United Kingdom

United Kingdom

Britain sets scene for major market -- Renewables obligation details

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The UK government has launched its final stage of consultation for the country's new policy measure that is expected to create a market for electricity from renewable sources worth over £1 billion by 2010. The Renewables Obligation -- due to take effect from January 1, 2002 -- requires electricity suppliers to contract for an increasing proportion of their sales from renewables. Suppliers' obligations will begin at 3% in the first period to the end of March 2003, and then rise annually up to 10.4% in 2010. This will remain the minimum level until 2027, but could well increase to meet more ambitious targets beyond 2010.

Trade and industry secretary Patricia Hewitt says she was encouraged by the positive reception to the government's preliminary proposals. "I detect a real sense of renewable energy shifting up a gear, making the transition from the fringes of the environmental scene into the heart of the energy and sustainable development policy."

Renewable energy sources included in the obligation are onshore and offshore wind, hydro (except existing plant over 20 MW), wave, tidal, solar, geothermal, and biofuels (including landfill gas, sewage gas, agricultural and forestry residues and energy crops). After objections to the government's initial proposals to exclude waste incineration, it has decided to allow energy from biodegradable waste. But incineration is still out for mixed waste; only new "cleaner technologies" such as pyrolysis and gasification are to be allowed.

Trading and banking

Suppliers will comply with the obligation by buying renewable obligation certificates -- known as ROCs -- issued in units of 1 MWh. ROCs may be bought from renewable generators, or from third parties since they can be traded independently of the electricity. Suppliers who fail to buy enough ROCs will be able to "buy out" part or all of their obligation by paying a fee to the state. The buy-out price will be set at £30/MWh and linked to the retail price index. Money raised from buy-outs will be recycled and shared among suppliers complying with the obligation.

Up to 25% of certificates surplus to requirements in one period may be "banked" for use in the next. But the government has dropped its plans to allow suppliers to borrow certificates after concerns that this could lead to manipulation of the ROCs market.

Only renewables in the UK or UK territorial waters are eligible for the obligation, allaying fears that overseas generators -- particularly Electricité de France -- could flood the green certificate market with cheap hydro power, which is able to be traded in the UK via the England-France interconnector.

Scotland will have identical arrangements to England and Wales under the Renewables Obligation (Scotland), or ROS. Renewables already supply 12% of electricity north of the border. The Scottish Executive hopes to increase this to 18% by 2010 under the ROS.

The obligations are expected to save around 2.5 million tonnes of carbon a year at a financial annual cost of £779 million in 2010, but could create an additional 10,000 to 45,000 jobs in the UK renewables sector. The statutory consultation on the obligation closes in October. Meantime, the proposed legislation is with the European Commission, which must decide whether or not it complies with EU rules governing "state aid" paid by government to any industry. The British government and Scottish Executive hope to steer the legislation through parliament in time for a January start.

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