Bioenergy & Waste News

Friday 05 February 2010

Energy minister Lord Hunt claimed DECC would review the financing of biomass and bioenergy projects

The Renewable Energy Association (REA) has said a pledge by Energy minister Lord Hunt to review the financing of biomass and bioenergy projects could improve investor confidence.

Lord Hunt made a statement to the upper house thsi week (February 3), which was then repeated in the Commons by fellow Energy minister David Kidney, in which he said that the Department of Energy and Climate Change (DECC) would examine its policy on changes to support under the Renewables Obligation (RO).

Most renewable generation facilities are able to rely on a fixed banding within the RO, so future banding reviews could not change the level of support they receive. This is called ‘grandfathering'.

But the Government's decision to treat electricity generated from biomass differently has caused "significant concerns" within the industry, Lord Hunt admitted, as the banding given when a project was commissioned could be altered, potentially earning investors a lower return than planned.

He said the choice not to grandfather biomass was due to the need for flexibility and the fact that unlike other technologies supported by the RO, biomass electricity faced fuel costs subject to market fluctuation in an "immature market".

Lord Hunt said that the review was needed to provide the developers with a stable regime in which to invest in a technology that "could supply up to half of our renewable energy needs by 2020" and promised a statement before the end of March.

"With sensible, robust controls in place, the UK has a lot to gain from biomass energy. I am informed by industry that they expect to be able to deliver 5GW of dedicated biomass, energy from waste, gasification and anaerobic digestion projects over the next few years - some £13 billion worth of investment," he said.

"To help achieve this, I propose to look again at one aspect of support for biomass electricity under the Renewables Obligation."

REA

The Renewable Energy Association welcomed what it saw as the Government's desire to resolve a "hiatus" in financing biomass and bioenergy projects.

Gaynor Hartnell, director of policy at the REA claimed that many projects were on hold as a result of the decision not to grandfather biomass.

She said changes would take time, as they would have to go through consultation, but would be necessary to improve investor confidence.

She said: "We recognise that the process for changing the Renewables Obligation legislation is very restrictive, precisely in order to give investors confidence. One consequence of this is that when a change needs to be made swiftly, in this case for the benefit of investors' confidence, it cannot be done immediately."

However, she warned that the hiatus would last until financiers felt comfortable.

"To provide greatest possible investor certainty we recommend that the statement be accompanied by the relevant detailed wording changes to be incorporated in the next Order (April 2011) and hope that this should enable investment to recommence without further delay."