therefore, the consultation is of particular interest to the electricity generation, distribution and supply industries. It will also impact upon energy retailers, energy service companies, manufacturers of energy efficient technologies, the public sector, transport industry and those providing advice on energy efficiency. The intention of the draft directive is to encourage more efficient use of energy, mainly by supporting the development of a commercially viable market for cost effective energy efficiency measures. The Commission proposes to take a range of actions. These are: the adoption of common definitions; introduction of mandatory targets for Member States to achieve 1% energy savings for final users per year, and 1.5% energy savings for the public sector per year; set requirements for the participation of energy distribution and retail supply companies in the energy services market; and ensure energy services and efficiency programmes are offered to all customers. Although the UK government says it supports the approach taken in the proposed directive, it has also stated its concerns over some of the details, particularly in relation to possible conflicts with an open and liberalised energy market and the cost effectiveness of the measures. Comments on the consultation, which must reach DEFRA by 14 June 2004, will be considered in the Government's negotiations at EU level.

(DEFRA, 19 March 2004)

Renewables Obligation

OFGEM has announced that the buy out price for the third year of the Renewables Obligation (RO) will be £31.39 per MWh. The new level of the buy out price, which allows electricity suppliers to make up any deficit in their obligation to purchase renewable electricity and obtain Renewable Obligation Certificates (ROCs), applies from 1 April 2004 to 31 March 2005. Under the RO electricity suppliers had to supply 3% of electricity sold in 2002-2003 generated from renewable sources. This increases gradually until it reaches 10.4% in 2010 to 2011. OFGEM also announced that due to TXU going into administration in November 2002, there would be a shortfall of around £23 million in the buy out fund. Administrators are currently undertaking measures to try to secure interim payments to suppliers who have suffered a loss as a result. It also said that any future breaches of the RO would result in significant financial penalties.

(OFGEM Information Note, 11 March 2004)

A first annual report on the RO has been published by OFGEM. The main findings of the report are that 505 generating stations were accredited by OFGEM under the RO, and over 5 million certificates were issued in the first year. The total RO for electricity supplied in the UK was 9,261,568 MWh and that 50% of the ROCs issued were for electricity from landfill gas and 20% from onshore wind. Out of 38 supply companies in England and Wales having an obligation, 12 met their obligation wholly through producing ROCs, while 9 suppliers paid 100% buy out. 7 suppliers failed to produce the required number of ROCs or make the full payment to the buy out fund prior to the 1 October deadline. Five of these have agreed to make voluntary payments, while OFGEM is considering enforcement action against the remaining two companies.

(OFGEM Press Release, 27 February 2004)

A draft Renewables Obligation Amendment Order intended to amend the Renewables Obligation Order 2002 (SI 2002 No 914) has been published. The principal Regulations obliged electricity suppliers to source a specified quantity of electricity from renewable resources. The draft amending Order, which was due to come into force on 1 April 2004, introduces a number of new provisions. These include annual rather than monthly issues of new ROCs to generating stations with a capacity of 50 KW or more. It also lays down the timetable and conditions under which generating stations fuelled partly by biomass and partly by fossil fuels are eligible for ROCs. There are also provisions relating to the buy-out fund.

(SO, March 2004)

Renewables

The DTI has published responses to a consultation paper on transmission charges relating to renewables generation issued in August 2003. In its report, the DTI announced that transmission charges for generators of renewable energy in remote areas of Scotland could be reduced. The measure is to be incorporated into the Energy Bill, currently being debated in the House of Lords. It is intended that either a discount or price cap on the transmission charge will be introduced where necessary to protect new renewables development. The scheme would only apply to the highlands and islands of Scotland and is subject to consultation. There are no plans to extend the scheme to other renewables generators, as the DTI believes that this would remove incentives to locate to remote areas of the country, where the majority of renewable resources are located.

(DTI, 2 March 2004)

The Government has set a target for purchasing at least 10% of electricity used by government departments to come from renewable sources by 2008. The government currently spends around £193 million per year on energy in more than 50,000 buildings. The targets are part of the government's sustainability strategy for its estate, published in July 2002, which also includes measuring progress on carbon reduction, energy efficiency, CHP use and a long term strategy for renewables.

(DEFRA, 26 February 2004)

Wind

The Royal Society has issued a statement claiming that opposition to new wind farms by the Ministry of Defence is likely to pose a significant threat to the UK's target of supplying 10% of all electricity from renewable sources by 2010. It says that in the last few years, the MOD had opposed nearly half of all proposed wind farms due to concerns about interference with air defence radars. The Royal Society says that the British Wind Energy Association (BWEA) has found that the MOD objected to 48% of pre-applications to build onshore wind farms in 2003 and 34% in 2002. The Society has now written to the Minister for Defence Estates in an attempt to solve the problem. BWEA welcomed the intervention of the Royal Society and is calling for studies to assess advanced radar filters which may provide solutions in many areas.

(Royal Society Media Release, 1 March 2004)

English Nature and the RSPB have warned Ministers that they would take the government to the European Court of Justice if plans to build an offshore wind farm at Shell flats, about 8 kilometres off Blackpool, goes ahead. Conservationists claim that the area provides a habitat for 20,000 common scoter during the winter. Shell, in collaboration with Scottish Power and a Danish developer have applied to build 90 wind turbines at the site. The common scoter is on the UK's red list of critically endangered birds. It is claimed that the birds would be affected by the construction of the wind farm and boat movements to service it. The case is likely to prove to be a key test for the future of other wind farm developments. The wind industry and conservationists have criticised the DTI for its strategic environmental assessment claiming it was rushed and inadequate.

(Independent on Sunday, 29 February 2004)

A review conducted jointly by the DTI and the Carbon Trust has concluded that wind is likely to the be dominant renewable technology until 2020. Furthermore, it says that on- and off-shore wind has the potential to meet the 2010 renewable energy target, although wind alone will not be sufficient to meet the government's 2050 carbon reduction aspiration. The report also looks at long term development of other renewables technologies such as wave and tidal generation, biomass and solar PV, and the need for further development in technical and commercial aspects to be able to bring these technologies to the market place.

(DTI/Carbon Trust, February 2004)

Solar

The DTI have announced the latest grant awards for investment in solar energy projects under the PV Demonstration Programme. The Programme allows local councils, higher education, businesses and housing among others to bid for awards. The latest announcement brings the total to £30 million granted to 110 different projects in seven stages. The DTI says that there are likely to be 2-3 extra funding rounds in 2004-2005.

(DTI Press Release, 18 March 2004)

Energy from waste

Proposals to revise the substitute fuels protocol for use in cement and lime kilns have been issued for consultation by the EA. Substitute fuels are defined as any material proposed for use as fuel in cement and lime manufacture which replaces conventional fuel such as coal. The proposals are likely to increase the number of wastes that can be burned in kilns due to the removal of the minimum calorific value (21 MJ/kg) criteria for waste which can be burned. Furthermore, wastes derived from the manufacturer of pharmaceuticals, pesticides, biocides and explosives will now be allowed to be utilised as fuels. The use of substitute fuels will also be aided by the intension of the EA to cease to regard its use as a 'substantial change' which at present triggers the requirement for public consultation. There will be tighter safeguards in place, however, including monitoring requirements, to ensure that the relaxation does not give rise to detrimental environmental effects.

(EA, March 2004)

European Union

CHP

A Directive designed to promote combined heat and power generation (CHP) has been published in the Official Journal. The Directive on the promotion of cogeneration based on a useful heat demand in the internal energy market and amending Directive 92/42/EEC (2004/8/EC) must now be transposed into legislation in Member States before 21 February 2006. Although the Directive defines high efficiency cogeneration, Member States will be allowed to continue to use their own definitions until 2010. By encouraging more efficient CHP, it is intended that the Directive will reduce emissions of pollutants, particularly carbon dioxide, to air. The Directive also requires the Commission to establish harmonised efficiency reference values for separate production of electricity and heat by 21 February 2006. Six months after adoption of these values, Member States must use the reference values to guarantee the origin of their co-generated power and heat. In addition, they will also have to analyse and report on their potential for high efficiency CHP and report on progress towards reaching their potential by February 2007.

(OJL 52, 21 February 2004)

Wind

The European Wind Energy Association (EWEA) has released the latest figures for the installation of wind turbines in Europe. The generation of electricity from wind increased by 23% in 2003, although the bulk of this was in Germany and Spain. These two countries together with Denmark accounted for 84% of the total wind generation capacity installed in the EU by the end of 2003. Positive trends were found in Austria, the Netherlands and Italy, but the report said that the UK and France failed to translate political intentions into actual projects. Wind-generated electricity accounted for around 2.4% of total EU electricity consumption in 2003.

(EWEA News Release, 3 February 2004)

For Further information please contact Mark Rutter at

[email protected].