United Kingdom

United Kingdom

Two tier support policy for a competitive market

A two part policy proposal for support of renewable energy in the UK has won the backing of the British Wind Energy Association. The proposal involves a percentage obligation on power suppliers to buy a fixed proportion of renewables, backed by trade in green energy certificates coupled with a long-term contract mechanism. It is the degree of complexity in the report that some people believe renders it unlikely to be considered seriously.

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A complicated two-part policy proposal for future support of renewables in the UK-involving a percentage obligation on suppliers backed by trade in renewable certificates coupled with a long term contract mechanism-has won the backing of the British Wind Energy Association (BWEA). In its response to the government's consultation on the future of renewable energy and how to meet its target of 10% from renewables by 2010, the BWEA throws its weight behind the proposals put forward by the Green Alliance, an environmental policy group.

In its report "new policies for renewable energy" the Green Alliance sets out a blueprint for a growth market for renewables, together with support for less mature technologies which cannot yet compete on price. The report stems from a consensus building exercise funded by the BWEA and Energy for Sustainable Development Ltd, with additional funding from the Energy from Waste Association. It also has support from Friends of the Earth, Greenpeace, WWF-UK, and British Biogen.

Behind the scenes, however, the proposals have not found favour with some BWEA members who label them as "unrealistic," "too complicated" and even "naive." They believe the BWEA should have formulated its own policy proposals for the government's renewables consultation, instead of throwing its lot in with the alliance. Few of the dissenters, however, are prepared to publicly disassociate themselves from the official BWEA submission. Indeed, the Green Alliance's preference for a percentage obligation on suppliers with trade in green certificates is shared by a number of organisations. It is the degree of complexity in the detail of its 38 page report that some people believe renders the proposal unlikely to be considered seriously by civil servants. "It shows a lack of understanding of how commerce works and how government works," comments one disgruntled BWEA member.

Obligations and penalties

The Green Alliance's proposal does not fit neatly into one of the options outlined in the Department of Trade and Industry's consultation paper, but is a hybrid of more than one. It calls for an obligation on all electricity suppliers to buy a percentage of their electricity from renewable sources, increasing year by year. Suppliers would meet their targets either by buying renewable certificates on the open market, by contracting direct with renewable generators or by contracting with renewable energy brokers. Financial penalties would be imposed on suppliers who fail to meet their targets, and a cost cap on the price of renewable certificates would ensure that meeting the targets would not incur excessive costs which, inevitably, would otherwise be passed on to the consumer.

Suppliers who are unable to buy renewable electricity could be given the option of buying "proxy" renewable certificates at the same price as the cost cap. Funds raised from the sale of proxy certificates and from financial penalties for non compliance would be reinvested in the market by the purchase of renewable certificates.

The percentage obligation gives a long term framework of support to help the industry plan ahead and invest to reduce costs further. It also allows renewable generators to move away from dependency on NFFO-type support, claims the Green Alliance. Renewable electricity bought by suppliers to meet their percentage obligation should not be sold on to domestic customers under green tariff pricing arrangements.

Long term support

Whereas the percentage obligation will favour the more competitive renewable technologies, the other key element of the Green Alliance's proposal is a long term contract mechanism to provide support for less mature technologies. It would incorporate many features of the current Non-Fossil Fuel Obligation (NFFO), which it would replace. Contracts would be awarded to renewable generators in a competitive bidding system, with projects competing against others in the same technology "band." A special band should also be reserved for supporting "community" projects, says the alliance. Unlike NFFO, however, competitions would take place every six or twelve months to reduce uncertainty. The contracts would be between renewable generators and a new agency which would evolve from the current Non-Fossil Purchasing Agency. This new agency would be owned equally by all suppliers.

Certificates system

The Green Alliance's suggestion for funding the long term contract mechanism is complex. Instead of a levy on all electricity consumers, the system used to fund NFFO contracts, it envisages the contracted electricity being sold on the open market by the agency for the best price it can get. The shortfall between the price it commands on the open market and the price paid to renewable generators would be converted into renewable certificates which would then be divided among all suppliers on the basis of their market share. These certificates would include the cost of running the agency and could count towards suppliers' percentage obligations.

A system of renewable certificate trading should form an integral part of any new renewables support policy in the UK, says the alliance. Moreover, it should be compatible with green certificates schemes being developed in Europe and thus able to work across borders.

In its report, the Green Alliance says wind energy is threatened by policy emerging as a result of the UK's Review of Electricity Trading Arrangements (RETA). The suggested market framework, it says, would make balancing wind and other intermittent supply expensive and make it difficult for wind to compete in a market for renewables created by the percentage mechanism. Moreover, the trading arrangements would affect the price that the new agency could obtain for wind power contracts under the long term mechanism.

RETA fears

The BWEA's response also highlights its "deep and profound reservations" about RETA. Despite government assurances, it does not detect any concrete evidence of promised moves to accommodate renewables within the planned new trading arrangements framework. "Integrating renewables, and in particular the intermittent sources, will not be achieved without positive intervention," warns the BWEA. The system of trading arrangements must be designed around a growing renewables supply, it adds.

Turning to the vexed issue of British planning law and the barrier it presents to wind development, the BWEA warns that meeting the 10% target on renewables will not be possible without decisive government action to reform the permit process. It calls for a regional dimension to government policy, with regional targets for renewable capacity depending on the area's demand and resource. The association also recommends a government program to inform the public on the need for sustainable development and renewable energy.

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