Challenges Ahead for UK Renewable Energy Program

While the government has shown strong support for the RO program, the Department of Trade and Industry (DTI) recently released a consultation document that proposes keeping funding levels the same after 2015, which could make it difficult to meet future goals.

"The RO has been highly successful in bringing forward the cheapest renewables: onshore wind, landfill gas and biomass co-firing. The Government's plan to 'band' the RO could allow more technologies to share in this success, particularly offshore wind but this cannot be at the expense of onshore wind's current strong growth," said BWEA Chief Executive Maria McCaffery commenting on the reform proposals.

"Accommodating the more expensive technologies whilst trying to get to a 20% target in 2020 -- using the same amount of money as a 15% goal -- is like trying to extract a quart from a pint pot. It just doesn't add up," added McCaffery.

At present the Obligation rises to 15.4% of licensed electricity supplies in 2015, and is then stable until 2027, when the RO ends. Due to the design of the system, the money within it is dictated by the Obligation level and the buy-out price, the penalty that suppliers must pay for not meeting their requirements. The buy-out price rises with inflation, but now the government is proposing to freeze it in 2015, so it will decline in real terms thereafter.

Also, by introducing a banding system (providing differentiated support levels to different renewable technologies), the 20% would have to include capacity that is more expensive than would be brought forward by an unreformed system. Essentially, said BWEA, the government is attempting to get a third more renewable power with a mix that includes significant quantities of technologies -- that are not economic under the current system -- for the same amount of money.

Consequently, BWEA is calling for two specific actions: a reversal of Government's decision to break the link between the buy-out price and the Retail Price Index; and the abandonment of the proposal for 'net neutrality'.

The RO, which was introduced in 2002, is a market-based mechanism that requires electricity suppliers to source an increasing percentage of their electricity sales from eligible sources of renewable energy. The Energy Review that DTI published in July 2006 outlined plans to increase the RO to 20 percent.

According to the DTI, the proposed amendments to the RO will require new primary legislation and so will not be introduced until 2009 at the earliest. In addition to the longer term changes, there are a small number of more detailed proposed changes to the RO legislation that are scheduled to go into effect in April.