Three Point Turner

It does put the pressure on suppliers, but the Renewables Obligation is sound policy, says Ashley Turner. He takes Angela Lawrence through TXU’s “build, buy and trade” response.

This spring saw the introduction of the UK government’s Renewables Obligation (RO). The new regime requires every UK energy supplier to source 10.4% of their retail demand from renewable sources by 2011 - and to hit the first interim target, of 3%, in 2002/2003. This is a challenging target. For TXU, it means finding renewables sources within the next year to reach 1.68 terawatt hours (TWh), equivalent to the needs of half a million domestic households. Looking further forward, the 2011 target of 10.4% will be the equivalent of 5.8 TWh.

There is a penalty of £30 for every megawatt hour not reached, but ‘recycling payments’ will flow back to companies that do make progress on green sourcing - so the RO is an obligation with both teeth and carrots. It’s not a prospect to make Ashley Turner blanch. On the contrary, he robustly defends the RO. As TXU’s sustainable energy portfolio manager, he takes the view that the company has everything to play for by being an early entrant.

“The problem with renewables”, says Turner, “is the lead time of commissioning, which is between 12 and 24 months. The way the Obligation ramps up means the market is likely to remain short of the target for many years. We are going into it fully anticipating we will be short. The volume simply isn’t there, because it can’t be built in time, and renewables developers can’t get local planning consent quickly enough.”

“But the DTI recognises this,” adds Turner. And he’s confident that TXU can be a net gainer from the ‘penalty and reward’ structure, by striving for greater levels of compliance than other competitors. Being more than 50% compliant will be a competitive advantage, attracting a greater proportion of the available Ofgem recycling payments.

Meanwhile, the demand for green energy is creating a commercial opportunity. TXU has been approached by many of its industrial and commercial customers, and already supplies green energy to the premises of 50 large businesses. Turner has his eyes set on a target of 500 by 2005.

The TXU threefold strategy - Build, Buy, Trade - directly supports the government’s renewables build programme, says Turner, “by helping developers overcome problems associated with securing project finance, dealing with long-term energy price risk, and bringing output to market in the shortest possible time-frame”.

The company’s in-house build team can deliver a range of RO qualifying projects, from drawing board to operations both on- and offshore. The partnership approach is already bearing fruit, with plans for a 60-turbine offshore wind farm in the Solway Firth in collaboration with Offshore Energy Resources Ltd. “We are extremely enthusiastic about offshore wind. Greenpeace has coined the term ‘power stations at sea’ which we think sums it up beautifully. It’s the only technology that exists in sufficient capacity to make a dent on the challenging nature of the targets,” says Turner.

The second part of the strategy - Buy - sees TXU purchasing from new renewable sources without taking a stake in those physical assets. The company will develop a series of long-term partnerships with four or five specialist developers who finance, build and operate renewable plant. For the developers, it will mean long-term price stability, giving them the security they need to approach banks to finance construction programmes. In exchange TXU gets exclusive access to the offtake, and the associated RO certificates (ROCs) - a perfect sharing of risk and reward.

And the ‘Trade’ element? As the market for trading in ROCs develops, TXU will be participating vigorously. “We are a trader. At the moment the market is so short because there are lots of buyers and few sellers. But we foresee a trading market emerging and we will be active players in that market, adding liquidity and depth by virtue of our size.”

Looking forward to the end of the decade, Ashley Turner believes the model can be rolled out to other European markets. TXU has already built, bought and traded across Europe. As governments ratchet up the obligations, and consumers become more supportive, TXU will be ready and waiting to support and contribute to a European - or even a global - market.

Angela Lawrence is a freelance journalist and corporate communications consultant. (lawrencemediapr@aol.com)

30 October 2002

Angela Lawrence