There are two subsidy mechanisms for biomass energy generation: the Renewables Obligation (RO) and the Energy Act 2013. Both provide support to a wide range of renewable technologies in order to encourage uptake, so that the UK can meet its emissions reduction and renewable energy targets.
The Renewables Obligation
First introduced in 2002, the RO places an obligation on electricity suppliers to source a greater proportion of their electricity from renewable sources. Energy generators are awarded Renewables Obligation Certificates (ROCs) for the eligible renewable electricity they produce.
The ROCs are banded by technology type in order to provide the support deemed necessary to incentivise their development. The Government conducted a Banding Review in October 2011 which set the ROC levels for 2013-2017. This is the final period in which the RO will be open to new generation. After 2017 it will be replaced by the new Contracts for Difference system, which was introduced by the Energy Act 2013.
Download our guide to the early life of the Renewables Obligation.
The Energy Act 2013
Introduced in December 2013, the Energy Act created a new system of support for renewable energy generation as part of the Electricity Market Reform (EMR) programme. This reform will be carried out via two mechanisms: Contracts for Difference (CfDs) and the Capacity Market.
CfDs will support new investment in low-carbon energy generation by reducing the risk associated with exposure to the fluctuating wholesale electricity market. It accomplishes this by offering a ‘strike price’, which means that should wholesale electricity prices fall, the Government will pay back the difference between the market price and the strike price. If electricity prices rise above the strike price, then the generators pay back the difference instead.
Biomass Subsidies
Under the RO, dedicated biomass plants, as well as co-firing and coal conversions, are awarded ROCs which are set at a level that takes into account the high costs of importing woody biomass feedstocks. The same subsidy rate applies regardless of whether wood is imported or sourced domestically. This means it is cheaper for generators to source wood domestically and gives them an unfair advantage in purchasing domestic wood. The wood panel industry has called for the subsidy levels to be differentiated to reduce the level of support for cheaper domestic wood, however this solution has not been accepted by government.
The last RO banding review led to the introduction of a 400MW cap on the total new build dedicated biomass capacity that could be supported under the RO. This was positive, but does not tackle the continued threat posed by these plants, as well as co-firing and coal conversions.
The APPG was pleased by the Government’s decision not to offer a strike price for co-firing or non-CHP dedicated biomass under the new system introduced by the Energy Act 2013. However, support continues for biomass conversions and dedicated biomass with CHP, which still puts the wood panel industry at serious risk of displacement.
