Subsidy cut no deterrent to Viking windfarm, says project manager

Viking Energy believes a proposed cut in subsidy to onshore windfarms will not damage its project despite industry warnings that windfarms elsewhere in the UK will be killed off.

Onshore windfarms are now considered mature technology and both the Scottish and UK governments have announced they plan to cut the value of renewable obligation certificates (ROCs) granted to land-based wind power generators by 10 per cent from April 2013.

Currently onshore wind attracts one ROC for each megaWatt hour of power generated, worth around £50. The proposed cut to 0.9 ROCs would shave millions of pounds a year from the gross income of the proposed 457MW Viking windfarm.

Viking Energy Limited’s project manager Aaron Priest would not be drawn on how much the reduction would theoretically cost the Shetland windfarm. But he said it would not be a deterrent.

Rather than opposing the proposed reduction he welcomed the publication of the government’s intentions. He said: “It provides a bit of clarity and stability going forward and is actually potentially a good thing. It helps people plan accordingly in their investment decisions.”

He said the value of ROCs was only one element in the overall financial consideration of the project, last estimated to cost £685 million. While the subsidy is likely to be reduced the value of the electricity generated should rise and some of the costs facing Viking are expected to come down.

“You have to take into account that base electricity prices are going up and predicted to go up. The decision to invest or not in Viking will depend on crystal clarity on the potential value of contracts going forward. It also depends on clarity on cost elements, not least of which would be transmission costs on the interconnector.

“All those things will be taken into account at the appropriate time and a view taken on overall viability. But clarity on ROC values going forward is a good thing from our perspective.”

In the past Viking project officer David Thomson has said the windfarm could be built without benefitting from ROCs at all due to the high demand for renewable power and the high yield from wind in Shetland.

Although support for wind is on the wane the developers of tidal stream generators are in line for greater incentive through a subsidy increase of two-thirds to help accelerate commercialisation of the emerging technology. It would attract five ROCs, the same as wave power.

The renewable energy industry trade body RenewableUK welcomed the boost for tidal power but warned the cut for onshore wind would result in the cancellation of 1.6 gigaWatts of onshore wind generation – enough to power nearly one million homes.

It said there were currently over 260 onshore wind projects around the UK waiting for permission.

RenewableUK chief executive Maria McCaffrey said the ROCs reduction would have “a disproportionate impact” on smaller, less-established and particularly community-based wind energy projects which do not benefit from the economies of scale that larger projects can harness.

The Shetland community’s partner in the Viking windfarm, Scottish and Southern Energy, mirrored Mr Priest’s reaction. A spokesman welcomed publication of the consultation as an important next step to providing greater certainty and stability for the UK renewables industry.

He said: “This long-term certainty is important if the level of investment that is required, in both the supply chain and the development of renewables projects, to meet the UK’s 2020 targets is to come forward. Also, by continuing to support renewables now government will allow industry to focus on further driving the costs of these technologies down.”

Offshore windfarms currently attract two ROCs, reflecting that it is a relatively new field with bigger risks and higher costs. But that too is to be cut, to 1.9 ROCs in 2015/16 and to 1.8 the following year, although the Scottish government is to consider a higher level of support for experimental offshore windfarms.

On the smallest scale of renewable generation – microgeneration by schemes at people’s homes or connected to community buildings – ROCs payments are also set to be cut from two to 1.9 in 2015/16 and 1.8 the following year.

The biggest winner in the Scottish government’s proposals is tidal stream power with its boost from three to five ROCs per MWh. Mr Priest said that would provide significant encouragement to a sector which had great potential in Shetland.

Scottish energy minister Fergus Ewing said Scotland had a major competitive advantage in tidal power due to its large share of the resource. “We have a quarter of Europe’s tidal stream and the increase in support for this technology will encourage energy firms to capitalise on the enormous potential this presents.”

ROCs were introduced in 2002 to encourage power companies to increase the level of renewable energy in their supply. They have to meet set percentages each year by earning ROCs and buying them from other renewable energy generators. The system is set to run until 2037.

The Scottish government said this week it was “well on course” to meet its interim target of 31 per cent of Scotland’s gross electricity consumption coming from renewables by 2011 and it now had a platform on which to move towards its 100 per cent target by 2020.