ESRC SEMINAR

THE INTRODUCTION OF THE UK RENEWABLES OBLIGATION

University of Bath, 9 May 2008

Iain ToddRenewable Energy Consultant

Renewables Obligation

• Introduced in 2002• Main policy instrument for

renewables in the UK; treats all technologies equally

• Emerging technologies also to receive supplementary, variable support

• RO support forecast to rise to £1 billion per year by 2010

NFFO scheme

• Renewable energy companies bid for competitively-let, long-term contracts, to supply electricity at premium rates

• Mixed success• Costs of renewables fell during

1990s• But projects delayed due to

planning, technical and commercial reasons; certainly no market transformation

Objectives of RO (1)

• To transform the market, to transfer renewables into the mainstream from a peripheral position

• To compel energy suppliers to develop major renewable energy projects

• To provide long-term commitment in legislation (2027)

Objectives of RO (2)

• To use the power of the market to control costs

• To harness competition between energy suppliers

Objectives of RO (3)

• To assist energy security• To create economic

opportunities for domestic companies

• To promote innovation, to reduce unit costs

Technologies

• Several consultations• Exclusion of large hydro• Exclusion of incineration of

mixed waste• Inclusion of live NFFO sites• Buy-out price increased from

£20 per Mwh to £30

Early life issues (1)(2002-2004)

• Communication• Confidence, esp financial sector• Calls for more help from some

technologies• Calls for greater duration –

extension from 2010 to 2015• Extension of co-firing policy from

2011 to 2016

Early life issues (2)(2002-2004)

• TXU bankruptcy (£20m in first year)

• Differences between England/Wales and Scotland

• Introduction of Northern Ireland

• Headroom• Exit strategies

Effectiveness (1)

Effectiveness (2)

NAO report (2005)

• “It is unlikely that a policy tool focussed directly on reducing emissions across all sectors of the economy – such as a carbon dioxide tax – would have yielded the same level of renewable generation in this time.”

NAO report (2005)

• “The level of support provided by the RO is greater than necessary to ensure that most new onshore wind farms and large landfill gas projects are developed.”

NAO report (2005)

• “No criterion for reducing or withdrawing support from a particular technology.”

NAO report (2005)

• NAO consultants predict hitting 2010 target

• Report recommends consideration of banding

• Report recognises planning and grid as the key factors affecting the success of the policy

NAO report (2005)

• “Co-firing will not discourage the development of other non-biological sources of renewable generation”

• There is a confusing proliferation of support schemes – Carbon Trust, DTI Technology Programme, RDAs, now ETI …

RO v Feed-in

• Reward for generation of renewable electricity, per Mwh

• Could vary between technologies

• Could either be fixed sum, or vary with the market – ideal might be elements of both?

RO v Feed-in

• Pace of development in UK not set by RO v Feed-in

• Pace of development set by planning regime

• And in future possibly constrained by grid

RO v Feed-in

• Speculatively, non-variable rewards might favour more community-based schemes, which might move more quickly through the planning system

• But very speculative

Trading of certificates between countries

• Not the same as harmonisation of support schemes

• Investment would be drawn to the area of greatest economic efficiency

• Missed opportunity to reduce costs

Future development of RO

• Banding• Trading; eventual link to ETS?• Devolution (marine, island, EFW)• Fixed rewards for micro-

renewables ? If so, boundary?