Timms says his proposals for the review show clearly that the Renewables Obligation is here to stay. "Confidence in the RO framework is a top priority for us and wherever we consider possible changes to the obligation during the review, maintaining confidence will be a key consideration," he says. "This is an excellent opportunity to assess with industry how well the RO is working two years on and to help provide the right business environment in which renewable energy can prosper."
The RO requires electricity suppliers to acquire a specified proportion of the electricity they sell to customers from renewable sources of energy. The proportion increases over time, starting at 3% when it was introduced in 2002/03 and rising to 15.4% in 2015/16. It currently stands at 4.9% for year 2004/05.
Timms' restrictions on the scope of the review follow strong lobbying by the renewable energy industry and its financial backers who have recently upped their demands for stability and longer term certainty under the RO market structure. The terms of reference spend more time stressing what the review will not cover as what it will include. It will not consider any proposals that would make projects currently receiving Renewables Obligation Certificates (ROCs) ineligible for RO support. And it will not reduce the price that suppliers have to pay to "buy out" of all or part of their obligation. The "buy out" price is an effective penalty for any shortfall in meeting the obligation.
The British Wind Energy Association (BWEA) welcomes the narrow terms of reference, saying the government has clearly listened to advice from the industry. In particular, it says, reassurances that the basic structure is to remain intact and no reductions made in the duration and level of the obligation, or the buy out price, are crucial.
"Investor confidence is key if the renewable technologies, and wind in particular, are to deliver on the targets that the government has set," says BWEA's Marcus Rand. "The announcement of the review last year had threatened to introduce uncertainty into the market while the mechanism was re-examined. However, the draft terms of reference have removed almost all of the downside risk of the review."