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Renewables obligation to be phased out

Investors will see more change in the waste to energy market as the Government announces plans to phase out the renewable obligation completely.

Companies and investors looking to build waste to energy facilities in future may face a new mechanism to encourage investment in renewable facilities called the ‘contract for difference’ (CFD) feed-in tariff (FIT) if stakeholders agree on proposals put forward in the Electricity Market Reform Consultation Document.

The new FIT is focused on incentivising low-carbon technologies rather than just renewables. It will work by the Government agreeing long-term contracts with a fixed revenue to generators designed to make funding more attractive to investors, while making efficiency savings for the Government.

The current RO will be maintained until 2017 for new projects to avoid disruption, while facilities currently working under the RO framework will have access to it until 2037. The new FIT mechanism may be introduced in 2013 or 2014. The department for energy and climate change is now seeking views on whether to offer a choice of support mechanisms up to 2017.

Renewable energy agency chief executive Gaynor Hartnell said: “Given the UK needs to achieve the fastest increase in renewable electricity deployment in Europe any uncertainty that stall investment would be disastrous…and so transition arrangements must be handled with great care.

“One thing to be aware of, if the RO goes, is whether the UK may need to bring in priority access for renewable.”

With the new CFD, FIT generators would sell their electricity into the market then receive a top-up payment if the wholesale prices are low. However, if prices become higher than the cost of low carbon generation the Government can take money back from generators. The top-up payment or repayment is calculated as the difference between the average market wholesale price and the agreed tariff level.

Currently, suppliers meet their renewable obligation by buying enough renewables obligation certificates to prove they have provided a certain amount of energy from renewable applications.

Suppliers meet their obligations by presenting sufficient Renewables Obligation Certificates (ROCs). The proceeds are then paid back on a pro-rated basis.

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