Blown away

The Sunday Times
February 15, 2009
BT and Tesco may abandon huge new eco-projects following a last-minute rule change by the government
Jonathan Leake and Joseph Dunn

ONE of Britain’s biggest privately funded eco-projects could be on the verge of collapse. British Telecom said last week that it was preparing to pull the plug on a £250m plan to build electricity-generating wind farms because of a rule change by the Department of Energy and Climate Change (DECC).
BT, whose shares hit a record low in trading last week, planned to build 100 turbines on 20-30 sites in England and Scotland capable of generating 25% of its power needs. At a cost of £250m it represented the biggest investment in renewable energy by any British company apart from energy businesses.
But last week the scheme was in disarray, with BT and the government each blaming the other for the impending collapse. BT claims that new rules make the project unviable and that the government is now in effect discouraging companies from switching to renewable energy.
At the root of the dispute is a row over government-issued credits called Renewable Obligation Certificates (Rocs).
“Overall, we support what the government is trying to do to promote energy efficiency, but the ruling on Rocs means there is no sense in us building wind turbines,” said Chris Tup-pen, BT’s chief sustainability officer. “It is a perverse ruling that will also affect a number of other big businesses that are trying to act responsibly.
“We planned to build wind turbines that would generate a quarter of BT’s electricity by 2016. Without the subsidy that will not go ahead.”
A spokesman for the DECC blamed the problem on BT’s plans to profit from the wind farms by selling electricity and reducing its CO2 footprint at the same time as claiming subsidies, thus “having its cake and eating it”.
“It’s an accounting thing but it’s very important,” a government spokesman said. “We have to be very tough on it. The Roc is not a subsidy. If you sell the energy to the National Grid it is used to offset the grid’s emissions. You can’t both claim the money and use it to offset the company’s own emissions. That’s double accounting.”
Ed Miliband, the energy and climate change secretary, is expected to announce a consultation on its so-called carbon-reduction commitment (CRC) – the scheme that blocks BT from claiming credits at the same time as counting its green energy against its CO2 footprint – in late spring. BT and other firms are already lobbying to block it or change it.
Among them is Tesco, which is becoming increasingly interested in renewable-energy generation. David North, community and government director at Tesco, said: “I can see why the civil servants see this as double counting but the effect is to hold up renewable-energy initiatives. The government needs to find a way around this, perhaps by creating other incentives to help companies that are not power generators or other large fossil fuel users to switch to renewable energy.”
So where did it all go wrong? Hailed as an example of how businesses and government could work together to reduce carbon emissions, BT’s wind-power project was welcomed by the government when it was revealed two years ago. But the row now illustrates the fiendish complexity of the subsidy regimes devised to encourage the expansion of renewable-energy generation.
Rocs are issued by Ofgem, the energy regulator, to companies that produce green energy and can be sold on to third parties such as power generators, who have to prove – via the Rocs – that they gain a percentage of their power from renewable sources.
By selling the Roc, a company such as BT in effect gains a government subsidy on its green power. The government says BT is not entitled to that subsidy if it also exploits the fact that it produces renewable energy to reduce its overall carbon footprint.
BT says its proposed wind farms were planned on the assumption that it could sell Rocs in this way, and that the government has now back-tracked, making the project uneconomic.
The new CRC regulations make clear that businesses can either trade their Rocs or claim the carbon saved against their overall footprint – not both. It is this change that has infuriated BT.
“All sides are acting with good intentions but the result is that a plan that would make substantial cuts in CO2 emissions could be cancelled by BT’s board,” said Sir Michael Rake, chairman of BT. “We’re very disappointed and we would like the government to rethink these rules.” There are mounting concerns that the economic downturn is forcing companies to scale back or to scrap altogether environ-mental initiatives. Last month Vestas, the world’s biggest wind turbine manufacturer, reported a drop in demand that left it with 15% excess manufacturing capacity, while Wall Street analysts said 2009 would be a tough year for wind and solar supplying firms.
BT has also been buffeted by the markets: shares fell 7.8% to 97p – an all time low – last week after the group warned of further writedowns on its troubled corporate telecoms infra-structure division.
This is not just energy, this is M&S green energy
WHILE BT wavers on its green plans, Marks & Spencer is today announcing a multi-million-pound contract with Npower as part of its Plan A to be carbon neutral by 2012, writes Kate Walsh.
Under the six-year deal the energy supplier will provide M&S with 2.6TWh (terawatt-hour) of renewable electricity – enough to power all the retailer’s stores and offices – from April.
The deal in itself is worthy, but a caveat that stipulates that a quarter of the energy must come from small-scale generators makes it unique. In simple terms this means M&S is offering contracts to UK farmers to feed renewable energy into the grid, which it will then buy from Npower.
The retailer has already awarded five contracts to small farmers, and this has enabled them to get financing for building wind turbines, anaerobic digesters and small-scale hydro systems.
Grant Mackie, an Aberdeenshire grain and cattle farmer, won an M&S energy contract in 2006. He said: “A wind turbine costs about £1m upfront and unless you have a five-year contract the banks are not interested in providing the capital. The longest contract we could get before M&S was two years at a push. There was a disconnect, and M&S bridged that gap.”
Mackie now has three wind turbines on his 500-acre farm.
Richard Gillies at M&S said: “Mackie has wind blowing over his land, which we can use, but can still do what he likes at ground level, be that growing grain or rearing cattle.”