UK Reviews Renewables Obligation Success

It’s a rough road to reach a diversified power grid, and the Renewables Obligation legislation in the United Kingdom has begun to show where some of the bumpier parts are. The UK’s National Audit Office released a recent report citing both the effort’s successes and shortcomings.

The Renewables Obligation (RO) was introduced in 2002 with the goals of: increasing the amount of energy generated from renewable energy sources to 10 percent of total supply by 2010, reducing carbon dioxide emissions, upgrading of the electricity transmission and distribution networks required to accommodate new renewable generation, maintaining investor confidence in the way the RO is working, and financial support provided through capital grants and the research and development program fullfil their respective objectives. The 2010 target only includes electricity generated from sources eligible for the RO. It therefore excludes electricity generated by large hydroelectricity power stations and some forms of energy from waste. Two years after the introduction of the RO, the level of electricity supplied from eligible renewable sources was 2.4 percent, a bit over half of the required quota of 4.3 percent. Project funding has proven challenging because it is more difficult to provide an even level of financial support for all eligible renewable energy projects than the UK Government anticipated. The Department of Trade and Industry (DTI) tried to ensure that economically viable projects received funding first, and the Government’s market intervention was kept to a minimum. Unfortunately, some projects, such as wind power and landfill gas recovery, received more funding from the RO than they actually needed. According to the department’s recent review, this issue will specifically be addressed with respect to future project development. Despite these growing pains, the department said it is on track to meet the 10 percent renewable energy target. Wholesale electricity prices would have to remain at or around recent increased levels, and the DTI’s responses to a series of challenges would have to prove effective. Sir John Bourn, head of the National Audit Office, said that pursuit of the target will result in costs for the consumer and taxpayer exceeding GBP 1 billion (US $1.88 billion) a year by the end of the decade, which would increase the price of electricity around 5 percent. The cost of reducing carbon dioxide emissions through the RO is higher than other policy mechanisms, Bourn said, which would use energy efficiency incentives. However, the Government has identified the need for a range of measures to reduce carbon dioxide emissions, including renewable energy, and it is unlikely that other policy tools such as a carbon dioxide tax would yield the targeted level of renewable generation in the timescale required, according to Bourn. To tackle climate change the Government is looking to reduce carbon dioxide emissions by some 60 percent from current levels by 2050. Given the scale of the reduction, the Government is implementing a variety of policy tools to combat emissions, including renewable energy programs. DTI has put in place a package of policies to encourage the development of different types of renewable energy, many of which would not be commercially viable without financial support. The core of the policy is the RO, which was designed to encourage greater electricity production from renewable sources by increasing the income renewable generators receive above and beyond the market price of electricity. The DTI has also made available capital grants to support offshore wind farms and bioenergy power stations. It also provides research and development grants for those technologies which are not yet commercially viable, such as wave and tidal projects. “The Renewables Obligation is increasing the level of renewable generation, and thus helping reduce carbon dioxide emissions, though at a price to the electricity consumer,” Bourn said. “The Department needs to keep track of the scheme’s progress in improving the commercial viability of renewable generation and ensure that consumers benefit from reductions in generation costs.” Main sources of renewable electricity generation that are eligible for the financial support provided by the RO are: – Hydroelectricity power stations with capacity less than 20 MW – Wind farms both onshore and offshore – Electricity generated from landfill gas and sewage gas – Electricity generated by burning energy crops and other natural waste – Until 2016, electricity generated from power plants which co-fire such material with coal.
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