Non-Fossil Fuel Obligation

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The Non-Fossil Fuel Obligation (NFFO) refers to a collection of orders requiring the electricity Distribution Network Operators in the England and Wales to purchase electricity from the nuclear power and renewable energy sectors. Similar mechanisms operate in Scotland (the Scottish Renewable Orders under the Scottish Renewables Obligation) and Northern Ireland (the Northern Ireland Non-Fossil Fuel Obligation).

As of September 2006, five orders have been made to date, the first on October 1 1990 at an average price of 7.51 pence per kWh, and the last in September 1998 at an average of 2.71 pence per kKh [1]. Although the Renewables Obligation is now the Government’s main mechanism for expanding the renewables sector, the last of the existing orders will continue in effect until it expires in 2018.[2]

1 Background
2 Funding
3 See also
4 External links

[edit] Background

The Non-Fossil Fuel Obligation was put in place under the powers of the Electricity Act 1989, under which electricity generation in the UK was privatised. The original intention was to provide financial support to the UK nuclear power generators, which continued to be state owned. The proposals were enlarged in scope to include the renewable energy sector.

[edit] Funding

Funding for the NFFO was originally generated by the Fossil Fuel Levy, a levy placed on all electricity consumption in the UK. This was collected by Ofgem who paid it to the Non-Fossil Purchasing Agency [3], a body created by the Public Electricity Suppliers to purchase on their behalf.

Since the introduction in 2001 of the New Electricity Trading Arrangements, the Distribution Network Operators bid for the electricity in competitive auctions held by the Non-Fossil Purchasing Agency, with any shortfall in price being funded by the Levy. As a result of these arrangements, the Non-Fossil Fuel Obligation has been generating a trading surplus, expected to have reached £500m by 2008. The Government have been criticised for siphoning off funds from this surplus to contribute to the exchequer, instead of using it to support renewable energy in other ways [4].