'Renewables Obligation' - the most ironic policy

Recently, the government announcement of the retraction of certain ‘green taxes’ to ‘save consumers money’ has shed light on the confusing nature of the UK’s energy policy with various renewables incentives. Therefore I will do a quick breakdown of the main incentives to increase renewable energy production in the UK (although, it’s set to change, again, in spring 2014).

• Renewables Obligation (RO)
• Energy Companies Obligation (ECO)
• Renewable Heat Incentive (RHI)
• Feed In Tariffs (FITs)
• Green Deal

ECO: Comprises three aims; 1) Carbon Emissions Reduction Obligation – helping homes which are harder to retrofit and less able to be funded through the Green Deal, 2) Community Obligation – providing insulation measures for lower income areas, and 3) Home Heating Cost Reduction Obligation – companies must provide measures for low income and vulnerable households which lead to savings.

RHI: This is an incentive for the non-domestic sector and essentially provides a subsidy for renewable heat generators for up to 20 years. In spring 2014, this programme will be extended to encourage domestic renewable heat generation (Ofgem, 2013).

RO: This is meant to encourage large scale RE development. It targets electricity suppliers and requires them to acquire a certain percentage of their power from renewable sources, and the value is set annually and increases per year. Renewable Obligation Certificates are allocated and can be traded and generated, and are shown to the regulator Ofgem to show their renewable capacity. However, in a similar fashion to carbon pricing, these ROCs are criticized for being sold too cheaply, at about £46 per ROC. Market controls are imposed in a way to make sure that a surplus and therefore devaluation of ROCs occur. This is done by creating ‘headroom’ - a margin between supply of ROCs and the level of obligation (demand), which creates the much needed certainty regarding market demand.

FITs: these financial incentives are aimed at small scale generation (PV, wind, hydro, micro-CHP or anaerobic digestion), and the energy generated from these systems is sold back to the grid with a ‘generation tariff’ as a bonus for using these sources (DECC, 2013).

Green Deal: Aimed at households whose houses are suitable for retrofitting technology or certain micro RE such as solar panels. A loan is granted to the household by the Green Deal for a part (or all) of the cost, which is paid back at an interest rate of 7.5%/year. The calculations must work out that the repayments must not exceed the projected savings, therefore it is seen in theory as ‘no-regrets’ policy (a theory championed by the previous Australian government (Bulkeley, 2001)). The Green Deal can be combined with the FIT initiative and the energy generated can be sold back to the grid at times when it is not required.

These policies have come under much criticism due to the variation in claims of uptake, general mistrust of both the government, and more recently the energy companies themselves. The UK’s electricity and energy system is unusual, as having some of the most expensive energy in the world, and yet this electricity is still well below the entry price, which doesn't encourage investment. The Electricity Market Reform is looking to, well, reform the system to accommodate renewables, as the market depends on the balance between supply and demand, whereas renewables are seen to provide a less reliable supply, therefore unsettling the market (Helm, 2002).

Much to reiterate my previous post, this further exemplifies the need for policy consistency and a removal for political short-termism, as this will encourage greater uptake and investment in renewables in the UK. I think this is why supra-national agreements are required, because then the legislation is less easily changed with the changing of national parliament if there is an overarching policy which the country, not the government, has agreed to.