Ofgem, NETA & BETTA new challenges to achieve the EU RES policy commitments

New Energy Trading Arrangement (2001) and its successor British Energy Transmission Trading Arrangement (settled in April 2005 as long as Scotland joined the England and Wales transmission and trading system and leading to an UK wide market), are to be modified in order to face the new challenges addressed to achieve the committed 20% of RES (Renewable Energy Sources) power generation by 2020 as a compulsory target stated by the European Union’s Directives (20/20/20 2020).

The new challenge should be sought by reviewing and analyzing the current market scheme in case the UK policy’s aim is to promote RES at large scale and market based (long term contracts and balancing and settlement undertaken by National Grid and ELEXON for the Real Time operation of the entire system and economically fixed after the operation according the maturity of contracts and agents deviations) or in the other way around changing the paradigm due the lack of success with the current Feed In Tariffs (hereinafter FIT) that uniquely promote small scale facilities (less than 2 kW primarily for self consumption) , what additionally might lead in a very complex operation of Power Distribution Companies and its consequent increase in regulated remuneration of this activity.

The achievement of the targeted 20 % of power generation, in order to maintain the integrity of the whole system, can be addressed uniquely by the promotion of big Wind Generation farms (regardless certain promotion of other technologies as Photovoltaic or Geothermal in a limited scale) for the following reasons given the maturity of this mentioned technology:

1. Wind Power Generation is capable to maintain power factor under certain limits, even compensate it to prevent blackouts
2. The Offshore option provides with high amount of capacity and low environmental impact (2 MW in a single mill with less permits and environmental requirements that those potentially required inland)
3. As it has been evidenced in other countries or systems’ experiences, the uncertainty of power delivered in a day ahead is not subject to suffer significant deviations (in many cases less than 10%)
4. The CAPEX or unitary cost per MW has been sharply decreased.

Notwithstanding it shall be remarked that these set of strengths of the Wind Power generation do not match properly in the current market scheme as it exist by the time being, since even the lack of the uncertainty in the day-ahead power delivery, it is currently impossible setting long term contracts and compete with the conventional power generation (Coal, Nuclear and Gas) in terms of CAPEX (regardless the Marginal Cost usually misunderstanding by some authors, and the compensation for programme deviations). Nowadays RES (but Hydro Power Generation) need grants or compensations in a market based model with no scarcity of installed capacity (therefore Not Supplied Energy is not a driver) and in a rather messed power system (leaving out of this briefing the isolated systems).

Therefore the single solution to achieve RES promotion and deterring “dramatic” reforms in the current trading arrangement shall be leaving out of the current scheme the RES technology (but hydrogenation).

One suitable solution would be to transfer liquidity to the day-ahead spot market (as the SSE Power Company’s initiative) and settling a floor price reviewed each certain time-frame or period (with no retroactivity and maintaining the stable legal framework) in order to avoid of excess of Wind Power Installed capacity what could be managed by the Government and/or Ofgem regulation and market and system monitoring.

Regarding technical constraints, Ofgem is to settle the conditions to be fulfilled by these types of generators in the Grid Code and/or Connection Conditions, which can be designed in order to release or increase the ancillary services’ responsibilities and connection charges (shallow-deep charges) or conditions’ duties in the same direction than market pricing (floor price) to manage the RES capacity installed .

Finally, assuming that the Green House Gas emissions reduction leads to common benefit, the total cost burden of whatever solution is adopted it should be carried out by every market participant and therefore the cost shared among them.