The Office of Rail Regulation has recently published its consultation for Periodic Review 2013: Consultation on a freight specific charge for biomass. The consultation can be found at: www.rail-reg.gov.uk/pr13/consultations/biomass.php
This follows ORR’s consultation results published on 11 January 2013 on a ‘conclusion on the average variable usage charge and a freight specific charge’, in which it implemented new charges for ESI (electricity supply industry) coal, spent nuclear fuel and iron ore transported by rail. That initial consultation was run in May 2012. FTA objected to the proposals that ORR now intends to press ahead with on the basis that they discriminate against sectors deemed captive to rail; are incorrect regarding coal as it can and will shift to road, and threaten the Scottish coal production industry and jobs so represent anti-Scottish discrimination by a UK regulator.
Now ORR wants to do the same with biomass, increasing freight track access charges for it because it is a ‘captive’ market!
Like almost everyone else connected with biomass power generation and associated with its supply chain, FTA is concerned that the proposed additional freight access charge for biomass runs counter to overall UK government energy policy in relation to biomass, and comes at a time when significant money and time have already been invested in the biomass supply chain and crucial decisions about investment in renewable energy are being taken. When responding to the consultation, FTA has asked that ORR considers the following points:
The UK government has openly encouraged the conversion of existing coal-fired power stations to run on biomass in order to help fulfil its renewable energy and carbon reduction ambitions while maintaining security of electricity supply. The ORR’s proposals run directly counter to government energy policies.
The ORR proposals could add between £0.50 and £1.50 per tonne to the price of biomass. This increase is a material change to the May 2012 consultation proposal and may have the effect of halting a number of biomass projects, endangering thousands of existing and potential jobs at power stations, rail companies, construction businesses and ports (though none of this worried ORR in relation to ESI coal).
In order to encourage multi-million pound investments in low carbon technologies, the government has established financial support arrangements through the Renewables Obligation (RO) and is finalising details of the new Feed-in Tariff with Contracts for Difference (CfD’s). This new rail charge for biomass has been proposed so late in the day that it has not been factored into the recent RO Banding Review nor into the strike price setting for the CfD’s and undermines the lengthy consultation process that the government has already concluded with the power industry on financial support for biomass. There needs to be a single coherent approach in relation to biomass.
Coal and biomass are not linked and so it is not appropriate to apply the charge to both commodities in the same way. Unlike coal, biomass power requires significant investment and support from the government and the private sector to allow the UK to achieve its mandatory green targets, and owing to the differing calorific value of the products, more biomass will need to be transported to produce the same amount of electricity as coal. This serves to penalise biomass compared to coal, benefiting coal-fired power stations and increasing the differential between the two fuels that other government departments are working hard to remove! Overall government strategy must be taken into account when considering whether and how this charge is implemented.
Those ports and power stations who intend to invest in biomass and the future of the energy industry have already spent significant time and money in choosing their logistics partners and in some cases have made early investments in plant and equipment. Any introduction of either the freight specific charge or the freight only line charge could fundamentally alter long-term investment plans and arrangements, as customers will need to reassess their chosen partners. There are similar impacts on rail freight operators, and equipment suppliers.
It is not clear from the consultation document how the ORR will calculate the proposed charges. Without this transparency, the industry cannot be clear that the charge is fair and reasonable. The ORR must make its methodology clear in advance of any decision being made. This includes the calculation of the proposed freight only line charge, which would be in addition to any freight specific charge.
The ORR can only levy an increased charge if the ‘market can bear it’ (as per the EU Directive on Access Charging). As the market for biomass generation already required support through the Renewables Obligation, it is unclear that this criterion can be met.
Such is the size of investment required in renewable energy that those in the biomass power generation and supply chain industry propose that charges should be removed from the biomass rail agenda for at least the next two five-year review periods (Control Periods). This would allow for investors to come forward to fulfil the government’s renewable energy plans. The introduction of this charge would only delay and jeopardise the fulfilment of these projects.
Please ORR, don’t make the same mistakes with biomass that you have with coal!
Chris MacRae is rail freight policy manager at the Freight Transport Association