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United Kingdom

Bother in Britain

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An extraordinary state of affairs has come to pass in Britain. Within days of one another, first the wind lobby put out its hand and asked for more money to be fed into the Renewables Obligation (RO), then the electricity market regulator issued a reasoned argument for why the RO was not only a waste of money, but should be replaced with a more effective and cheaper support mechanism (pages 27-28). The kick-off to the government's consultation on the future of the RO could hardly have been more dramatic.

As regular readers of this column will know, we have feared a revolt against the excesses of the RO for some time, burdened as it was with a fundamental flaw at birth. Creating a system devised to rake in penalties from electricity suppliers failing to meet their green power obligations, in the misbegotten belief this would control costs, was bad enough. But the decision to redistribute those "buy-out" penalties to those who were meeting their obligations, in whole or part, landed the country with a fixed price support mechanism in all but name-and made impotent the competitive element of green credit trade that would have driven prices down. Worse still, under the current RO structure, the cost to the consumer remains the same whether a large volume of renewables is built, a small volume, or none at all. The consumer is paying for renewables capacity that is not there.

This lack of value for money is a point that energy regulator Ofgem is making much of. It wants the RO scrapped and replaced with auctions of power purchase contracts, a system similar to the former Non Fossil Fuel Obligation, which, unlike the RO, failed to foster consistent wind development. The British Wind Energy Association (BWEA) is right to disagree with Ofgem. Such dramatic change is at high risk of stopping a thriving market in its tracks. What's more, it would put the wind industry back on a political knife edge, uncertain from auction to auction what would happen next.

The BWEA is wrong, however, to ask for more money. As we've said before, the RO is awash with it: wind prices in Britain are among the highest in the world. It is not shortage of money that is the problem, but putting that money to work effectively. Three years ago, a package of fixes for the RO was designed by a group of free-thinkers, with backroom Treasury assistance. If it had been implemented, the industry would have the long term power purchase agreements it needs, lowering market risk and thus cutting prices. But after a single public hearing (Windpower Monthly, December 2003) the idea sank without trace. Perhaps the Treasury needs to be officially involved this time.

Fear of rocking the RO boat was the reason given in late 2003 for not entertaining any thought of amending the legislation. But amending the RO with a sensible series of fixes that allow market forces to come into play and keep prices down would be a lot less disruptive than Ofgem's idea of ditching it and introducing an entirely new support system. The regulator has forced open the debate. The BWEA could do worse than seize the initiative and propose a series of amendments to the RO to allow it to work as the powerful market mechanism it was always intended to be.

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