Generating a Return. July 2008 BHA SEMINAR

Generating a Return

July 2008

BHA SEMINAR

Why invest in renewable generation ?

„ Reduces CO₂ emissions and climate change

„ Reduces cost of electricity at the site as not paying for transmission of electricity and supplier “margin”.

„ Can sell surplus electricity to the grid

„ In addition to electricity the Generator is eligible for ROC’s, LEC’s & REGO’s which can be sold to produce an additional income.

„ Grants may be available for small scale generation

Electricity Supply Chain

Connection to a Private network

Connection to a Public Network

What are ROC’s and LEC’s ?

„ In 2002 the Government introduced the “Renewable Obligation Order” to encourage the development of renewable energy in the UK.

„ Covers England, Wales, Scotland and Northern Ireland

„ Scheme administered by Ofgem

„ Places an annual obligation on all electricity suppliers to purchase a set percentage of their electricity from renewable sources

„ Supplier meets obligation by either surrendering ROC’s or by paying the Buy- out price.

„ Renewable generator must be Accredited with Ofgem

„ Accredited for Renewable Obligation Certificates (ROCs), Levy Exemption Certificates (LEC’s) and Renewable Energy Guarantee of Origin Certificates(

REGO’s). Most of these certificates can be sold to provide a monthly/annual income.

Renewables Obligation Order

15.4%

1^st April 2014-31^st March 2015

13.4%

1^st April 2013 -31^st March 2014

12.4%

1^st April 2012-31^st March 2013

11.4%

1^st April 2011 31^st March 2012

10.4%

1^st April 2010-31^st March 2011

9.7%

1^st April 2009-31^st March 2010

9.1%

1^st April 2008-31^st March 2009

7.9%

1^st April 2007-31^st March 2008

6.7%

1^st April 2006-31^st March 2007

What are ROC’s and LEC’s ?

„ Most Suppliers have developed their own renewable generation, mainly wind farms, biomass and hydro generation.

„ Many suppliers buy green electricity, ROC’s and LEC’s from third party developers.

„ Many suppliers simply buy ROCs from the traded market.

„ A ROC is awarded by Ofgem for every MWh of “green”

electricity generated and metered.

ROC Value

„ Buy-out Price

– Set at £30/ROC in 2002 increases each year (1^st April) by RPI.

– Current Buy-out price is £35.76/MWh (1^st April 2008 to 31^st March 2009).

„ Recycle Value

– Unknown until October of each year. (currently about £17)

– As more renewable generation is produced the Recycle Value will decrease.

What are ROC’s and LEC’s ?

„ ROC’s can be sold in the market at any time

„ Current market prices are between £40 and £52 depending on the size of the plant, the volume of ROCs being traded and the delivery date of the ROCs (monthly/annually). Reflects what the market thinks the Recycle Value will be and the time value of money.

„ ROC’s are also traded in the “ROC market” with the price

reflecting the full value of the Buyout price, a projection on the Recycle value plus a discount for the time value of money

„ Analysis shows this can be better value for the generator in terms of cash flow and processing fee.

What are ROC’s and LEC’s ?

„ The Climate Change Levy (CCL) is an environmental tax charged by energy suppliers to business customers.

„ A LEC is awarded by Ofgem for every MWh of green electricity generated and metered.

„ LEC’s have been at a set price of £4.30. From April 2007 they increase with RPI.

„ A LEC can only be sold if electricity is exported to the grid.

„ LEC’s are awarded for electricity used on site but cannot be

What is a REGO?

„ Part of the EU Directive 2001 which shows the energy source the electricity is generated from.

„ From 1^st July 2007 Suppliers have to hold REGOs as evidence of renewables in their fuel mix sold to customers.

„ Most Suppliers contractually insist on REGOs being transferred to them free of charge

„ Some smaller Suppliers paying a nominal fee for REGO’s ( 25p - £1.00 /1,000kWh)

Current Environment

„ Extremely high prices

„ Probably not sustainable in the long term

„ Full government support

„ Planners and Environment agencies still operate their own agenda but good

signs in Scotland.

Revenue Stream for Micro Generator

90-134 TOTAL

4

LEC Sales

4.41

45-50

ROC Sales

53

40-80 50-80

Electricity Sales

Revenue to Generator

£/MWh Market Value

(£/MWh) Element

How do I access these Revenue Streams?

„ Electricity and LEC’s

– If there is excess electricity look at selling it to a supplier . WARNING have to look at cost of connecting to the grid , metering and monthly admin

charges. May not be worth it!!!

– If exporting electricity first step is to contact your local Distribution Network Operator (DNO) to get an MPAN export meter number. Once you have this you can then agree an export price with a supplier and they will arrange the meter.

– A generator below 30kW and exporting does not need a half hourly meter.

Any plant over 50kW must have a half hourly meter. For a generator between 30kW and 50kW it will depend on the DBNO which type of metering is required.

– Some suppliers are happy to take the export from micro-generators, others

How do I access these revenue streams?

„ ROC’s

– Must be accredited with Ofgem

– Must submit annual/monthly meter readings – Need to install an Ofgem “accredited” meter

– Third Party Supply require “Buy and Sell On” agreement with a Licensed Supplier

– Revenue Stream can only be accessed by selling to a supplier

DTI – Energy Review

Potential Impact of Proposed Banding in 2009

„ Onshore wind projects guaranteed 1 ROC/MWh.

„ Offshore developments from 2009 will receive 1.5 ROCs/ MWh.

„ New sewage gas, Landfill gas, and co-firing will reduce to 0.25 ROCs/ MWh.

„ Wave , tidal, biomass, pyrolysis, anaerobic digestion and solar PV will be awarded 2 ROCs /MWh generated.

„ Details still under debate-current position is small Hydros under 50kw may get 2 ROCs in England,Wales, N Ireland and the Islands but not Scotland.

Who to sell to?

„ Large Multinational Retailers

„ European owned eg N-Power; EON; Scottish(spanish) power;

EDF

„ UK Owned eg Centrica; SSE

„ Japanese owned eg Smartest Energy

„ Small British Specialist Renewable Retailers

„ Eg Good Energy; Green Energy; Opus

„ Direct to Major Consumers

„ Eg Marks and Spencer; Tesco; Morrisons

„ NOTE All these have there own interests in conflict to the

generator. They will offer you what they want to buy. They will assume you are an industry expert.

How to Sell the Products

„

Options include

„

Sell as a package at fixed price—increasingly rare

„

Sell as a package at discounted market prices–

normal with large suppliers

„

Sell as a package at market rate less a service fee

„

Split products and sell individually through service provider/trader—gives best return

„

Generally timing is more important than the

If in doubt……….

TradeLink Solutions can do all of this for you…….

„

Buy the electricity and LEC’s,

„

Get the site accredited with Ofgem,

„

Manage the interface with Ofgem,

„

Submit meter readings,

„

Sell your ROC’s and secure you an annual income,

„

Give free advice and guidance

Micro Generation

„ Accreditation of the Generating site with Ofgem – TLS will complete the necessary accreditation form

– Put all necessary contracts and documentation is in place to forward the application to Ofgem

– Liaise with Ofgem on any queries or additional information that is needed

– Follow the application through to accreditation of the site.

„ Renewable Benefit Administration Services and Sale of ROCs – submission of meter reads to Ofgem

– completion of end of year submission to Ofgem for claiming ROCs – liaising with Ofgem on any issues regarding award of ROCs

– working in the ROC register on behalf of the customer

Micro Generation

„ Purchase of Exported Electricity and Levy Exemption Certificates

– TLS offer competitive rates on Power Purchase Agreements for electricity exported to the Grid.

Thank You

Bob Middleton

TradeLink Solutions Ltd,

1

Floor Batchworth Lock House, 99 Church Street,

Rickmansworth, Hertfordshire, WD3 1JJ,

Tel: 01923 713840

Mobile: 07966 522245