UK Renewables Subsidies: A Simple Description and Commentary

Author: Constable, John; and Barfoot, Bob | Economics, Emissions, U.K.

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The Renewables Obligation (RO) and Climate Change Levy (CCL) system of indirect subsidy provide very substantial additions to the income stream for renewable generators. A grasp of how this system motivates proposals for renewable energy generation is important, because it is only then that we understand the process of technology selection which eventually manifests itself in the form of proposals put before the planning system.

The following analysis outlines the system, and notes that while the RO is complicated, it is in some ways very simple. The issuing and trading of certificates involves numerous stages and parties, but the end result is that, at present, it offers equal rewards to technologies regardless of their intrinsic merits, where merit is understood in the context of the peculiar characteristics of the electricity supply industry. As a result, investors have tended to select technologies on the principle of “least capital cost first”. Initially this resulted in a bias towards Landfill Gas generation, which was, quite incidentally, a high merit technology. Opportunities for LFG are now all but exhausted, and developers are currently concentrating on the next most attractive qualifying ticket to the subsidy stream. This happens to be onshore wind, which is a low merit generator, as will be explained later.

It is important to emphasise, therefore, that those responsible for taking decisions within the planning system should not assume that incentivisation within the RO is an indicator of quality, or, though this may seem paradoxical, of the technology’s suitability for the purpose of meeting the aims of the UK’s renewable energy and climate change policy.

On the contrary, in our view, it is the planning system which bears the full burden of responsibility for determining the quality of the proposal, its suitability to realise the aims of policy, and balancing this in relation to local impact. …

Courtesy of the Renewable Energy Foundation

“UK Renewables Subsidies: A Simple Description and Commentary”

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