The UK government’s proposals to band the Renewables Obligation have again stirred industry debate.
The UK government signaled early this year that it would put forward proposals to band the Renewables Obligation, thereby effectively selecting winners and losers from an array of renewable technologies and awarding them differentiated renewable obligation certificates. As energy suppliers and generators await the banding outcome, debate as to the most viable and practicable approach rages.
‘Content Currently, the Renewables Obligation (RO) places an obligation on all electricity suppliers to source a specific proportion of their electricity supplies from renewable energy sources or contribute to a ‘buyout’ fund. Eligible renewable generators receive renewable obligation certificates (ROCs) for each MWh of electricity generated. These certificates can then be sold to suppliers, to fulfill their obligation.
Suppliers can either present sufficient certificates to cover the required percentage of their output, or they can pay a ‘buyout’ price of GBP31.59/MWh for any shortfall. The proceeds from buyout payments are returned to suppliers in proportion to the number of ROCs they present.
ROCs have significantly increased the profitability of renewable energy generation as the certificates can sell for more than the power. The RO applies to eligible renewables, without the special ‘technology bands’ that existed in the Non Fossil Fuel Obligation (NFFO), which provided extra funding for selected newly emerging technologies. This shortfall has been addressed by R&D grant aid.
The alternative banded ROC approach would see embryonic forms of energy – perhaps marine and solar – receiving more ROCs per MWh than more mature and economically viable forms such as onshore wind. Existing plants would retain their ROCs while new plant post 2009-10 would be awarded the differentiated rates. The potential differential between mature and embryonic ROCs technologies has yet to be elaborated upon, and substantial grant aid prior to commercial exploitation would still remain in place.
The RO has not delivered for any renewable technologies apart from onshore wind. It must now be seen as a tried, tested and failed market mechanism to drive politically motivated renewable targets. With an increased target of 20% of all electricity to come from renewable sources by 2020, tweaking this failed market mechanism is highly unlikely to deliver the targets. Rather, if it is all about the targets, shouldn’t the government abandon its wedlock to the market and pursue a continental approach with guaranteed long-term feed-in tariffs to be sure that it hits its targets?
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