MARINE SUPPLY OBLIGATION
PROPOSALS FOR SETTING MSO LEVELS
Introduction
1. Following consultation throughout the course of 2006, the Marine Supply Obligation (MSO) was introduced as part of the Renewables Obligation (Scotland) Order 2007 (the ROS). The MSO is a mechanism which requires suppliers with an obligation under the ROS to meet a proportion of that obligation by producing as evidence ROCs awarded to eligible wave or tidal generation in Scottish waters, or by paying a higher buy-out price. The Scottish Executive sees the MSO as providing a clear, long term market and incentive to invest in first generation commercial wave and tidal arrays around Scotland.
2. During our consultation process last year our intention that the MSO levels would need to be set very carefully was made clear. We will NOT set a level above zero unless there is going to be eligible capacity commissioned and connected in the coming year that would trigger the setting of a target that suppliers could then meet (using ROCs awarded to the capacity in question). This is based on the fact that the MSO can potentially increase the cost of the Obligation to consumers, as suppliers pass through the higher compliance costs.
3. Although the ROS Order 2007 contains MSO levels from 2008/9 onwards (the 2007/8 level is set at zero), these are illustrative and based on linear progress towards the proposed 75 MW ceiling. It remains our intention that the precise MSO level for each subsequent period is to be decided and set on an annual basis.
4. Our consultation paper proposed a transparent, annual process which took as its basis a review of actual and planned activity in the sector in order to calculate capacity forecasts and likely eligible output for the coming Obligation period. Our view was that this process would need to be based on the best possible information, and that a number of boxes might need to be ticked before a marine generating station and its capacity could be considered "viable" in terms of amending the coming period's MSO level. Once agreed, that process, to be repeated annually, would culminate in the laying of an amended Order setting the new and duly arrived at MSO level.
Consultation Responses
5. All respondents to the consultation agreed that the robustness of the process was of vital importance, and that this would require the participation of a number of stakeholders. For clarity, the main points raised by consultees were as follows:
- Panel needs to be assembled, comprising representatives from some / all of the following groups - developers, suppliers, financial / investment, engineering and environmental;
- Process needs to be fully transparent, rule based and capable of audit;
- Need to ensure that incentives to overestimate output are minimised;
- Need to examine whether factors such as risk of technical failure could be taken into account in setting levels;
- Outages (both planned and forecast) need to form part of calculation;
- Need to consider full range of factors that might influence output from eligible stations;
- Need for the technology / device in question to be considered "competent" and in possession of relevant certification; and
- Need to consider deadline by which potential capacity needs to be agreed and signed off as viable.
6. Across the range of responses on the subject, the following requirements emerged as potentially requiring to be confirmed or in place before a project's capacity could be considered viable:
- All necessary consents (including site lease);
- Signed grid offer for the project;
- Award of contracts for manufacture / decommissioning; and
- Certainty that delivery and commissioning timelines will be met.
7. The amended ROS containing the MSO provisions came into effect from April 2007. Since then, we have been considering in more detail with stakeholders the process for setting MSO levels going forward. As well as dialogue on a one to one basis, this process has also included a wider stakeholder meeting at our offices in Glasgow. We have used these discussions and the subsequent feedback as the basis for drawing up and circulating this summary document and final proposal.
Setting MSO Levels - Proposal
8. All applications for consent to develop eligible wave or tidal capacity will come to the Scottish Executive, and be a matter of public record (remembering that capacity supported under the relevant Scottish Executive or DTI grant schemes does not qualify for inclusion in the MSO). We will publish and maintain on our website a record of the amount of any eligible capacity seeking consent at any given time. Such a statement will not in itself guarantee that the capacity in question will be taken into account in calculating the MSO level for a particular forthcoming period (see next paragraph), but it will provide a valuable early steer for the market as to the projects and capacity that are in the planning process.
9. In order for a wave or tidal station have its capacity form part of the MSO level setting process, the developer will need to submit a project plan. The project plan should comprise the following:
- Confirmation that all necessary consents and licenses have been secured;
- Confirmation that a site lease has been agreed with the Crown Estate;
- Confirmation that all major manufacturing and component supply chain contracts have been signed;
- Confirmation that a grid connection offer has been agreed and signed; and
- a short summary of the project, containing details of the proposed location, number of devices and installed capacity.
Submission of the above in relation to a particular project will lead to that project's capacity being considered eligible for inclusion in the calculation to set the MSO level for the forthcoming period.
10. Once the total eligible capacity has been established, it will be used as the basis for the calculation to set the MSO level for the forthcoming Obligation period. The process for translating eligible capacity into likely output has been designed to balance simplicity and transparency with a desire to match the likely reality as closely as possible. Stakeholders should also bear in mind that there are safeguards in place to protect suppliers and consumers in the event that the quantity of eligible ROCs turns out to be far fewer than forecast (see paragraph 14).
11. The MSO level based upon the first tranche of eligible capacity will be calculated using the following assumptions:
- 6 months of operation;
- a capacity factor of 30%; and
- an availability factor of 70%.
For example, a 10 MW wave array, assumed to commission 6 months into the forthcoming Obligation period, with a projected capacity factor of 30% and which was available for 70% of its operating time, would result in a projected maximum output of 9.2 GWh; this would then be raised to 12 GWh by the application of headroom. Based on an overall Obligation size of 1,800 GWh, this would translate to a minimum wave requirement of 0.67%.
12. The calculation for subsequent periods will need to take into account not just new capacity coming forward (and to which the above criteria and methodology would apply) but also the performance of existing capacity during the previous period. For this purpose, the Executive will appoint a small panel to consider, agree and advise on suitable levels. We intend that the panel when required should comprise representation from the renewables sector (covering developers' interests), a supplier representative and an expert from a relevant academic / engineering background. The panel would be called to meet in late August / early September. Nominations / expressions of interest are welcomed.
13. Because output from the first schemes will not be known until into the second period of operation, any adjustments considered and recommended by the panel will be two years in arrears of the MSO level being introduced. However, there are measures either in place or which can be introduced to mitigate any shortfall in output against MSO levels.
14. The Obligation already safeguards against deadweight costs by allowing for the return of MSO buy-out payments to suppliers in the event that no eligible SROCs are redeemed. We also expect to consult later this year on the introduction of a cap on MSO recycle values, to protect against situations where output falls far short of expectations. Further details on this proposal will follow.
Timetable
15. The following timetable and deadlines will apply:
- By 31 July - statement published on Scottish Executive website concerning current applications.
- By 31 August - project plans submitted and details published on Scottish Executive website.
- Sept - Dec - statutory consultation on amended Obligation levels (plus any other amendments) to take place.
- January - amended Order laid before Parliament.
- 1 April - revised Order comes into effect (subject to Parliamentary agreement).
17. Any questions regarding this process should be directed to:
Neal D Rafferty
Renewables Policy Manager
Scottish Executive
2nd Floor
Meridian Court
5 Cadogan Street
GLASGOW
G2 6AT
Telephone: 0141-242-5894
Email: Neal.Rafferty@scotland.gsi.gov.uk