The UK Renewable Energy Policy Experience: Failure to Learn or Political Intransigence?

Dr. Peter Connor

May 9th 2008

UK RE Policy History Focus on market based instruments.

Policy focussed on least cost deployment

with a firm belief that competition could

achieve this.

Little focus on establishing industry,

amassing knowledge capital or other RE

goals.

UK RE Policy History

R&D

Grants

NFFO

Renewables Obligation

Policy Options not Adopted in the UK

Tariff mechanisms

Soft loans

Use obligations

Some General Conclusions on Sound RE Policy

Powerful

Persistent

Predictable

Need to create stable and

transparent market conditions.

Failure to do means higher costs

Problems with the RO Does not address R&D Provision

Lack of security/stability in the RE Market

drives up the cost of capital and thus project and

generation costs.

Regulatory risk relating to ongoing changes in

the RO. Changes – and even potential changes

– to the RO can reduce stability and impact on

the economics of RE generators significantly.

Problems with the RO

Limited availability of finance

Currently focuses support on the most mature

technologies, thus the RO is struggling to drive

technologies seen as essential to meeting UK

RE targets, i.e. offshore wind and biomass

Installation lags targets as a fundamental

aspect of the mechanism.

Problems with the RO

It costs more than the alternatives.

Evidence that tariff mechanism delivers

electricity more cheaply.

EEG (German tariff): 2.6p/kWh. RO : 3.2p/kWh

This seems to be at odds with one fundamental

justification for the RO, that competition would

make it the cheapest way to get RE.

Source: DEFRA/BERR/Ernst & Young

Learning Opportunities

Various reviews of the RO,

including the major one currently

under way.

Considerable feedback from

various actors over extended period.

Lessons learned?

Where next?

The ongoing development of the RO

Banding?

The Renewables Transport Fuel Obligation

A Renewables Heat Obligation?

Renewables Transport Fuel Obligation

Similar form of mechanism to the RO

Rapid introduction to meet EU targets

Sufficient consideration of

practicalities?

Renewable Heat Obligation

Currently under consideration by the

Government.

Similar form of mechanism to the RO.

Evidence suggests that a heat

obligation will mean higher unit costs

than a tariff mechanism.

Renewable Heat Obligation

Justified on the grounds of ‘cultural

compatibility’?

Seems to be at odds with the

fundamental aims of adopting a market

based mechanism, i.e. to minimise costs.

More complex than the RO and more

expensive to operate.

Renewable Heat Obligation

Would appear to be less grounds for

an obligation for heat than electricity.

So why are the Government so keen

on this as an option?

What does this imply for future of

renewable support in the UK?

Obligations

Why does the government persevere

with this type of mechanism?

Staying on message?

Failure to engage with the evidence?

Can’t admit they’re wrong?

Implications for Wind Energy?

Likelihood of any change soon?

Will wind be worse off as a result of

staying with the RO? Perhaps not.

Will consumers be worse off?

Could more wind be funded more

efficiently? Would this mean more wind?

More or less profit for developers?

Conclusions?

Need for the government to face up to

the fact that the RO is not the right

mechanism for effective support of RE at

current stage in development.

More consideration could also be given

to how policy might better serve industry.