The obligation is the government's main tool for achieving its target of 10% of UK electricity from renewables by 2010. This will require a tripling of installed renewable capacity. Under the obligation, electricity retailers will need to buy up to 10% of their power from renewable sources or pay to buy out of their obligation. The "buy out" monies will then be recycled to compliant retailers.
The report analyses the value and potential revenue from the obligation up to 2010 and makes projections of the growth of renewable generation capacity. Comparing the projections against the proposed profile of the obligation shows a possible value for generators of up to £0.045/kWh, adding both the £0.03/kWh buy out price and the recycle value which is shared between generators and suppliers.
The report also evaluates the likely gains to a retailer of buying renewable obligation certificates (ROCs) from green generators rather than simply using the buy-out option. It shows that compliant suppliers should be able to reduce their costs through the recycling of buy-out funds. Green tariffs and the tax on business use of energy -- the Climate Change Levy -- will also result in smaller additional revenue to renewable generators.