The Micropower Council Response to “2005-06 REVIEW OF THE RENEWABLES OBLIGATION – Preliminary consultation document”

May 2005

INTRODUCTION

1. The Micropower Council is a cross-industry body whose membership comprises companies, trade associations, professional institutions, not-for-profit companies, non-government organisations, charities and private individuals, all of whom have a strong interest in the development of the microgeneration sector. A list of our members is available here

2. We provide the industry’s main focal point for Government, regulators, Parliament, opinion formers and the general public on regulation and public policy issues affecting the production by consumers of their own sustainable heat and power.

3. We welcome the opportunity to respond to this consultation. We consider that this is particularly timely, given the stage of progress in the development of the Microgeneration Strategy.

4. The proposed changes within this consultation that we have specifically commented on are questions 54 and 55, which both require changes to primary legislation, and would therefore necessitate some time before implementation could be carried out. But we believe that there are a number of other possible changes that would not require primary legislation and could therefore be implemented more quickly. These proposals are largely based on the work of Workstream 4 of the Distributed Generation Co-ordinating Group and are detailed in the report on the Accrual of ROCs, LECs and REGOs by Jade Energy, which is available on the DGCG’s website. These have been listed under the additional options for change section.

ADMINSTRATIVE CHANGES FOR SMALLER GENERATORS (Q54 & Q55)

5. Question 54 invites comments to be made on the benefits of the changes for smaller generators and any practical issues associated with their implementation. We support two significant changes, specified in paragraph 8.21;

a) “allowing agents to act on behalf of smaller generators through the process of accreditation and claiming of ROCs, and allowing ROCs to be issued to agents”

Whilst a desirable change, we recognise that a number of safeguards may be necessary. These could include:

Ensuring that the proposed changes are optional and allowing generators to continue to claim in their own right if wishing to do so

The introduction of a code of practice for agents acting on behalf of those generators wishing to pass responsibility to an agent

Allowing provision in the arrangements for generators to change agent at appropriate places in the ROC cycle

b) “allowing agents to amalgamate the output of smaller generators”

This change would be of significant benefit because it would allow one application and set of meter readings to be submitted; significantly reducing the amount of administration work. This would also mean that the output from the generating units would be added together leading to the reduction in rounding errors, improving the overall accuracy of ROCs when applied to microgeneration customers. We also suggest two further changes to improve the ability of agents and operators to carry out bulk processing applications:

- Allowance for a “pre-processing” of information regarding those generating technologies which are sold in bulk, so that the necessary information to be provided with each application is reduced

- Making steps to provide for the bulk processing of applications prior to the suggested objective of amalgamating the output of generators –see paragraph 19.

6. Question 55 invites views on the potential benefits of removing the requirement on generators to have a sell and buy back agreement with a supplier, and whether this agreement is actually necessary to provide evidence of the usefulness of electricity produced by small generators. We strongly support this – current contracts create a number of additional risks and complexities for both suppliers and microgeneration customers, and add to complexity.

7. With this in mind, we believe the proposal should be amended in a way which allows benefit to reach all small generators as well as larger ones. We believe that the requirement should be lifted from all generators below a certain threshold, and not just those that consume electricity themselves. This would then allow the benefits of removing this requirement to also encompass some forms of community schemes, for example; those generating electricity that is consumed by two or more local customers and is therefore not exporting to the grid.

8. The possible subsequent effects of this change should be considered, and it is important that the change is implemented in a way that does not affect the size of the licensed supply base, hence changing the value of ROCs. This would be relatively easy to address with a compensatory change to the overall level of the RO.

ADDITIONAL OPTIONS FOR CHANGE

9. We believe that there are a number of other changes that could be brought forward to reduce the administration burden for smaller generators and their suppliers/agents. Most of these would not require changes to primary legislation. Further detail to these recommendations can be found in the aforementioned report on Accrual of ROCs, LECs and REGOs by Jade Energy.

Sell and buy back agreement

10. We fully support the removal of the requirement for sell and buy back agreements for suppliers, as the requirement causes the drawbacks for the renewable energy generator of being tied to a supplier and the issues surrounding the installation requirements of metering equipment to measure gross generation.

11. We believe that the best way to mitigate the difficulties outlined above would be to change the eligibility criteria for microgenerators so to qualify the renewable generation that is consumed or generated by a customer, rather than that which is supplied to a customer. Although this would potentially reduce the value of ROCs by a small amount, it is likely that this would be offset by the increase in level of the Renewables Obligation.

12. With recognition to such recommendations taking some time to be implemented, we make further recommendations of some other measures to be taken in addressing the consequences of the sell and buy back agreement, prior to any possible changes or removal of the obligation.

13. We suggest that a review of the requirements for the approved meters used to record the gross generation is carried out, identifying the appropriate standards for meters that are used as well as addressing the position of those existing generators with incorrect meters installed.

14. We also strongly recommend that a standardised sell and buy back agreement would make the arrangements more transparent, give confidence that any arrangement would comply with Ofgem’s requirements, and reduce Ofgem’s administration burden in checking these contracts.

Bulk applications

15. We support the amalgamation of the outputs from small generators, but believe that pre-processing of information for the accreditation of similar generating stations should also be implemented prior to the aforementioned legislative change. This would involve lodging all of the details relating to the specific technology with Ofgem, thus allowing requirement for only the site specific information to be submitted with the accreditation application. This could significantly reduce the amount of paper being circulated and is unlikely to require change to primary legislation, and support the bulk processing of identical generators.

16. Further steps towards bulk processing is highly important to the microgeneration sector, as the number of identical microgenerating units being installed is increasing and the burden of administration costs and complexities will affect those entering and existing in the market.

17. We recommend that a generator be allowed to nominate the ROC register account to which the ROCs are to be issued and the aggregation of meter data of very small generators is also allowed, so to reduce the impact of the rounding errors.

Meter data provision

18. The studies referred to earlier by Workstream 4 of the Distributed Generation Co-ordinating Group (DGCG), identified two issues associated the metering process. Firstly, there are difficulties being experienced in obtaining the required meter readings in the currently prescribed time window, which is +/- 1 day for meters read monthly and +/- 5 days for those annually read.

19. To address this problem we recommend that smaller generators be allowed to an automatic right to use estimation, determined by specific rules, where the generator fails to meet the time window. This should be set to include a minimum threshold of all small generators and domestic customers which have a likely error in estimation that is smaller than the ROC rounding rules. In order to protect the integrity of the ROC scheme, the use of estimations would need to be subject to a limit on the number of times this can be done, as well as being produced using a prescribed method. The benefit of this change would reduce the requirement to apply to Ofgem to use an estimate during the narrow time window when the data is being collected and submitted to Ofgem, and thus reduce the risk of ROCs not being issued. This would not need to change the requirement of meter data or primary legislation, only a change to the RO Order.

20. The main advantage to implementing this approach to streamlining the data requirements is by reducing the administration burdens, thus benefiting Ofgem as well as operators/suppliers. The risks of suppliers not receiving ROCs for a proportion of microgenerators is also reduced, along with the subsequent decrease in participating in the scheme, passing risk over to customers or discounting the price they offer for electricity generated. There are other reasons for this approach to be considered fully. The method allows the advantage of the use of a prescribed estimation, over a possible estimation made by a customer not wishing to miss the time window, but claiming that their figure is a true reading. And with consideration to the rounding rule of ROCs the estimations are likely not to have a significant impact.

21. The findings of the workstream 4 works indicated that there are wider issues than just the time window for submission of meter reading data which affects the issuing of ROCs. The onerous administration burden of collecting and submitting data from individual microgeneration stations could potentially outweigh the benefits of the schemes.

22. We believe there is a strong case for a type-certification scheme for the smallest of microgeneration technologies, properly underpinned by appropriate product and installation standards. This would remove all of the administrative considerations associated with metering and meter reads. Some who do not favour this suggestion argue that it is essential to meter the generator output to ensure there is an accurate record of renewable energy generated. We do not accept this –such a scheme based on large numbers of identical smaller generators with output variability less than the rounding errors of the ROC scheme would lead to an improvement in the system compared to the current situation. We would, however accept that some form of check is performed to ensure that the microgeneration equipment continues to produce the assumed amount of power over its lifetime, perhaps by building this into the equipment’s maintenance cycle as a product / installation / servicing standard. This approach would allow for average annual values for certain microgenerators to be used, and would offer the greatest simplification to the ROC issuing process

23. This alternative approach offers the advantages of the relatively quick and easy implementation, and perhaps more importantly, time to test the approach and progress work on the annual average option. We therefore recommend that further urgent work is carried out to collect additional field trial data for wind and solar, to identify legislative changes and required detailed rules for these options, and to assess the possibility of using simulation data.

Increasing Customer friendly processing

24. We encourage the further simplification to the accreditation application form and production of plain English Guides to the practical requirements of applying for and obtaining ROCs. This would not require any change to legislation and would be of significant value to new players entering the market, particularly during the process of changing primary legislation for development in agency services.

25. As the market gathers momentum for renewable microgeneration, we believe the government should provide funding for a help desk service to provide independent and impartial advice and guidance to members of the public. This could be provided by Energywatch or one of the grant funding bodies and would not require any change to legislation. Such a service is likely to be needed until the complexity is reduced and as agency services develop, and would be of significant value to new players entering the market.

26. The streamlining and simplification of issuing the ROCs in collaboration with LECs and REGOs is required to reduce the administration burdens across these schemes. This could be immediately addressed by minimising the differences between the schemes and reducing the duplication of the data provision.

27. We recommend that the best way to simplify the issuing of these benefits would be to allow 1 ROC and 1 LEC per 1000 REGOs that a microgenerator holds, without the need to apply for separate accreditation the ROCs or LECs, or provide meter reading.

28. Ofgem maybe required to communicate directly with agents and to provide them with information, as well as to operators. The current legislation requires Ofgem to communicate with operators, but by allowing this to occur with agents also, it could aid operators in gaining accreditation and claiming ROCs, before the possible change in primary legislation to allow ROCs to be issued to agents. This would allow at least some relief in the administration process for operators wishing to pass some responsibility to an agent prior to the any agreements in primary legislation

29. Allowing generators to request that their ROCs can be issued into their own ROC register account or that of any supplier.

Further recommendations requiring changes to primary legalisation

30. Developing proposals for allowing ROCs to be issued on the basis of specific annual values for very small generators. These could be technology or possibly location and / or manufacturer specific, allowing for simplification of applying for ROCs for very small generators.

31. Allowing REGOs to be used as evidence of eligibility for ROCs for generators below a certain size threshold, for example; 1000 REGOs from eligible technologies would be used to demonstrate an entitlement to 1 ROC. This would streamline the schemes, for example by automatically removing the requirement for a sell and buy back agreement as they are not required for REGOs, and could reduce the administration burden considerably.