Forth Energy SG Supplementary Consultation Response

7/29/2019 Forth Energy SG Supplementary Consultation Response

http://slidepdf.com/reader/full/forth-energy-sg-supplementary-consultation-response 1/9

1

Forth Energy’s response to the Scottish Government’s

‘RO Banding Review Supplementary Consultation’

Forth Energy, a joint venture between Forth Ports Limited and SSE plc, plans to develop

three high-efficiency, wood-fuelled Combined Heat and Power (CHP) plants in Scotland. The

plants will be situated at the Ports of Grangemouth, Dundee and Rosyth. Together they will

have the capability to deliver 300 MW of reliable, controllable, renewable electricity to the

national grid and up to 260 MW of renewable heat to neighbouring industrial and commercial

users, and to new district heating networks. The combined output of the plants can deliver

around 30% of the Scottish Government’s 2020 renewable heat target and approximately 6%of the renewable electricity target.

Forth Energy welcomes the opportunity to respond to the Scottish Government’s ‘ RO

Banding Review Supplementary Consultation’ and makes the following key points with

respect to Proposal B (10 MW capacity cap for wood-fuelled dedicated biomass electricity-

only generating plants):

Forth Energy agrees there should be no support for new large-scale dedicated

biomass electricity-only plants, as support for biomass under the ROS should

focus on CHP plants.

A wood-fuelled dedicated biomass CHP plant with an installed electrical

capacity in excess of the ceiling should be eligible for ROCs for its electrical

output, provided the plant has the capability to meet the Good Quality CHP

(GQCHP) criteria at full heat output.

An annual requirement to produce sufficient heat to meet the GQCHP criteria to

be eligible for ROCs would significantly increase the risks associated with

developing and operating a larger-scale biomass CHP plant in Scotland, and

would consequently hinder progress towards meeting Scotland’s 2020 renewable

heat target.

If such a requirement were placed on biomass CHP plants, Forth Energy

proposes that a ‘grace period’ be introduced to allow a newly commissioned

plant to build up a heat customer base to meet the GQCHP criteria, and that

established GQCHP plants should retain ROC support if heat production falls

due to a reduction in customer demand.



2

We make the following key points with respect to Proposal C (biomass power value-for-

money and affordability):

A cap on dedicated biomass electricity-only plants under the RO is not necessary

to ensure value for money, or to address feedstock lock-in.

If a cap is to be implemented, an overall cap on the total electricity-only capacity

which can accredit under the RO would improve investor certainty, compared to

the proposed supplier cap.

If a cap is to be implemented, it should exclude CHP plants which meet the

GQCHP criteria in force at the point of accreditation under the RO.



3

Proposal B: Introduction of a 10 MW installed capacity ceiling for wood-fuelled

dedicated biomass generating stations

Key points

Forth Energy agrees there should be no support for new large-scale dedicatedbiomass electricity-only plants, as support for biomass under the ROS should

focus on CHP plants.

A wood-fuelled dedicated biomass CHP plant with an installed electrical

capacity in excess of the ceiling should be eligible for ROCs for its electrical

output, provided the plant has the capability to meet the Good Quality CHP

(GQCHP) criteria at full heat output.

An annual requirement to produce sufficient heat to meet the GQCHP criteria to

be eligible for ROCs would significantly increase the risks associated with

developing and operating a larger-scale biomass CHP plant in Scotland, and

would consequently hinder progress towards meeting Scotland’s 2020 renewable

heat target.

If such a requirement were placed on biomass CHP plants, Forth Energy

proposes that a ‘grace period’ be introduced to allow a newly commissioned

plant to build up a heat customer base to meet the GQCHP criteria, and that

established GQCHP plants should retain ROC support if heat production falls

due to a reduction in customer demand.

Support under ROS focused on CHP plants

Both DECC and the Scottish Government recognise the significant benefits that biomass

CHP plants deliver in terms of fuel efficiency, security of supply, economic growth potential

and long-term reduction in carbon emissions relative to fossil fuels for electricity and heating.

The Scottish Government’s latest draft Electricity Generation Policy Statement1

confirms its

preference “… to see biomass used in heat -only or CHP schemes …”. The DECC UK

Bioenergy Strategy2

identifies “low risk bioenergy pathways to 2030” which are supportive

of the use of biomass to generate heat and power through CHP processes and to provide heat

for high temperature industrial processes. The DECC Future of Heating report highlights the

role renewable CHP using biomass could play in reducing carbon emissions in industrial

sectors3

.

Forth Energy believes that there are opportunities for CHP plants of all scales to either meet

the energy demands of existing customers, or to act as a catalyst for inward investment,

attracting new customers with heating (or cooling) requirements and growing the provision of

renewable heat over time. The regulatory framework and financial support mechanisms

1Scottish Government (Mar 2012), Electricity Generation Policy Statement, p17

http://scotland.gov.uk/Resource/0038/00389294.pdf 2

DECC (Apr 2012), UK Bioenergy Strategy, p40

http://scotland.gov.uk/Resource/0038/00389294.pdf 3

DECC (Mar 2012), The Future of Heating, p82-88http://www.decc.gov.uk/assets/decc/11/meeting-energy-demand/heat/4805-future-heating-strategic-

framework.pdf

http://scotland.gov.uk/Resource/0038/00389294.pdf




http://www.decc.gov.uk/assets/decc/11/meeting-energy-demand/heat/4805-future-heating-strategic-framework.pdf









4

should promote the development of a broad range of renewable CHP plants and encourage

the growth of renewable heat uptake from those plants.

As stated in our response4

to the Scottish Government’s original consultation on banding

under the Renewables Obligation (Scotland) (ROS)5, Forth Energy agrees that there should

be no support for new large-scale dedicated biomass electricity-only plants, as support forbiomass under the ROS should focus on CHP plants. We agree that a capacity ceiling for

electricity-only plants is a practical way of implementing this.

Forth Energy believes that a dedicated biomass plant should only be recognised as a CHP

plant under the ROS (and hence be eligible for ROCs for its electrical output) if it is

designed, constructed and maintained with the capability of producing sufficient heat at

maximum output to meet the Good Quality CHP (GQCHP, as defined by article 2(1) of the

ROS Order 20096

and CHPQA Guidance Note 447) criteria that are in force at the time of

preliminary ROS accreditation. To meet this requirement, CHP developers will need to

commit to significant upfront investment, installing the equipment which can allow the

production of substantial volumes of heat. It should be noted that the heat is not necessarily aby-product of the generation process but may be an identified output from the plant, with a

specific capital cost8. To ensure a return on its investment in heat producing equipment, a

developer is strongly incentivised to locate the plant in an area where renewable heat demand

is high, or is expected to grow, and will aim to produce and sell the maximum volume of heat

possible throughout the plant’s operational lifetime.

We believe that requiring dedicated biomass plants to have the capability to meet the GQCHP

criteria throughout their operational lifetime to be eligible for ROCs would address the

Scottish Government’s desire to not support electricity-only biomass plants, without

imposing risks on CHP developers that they are not in a position to control. We strongly

suggest the Scottish Government adopts this approach for determining ROC eligibility for

biomass CHP plants.

The potential risks to CHP developments arising from the Scottish Government’s proposals

Forth Energy supports the principle that dedicated biomass plants should only be recognised

as CHP plants under the ROS if they have the capability to meet the GQCHP criteria

throughout their operational lifetime. However we understand that the Scottish Government

is considering introducing an annual requirement for CHP plants to produce sufficient heat to

meet the GQCHP criteria, in order to be eligible for ROCs for their electricity output. As

explained below, such a requirement would introduce significant risks to the developmentand operation of renewable CHP plants within Scotland.

4 Forth Energy (Jan 2012), Forth Energy’s response to the Scottish Government’s ‘Consultation on Review of

ROC Bands’

http://www.forthenergy.co.uk/assets/fe-ros-response-form-web.pdf 5

Scottish Government (Oct 2011), Consultation on Review of ROC Bands

http://www.scotland.gov.uk/Resource/Doc/361576/0122199.pdf 6

Scottish Government (Mar 2009), The Renewables Obligation (Scotland) Order 2009

http://www.legislation.gov.uk/ssi/2009/140/contents/made 7

DECC (Nov 2008), CHPQA Guidance Note 44https://www.chpqa.com/guidance_notes/GUIDANCE_NOTE_44.pdf 8

For our Grangemouth CHP plant, the capital cost of the heat infrastructure is over 25% of the overall cost.

http://www.forthenergy.co.uk/assets/fe-ros-response-form-web.pdf


http://www.scotland.gov.uk/Resource/Doc/361576/0122199.pdf


http://www.legislation.gov.uk/ssi/2009/140/contents/made


https://www.chpqa.com/guidance_notes/GUIDANCE_NOTE_44.pdf








5

Heat produced by a CHP plant can only be sold to, and utilised by, customers that are directly

connected to the plant via a dedicated local heat network. This means that the heat produced

by a CHP plant is constrained by its connected customers’ heat requirements, which are not

directly within the control of the CHP operator. Thus any eligibility criteria for receiving

ROCs which depends on the amount of heat consumed by its customers (and hence the

amount of heat produced by the CHP plant), introduces a risk to the CHP operator over whichit has no direct control.

Under such a regime, a reduction in heat offtake from a customer (for example through

efficiency improvements or a reduction in demand for its products), or the cessation of a heat

customer’s operations (for example through insolvency or relocation), is not within the CHP

operator’s control, but could result in the loss of its revenue stream from ROCs for its

electricity production. This would exacerbate the downturn in revenues arising from the

reduction in heat sales and loss of the Renewable Heat Incentive (RHI) tariff. The risks are

highest for a CHP operator connected to a single customer who cannot compensate for the

reduced demand by providing heat to alternative customers.

The extent to which individual CHP plants would be affected by the introduction of ROC

eligibility criteria based on heat production will depend on the precise manner in which the

GQCHP criteria are used to determine eligibility. In particular, the impact will depend on

how, if at all, the Quality Index (QI) for the plant is used to calculate ROC issuance. It is not

clear from the consultation document whether or not the Scottish Government is considering

scaling-back ROC eligibility for plants achieving a QI below the 100 threshold (as is

currently the case for CHP Uplift), or is considering removal of all ROCs for a plant which

does not meet the QI threshold. If the latter, this significantly increases the financial risks of

operating a CHP plant.

If a biomass CHP plant’s eligibility for ROCs were to depend on heat production rather than

heat capability, developers, investors and finance providers are only likely to consider the

construction of new CHP plants which can provide heat to customers who have: (i) a very

high likelihood of long-term operation at the site; (ii) a stable profile of heat requirement; and

(iii) the ability and willingness to underwrite the liabilities arising from not taking sufficient

heat to ensure the CHP plant meets the GQCHP criteria. Such a requirement is also only

likely to deliver new biomass CHP plants that are sized to match the heat requirements of

customers who are both ready to take heat and can be connected during the approximately 3

year period of plant construction. CHP plants with a thermal capacity sized to allow the heat

production and sales to grow in time, with the additional capital costs underpinned by the

ROCs from electricity production (as is currently the case), are unlikely to be developed dueto the high risk of being unable to meet the GQCHP criteria during the early years of

operation (due to the lower heat efficiency of an oversized boiler until heat demand has

grown sufficiently), and the subsequent loss of ROC revenue during those years.

As set out above, introducing an annual requirement to produce sufficient heat to meet the

GQCHP criteria to be eligible for ROCs would greatly increase the uncontrollable risks

placed on dedicated biomass CHP plants. This would increase the difficulties in gaining

board approval to commit to such projects, raising finance and attracting investors. The

additional risks could significantly constrain future biomass CHP development in Scotland,

and reduce the potential for CHP plants to be built with the aim of growing a customer base

and heat network over time. These factors would hinder progress towards meeting Scotland’s2020 renewable heat target and the growth of low-carbon heat production beyond this date.



6

Mitigating the risks to CHP plants

If the Scottish Government does intend to introduce a ROC eligibility criteria based on heat

production rather than capability, Forth Energy suggests two proposals to partly mitigate the

risks that this would impose on biomass CHP plants.

Firstly we suggest that a ‘grace period’ be introduced to allow time for newly commissioned

CHP plant to build up a heat load which would meet the GQCHP criteria. Where a CHP

developer can demonstrate that it has invested in the infrastructure capable of producing

sufficient heat from the plant to meet the GQCHP criteria, it would retain ROC support for its

electrical output whilst building up a heat customer base and delivery network throughout the

grace period. This ensures developers will only build CHP plants in locations where the

growth in renewable heat demand is feasible and highly likely. It also places a considerable

financial incentive on the CHP plant operator to develop its heat sales to a level which

ensures the GQCHP criteria are met within the grace period, or lose the ROC support for

subsequent years.

Secondly we suggest that CHP plants which had previously met the GQCHP criteria, but

where heat production is reduced due to a change in customer demand such that the criteria

are no longer met, should retain ROC support. Where heat demand has reduced, the CHP

operator would remain incentivised to seek additional heat customers and restore revenue

through heat sales and RHI payments, thereby subsequently meeting the GQCHP criteria. If

ROC support was withdrawn immediately this would severely reduce an operator’s income

stream, threatening its survival and hampering its efforts to seek replacement heat customers.

These two proposals ensure that larger-scale CHP developers invest in the infrastructure

capable of providing sufficient heat to meet the GQCHP criteria; allow plants to be built

where the developer is satisfied that an adequate level of heat sales can be delivered within

the ‘grace period’ to meet the GQCHP criteria; and shield operators from the uncontrollable

risk of a reduction in heat demand, whilst ensuring they remain incentivised to increase heat

sales subsequently. We would welcome the opportunity to discuss the implementation of

these proposals in greater detail with the Scottish Government.

Additional uncertainty arising from DECC’s forthcoming CHPQA review

The risks identified with linking ROC eligibility to meeting the GQCHP criteria on an annual

basis are exacerbated by the uncertainty arising from the UK Government’s forthcomingreview of the CHPQA standards. This review introduces the potential for revisions to the

GQCHP criteria and the Quality Index calculations. Forth Energy understands that any

changes to the GQCHP criteria following this review may be applied to plants that are

already accredited under the RO and ROS, potentially undermining the investment case on

which the plant was designed and constructed. To provide future developers and investors

with certainty that the criteria will not subsequently be amended for plant already in

operation, there is a need for the GQCHP criteria to be ‘grandfathered’ following this review.

Any further reviews of the criteria should be undertaken with sufficient lead time so as not to

impact on plant already under construction and for which the technical design has been

agreed.



7

We urge the Scottish Government to promote the principle of grandfathering the GQCHP criteria in

its discussions with DECC, to avoid additional risk to the delivery of CHP schemes that will assist in

meeting its challenging 2020 renewable heat target.



8

Proposal C: Additional mechanisms for biomass power aimed at ensuring value-for-

money and affordability.

Key points

Forth Energy has responded to DECC’s consultation9

on biomass value for money andaffordability. Our response reflected the different strategy for biomass use within the energy

sector that has been adopted by the UK Government. Although Forth Energy is seeking

consent to develop CHP plants, we do not support DECC’s proposal for a supplier cap on

dedicated biomass electricity-only plants under the RO, and made the following key points in

our consultation response.

A cap on dedicated biomass electricity-only plants under the RO is not necessary

to ensure value for money, or to address feedstock lock-in.

If a cap is to be implemented, an overall cap on the total electricity-only capacity

which can accredit under the RO, would improve investor certainty compared to

the proposed supplier cap.

If a cap is to be implemented, it should exclude CHP plants which meet the

GQCHP criteria in force at the point of accreditation under the RO.

Value for money

According to the DECC consultation proposals, “The intention in setting a cap is to maintainvalue for money for consumer subsidies while also maintaining investor confidence”

(paragraph 12.3). Yet over the period 2013 to 2017 biomass electricity-only plants wouldreceive between 0.4 and 0.5 ROC/MWh less support than the marginal renewable electricity

technology of offshore wind. In addition, the energy biomass electricity-only plants supply is

both reliable and controllable, unlike intermittent renewable technologies, including offshore

wind. Accordingly biomass electricity-only plants represent better value for money to the

consumer than the marginal (and uncapped) technology. It is therefore not logical to cap

biomass electricity-only plants on the basis of value for money to the consumer.

Feedstock lock-in

The UK Government also believes it is desirable to limit support for dedicated biomass

electricity-only plants “… avoiding significant feedstock lock in beyond the late 2020’s.” (paragraph 12.1 of the consultation). However, the UK Government should recognise the

essential role dedicated biomass plants will have in providing controllable low-carbon

electricity once the transitional technologies of conversion and co-firing cease to operate and

prior to the commercial development of Carbon Capture and Storage. If long-term feedstocks

can be sourced that meet the rigorous UK biomass sustainability criteria there should be no

reason to constrain the overall capacity of the plants which utilise them.

9

DECC (Sep 2012), Biomass electricity and CHP plants – ensuring sustainability and affordabilityhttp://www.decc.gov.uk/assets/decc/11/consultation/ro-banding/6339-consultation-on-biomass-electricity--

combined-hea.pdf

http://www.decc.gov.uk/assets/decc/11/consultation/ro-banding/6339-consultation-on-biomass-electricity--combined-hea.pdf







9

Type of cap

The proposed supplier cap on dedicated biomass electricity-only plants introduces an

unnecessary degree of complexity and uncertainty for investors, contrary to the stated intent

in paragraph 12.3. It could act as a much bigger constraint than the UK Government intends,

as it introduces the risk of a dedicated biomass ROC value collapse10

for all such plants builtbeyond Apr 2013, not just those which may cause the cap to be exceeded. This risk will make

investors nervous, making it difficult for developers to secure financing for any plants

expected to be commissioned beyond Apr 2013.

We suggest that, if a cap is deemed necessary it would be preferable to implement an overall

cap on the amount of dedicated biomass electricity-only plant that can be accredited under the

RO/ROS post Apr 2013. This would remove the risk of a dedicated biomass ROC value

collapse for dedicated biomass and, if a pre-accreditation process was available, would allow

developers and investors to secure funding and proceed to construction with confidence.

Exclusion of CHP plants from any cap

As stated in our response to Proposal B, both DECC and the Scottish Government recognise

the significant benefits that biomass CHP plants deliver in terms of fuel efficiency, security

of supply, economic growth potential and long-term reduction in carbon emissions relative to

fossil fuels for electricity and heating.

Given the importance both Governments place on CHP, Forth Energy agrees that, if a cap is

deemed to be necessary, those plants which meet the GQCHP criteria in force at the time of

accreditation under the RO/ROS, should be outside the cap.

It is important for developer and investor certainty that the GQCHP criteria are grandfathered

at the point of accreditation under the RO/ROS. In addition, any proposed changes to the

GQCHP criteria for plants yet to accredit must have sufficient lead time, so as not to

adversely impact those plants which have secured the necessary consents and funding and are

committed to, or are under, construction.

10A dedicated biomass ROC value collapse could occur if the issuance of such ROCs exceeds the total volume

suppliers can use for compliance under the RO/ROS, and if there is no expectation of the surplus beingabsorbed in future years. A similar issue occurred due to the surplus of EU Allowances (EUAs) issued in Phase 1

of the EU Emissions Trading Scheme which saw the EUA price collapse to 0.01€.

Forth Energy SG Supplementary Consultation Response

Documents

Transcript of Forth Energy SG Supplementary Consultation Response