Launching the consultation paper by the Department of Trade and Industry (DTI), energy minister John Battle claimed it shows that 10% from renewables is feasible. The government, he said, intends working towards the target, cost effectively, as soon as possible. "However, this should not be seen as an end in itself, but a step forward on the road to making renewables a strong, world-beating industry." Battle also announced a boost for research and development to £43.5 million over the next three years (box page 46).
Last month's renewed commitment would appear to squash industry fears that the government was about to backtrack on its manifesto promise of a strong drive for renewables. Nonetheless environmental groups criticise the delay in establishing clear policies. Friends of the Earth (FoE) puts most of the blame at the Treasury's door. It claims the delays reflect disagreements between the Treasury and DTI over the cost of supporting renewables-even though renewables are becoming increasingly competitive with fossil fuels. "The renewables industry can't afford to wait for the inter-departmental arguing to stop. It needs new policy measures in place now," says FoE's Anna Stanford. Greenpeace labels the document a "ditherers' charter." Peter Melchett from Greenpeace says: "Despite the fact that the UK can provide its electricity from renewable energy many times over, the government is still quibbling about how to get to 10%."
The glossy 70 page consultation paper shows the UK is already on track to generate 5% of its electricity from renewables by 2003. Moreover, by 2010, the 10% target could be met at a cost of around £0.035/kWh, while in the long run renewables can compete with other forms of generation with no need for a subsidy. Resource studies show that by 2025, renewables could meet about half of current UK electricity consumption at costs of up to £0.03/kWh.
The need for reform
But against the background of changes to UK energy markets and new policy developments, meeting the target demands reform of the current program of support-the Non-Fossil Fuel Obligation (NFFO). NFFO has played a major part in bringing down the cost of renewables and stimulating an industry of some 700 organisations, claims Battle. "This is why the government want to see how NFFO can evolve, to see how it can help the industry to thrive even more," he says. "The review document therefore presents options for possible ways to support renewables while they are reaching market prices. It looks at both the costs and benefits of moving towards a greater use of renewables. In particular, it looks at options for a revised NFFO in the competitive energy markets of the future."
Indeed, NFFO-or a successor renewables support mechanism-will be operating under very different conditions in the future. By next month liberalisation of UK electricity supply will be complete as the final sectors of the domestic market are opened to competition. This means that those public electricity suppliers-previously known as regional electricity companies (RECs)-who at present are obliged to buy NFFO electricity will see the end of their monopoly supply franchises. In addition, their supply and distribution businesses are to be separated under proposed legislation, leaving the supply businesses fully competitive while distribution remains a monopoly activity. The electricity pool is also set to disappear, to be replaced by a new set of wholesale electricity trading arrangements. Therefore, expecting the former RECs to continue to bear the sole obligation would cause distortions of the market.
Placing the obligation
The consultation paper considers where, under these new conditions, the obligation to buy renewable electricity should be placed. The two main options are either on electricity distribution companies or on all suppliers-with or without allowing them to meet their obligations by trading renewable energy credits among themselves. The DTI also seeks views on the nature of the obligation, whether it should be in terms of capacity or electricity supply, whether it should focus on particular technologies, and how it should be funded, through a levy on ratepayers as at present or through an auction.
The new Electricity Act to regulate utilities will allow for a new mechanism for stimulating renewables to replace NFFO. The DTI proposes a broad enabling clause, with the detailed workings set through secondary legislation. This provides flexibility to allow the mechanism to be updated as the market develops. Continued support for existing NFFO contracts will be provided for under a transitional arrangement, although the details of the arrangement will not be known until the DTI decides on the nature of its replacement for NFFO.
The paper also identifies non-technical barriers to the wider uptake of renewables. The discrimination against distributed generation "embedded" in electricity networks should end, says the DTI, allowing for the benefits and disadvantages of embedded generation to be fully recognised in the market price. Proposed changes to distributors' licences could secure a fairer price for embedded generators, allowing them to compete on a level playing field.
Comments are invited on planning and development, particularly in the case of wind where a high failure rate of planning applications remains a sever threat to the government's target. The DTI and the Department of Environment, Transport and the Regions are reviewing how the planning system balances the local impacts and the global environmental benefits of renewables. This review will examine what practical steps can be taken to bring the local planning system into line with government renewables policy. The paper also proposes greater availability of information to increase public familiarity with renewables and to make consumers aware they can buy green power.
The British Wind Energy Association (BWEA) extends a broad welcome to the DTI's paper. Some of its contents could be very helpful, says Gaynor Hartnell, advisor to BWEA. In particular, she says the government's intention to require distribution companies-through legislation or licence conditions-to reward fairly and encourage embedded generation. She also welcomes the DTI's recognition of the threat to renewables posed by the proposed new electricity trading arrangements for England and Wales, which favour conventional plant with a flexible and predictable output. In its document the DTI states: "Inflexible and unpredictable plant are likely to fare relatively less well. Any obligation would need to recognise the additional risks this brings to certain types of renewable generation, especially wind." Hartnell points out that this issue could determine the cost of meeting the government's 10% target. "If the future trading arrangements disadvantage small players it will mean that any renewables policy will end up being more expensive," she warns. "If there is to be joined up government thinking, they will get the trading arrangements right in the first place."
The DTI's deadline for views on the issues raised in the document is May 28.