According to the consultancy Cambridge Econometrics, the UK will not meet its target of obtaining 10% of electricity from renewables until 2015 - by 2010 it might only make 8%. This, it argued, was principally because of NETA, the New Electricity Trading Arrangements. 

A recent briefing on the first three months of NETA, organised by the Combined Heat and Power Association (CHPA) certainly suggested that the system did not seem to be working very well. Indeed it seems to be even worse than the pool system it replaced. Chris Pym from EERU reports. 

The meeting was led by the member of NETA’s Balancing & Settlement Code Panel, who was appointed from the renewables and CHP sector. This panel proposes modifications to the Code. OFGEM decides whether or not to accept modifications. It certainly sounds like it should! 

NETA is byzantine in its complexity. But already emerging from this complexity are significant failures which are an embarrassment both to OFGEM and the DTI: 

* NETA was supposed to stop pool price manipulation by the big players, but price manipulation is now bad or worse than before; 

* prices were supposed reduce under NETA, but they are higher; 

* NETA is bad for small generators (e.g. renewables and CHP); 

* the market is not stable, hence little stability for investment. 

Some of the problems are just administrative- but none the less significant. If the buying and selling accounts of big players go out of balance, they are in effect fined, and the fines go into a slush fund for distribution to the players whose accounts are in balance. But NETA’s balance validation system has on occasions gone awry so that the plus and minus signs on Scottish Power’s buying and selling accounts were transposed by mistake. This meant that Scottish Power incurred a fine of about £10m. Other companies also had problems. 

Overall, the spread between the buying and selling prices is considered unacceptably wide and too volatile. Sometimes the selling price is actually negative, so that generators have to pay to offload their surpluses. But the big issue is that the big players appear to be able to manipulate the market by holding substantial power balances themselves. That of course is what happened so disastrously in California and it was price speculation using this sort of device that NETA was meant to avoid. But the companies have put huge resources into preparing for NETA, so as to be able to play the market to their advantage right from the start e.g. Powergen employed 200 people preparing for NETA, and holds 500 - 1000MW in reserve. 

The main problem for small renewable and CHP generators is that the anticipated pluses of the Renewables Obligation and the Climate Change Levy are outweighed by the financial disadvantages of NETA. A spot survey by CREA showed that time-expired NFFO projects were expecting a 40% drop in income because of NETA. The high price of gas also means that power from CHP projects is expensive and big players may refuse to buy it. In addition, capital investment in renewables projects is harder to come by than before since banks can see that renewables are losers under NETA. 
Chris Pym 

Clearly NETA needs to be reviewed. As we mentioned in Renew 133, in their new report for the Fabian Society Gareth Thomas MP and Stewart Boyle called for renewables and CHP to be in effect taken out of NETA - by giving their output a ‘must use’ status in the market. At the very least there needs to be a modification to the Balancing & Settlement Code which would be more favourable to renewables and CHP. 

So far the DTI and OFGEM have mainly just suggested that renewable generators band together to balance out risks from their intermittent supplies. So far none have- after all it flies in the face of the core NETA idea of competition. The OFGEM regulator, Callum Macarthy, has argued that ‘if the government wants to have 10% renewables by 2010.. they have to take countervailing action.. we shouldn’t distort the system away from efficient solutions just to boost renewables’. (FT Power UK, Feb. 2001). But, at the PRASEG conference in July, Minister Michael Meacher agreed that there was “a real problem with NETA for small companies. We have got to persuade Ofgem that they have got to be safeguarded.” 

Subsequently OFGEM reported that output from renewable generators fell by up to 14%, due it seems to NETA, and RPA, the new Renewable Power Association has gone on the offensive calling for action to rescue the situation. See www, renewablepowerassociation.org More in Renew 135 

With NETA in mind, at the recent PRASEG conference, the National Grid company recommended small renewable generators to aggregate themselves into agencies, possible via their local distribution network operators. In this way renewables might have access both to local distribution and to grid transmission. 
The NG Co. will publish practical grid connection guidelines soon.