POLICY OVERVIEW
Renewables Obligation (RO) The RO is the oldest of the current UK financial incentives, having started in 2002. It obliges electricity suppliers to source a proportion of their electricity from renewable sources. Renewables Obligation Certificates (ROCs) are awarded to renewable generators, who then sell them to suppliers. Support lasts for 20 years, but the actual value of ROCs depends on the outcome of commercial negotiations rather than being fixed by the policy. When introduced, all renewable electricity received the same level of subsidy, regardless of the technology used. This changed in 2009, when ‘banding’ was introduced - meaning that support varies depending on the cost of the technology. The RO is due to close to new participants in 2017.
Electricity Market Reform (EMR)/Contracts for Difference (CfDs) EMR covers a package of measures including a carbon floor price, an emissions performance standard to rule out new coal generation and a capacity mechanism to try to ensure the system has sufficient back up capacity. Contracts for Difference are the new mechanism to replace the RO - although they will also be available for nuclear and carbon capture and storage. Most policies give a more or less fixed income to renewable generators but leave them free to sell the power itself on commercial terms. One drawback of this is that, if market prices go up then the total income for the generator will be higher than expected and they may be over-rewarded - and therefore the impact on consumer bills will be higher than it should be. By the same token, falling power prices would see generator income and consumer bills being lower than expected. CfDs will seek to address this by setting a figure for the total income for a project - i.e. both the renewables subsidy and the value of the electricity. This total figure is called the ‘strike price’. Concerns include how funding will be allocated and strike prices set, given that it is highly likely there will be far more applications for support than funding available, and ensuring that independent generators are fully able to take part.
In theory, this gives the best of both worlds, as the generator has certainty over total income and the subsidy - and therefore the impact on consumers - is no higher than necessary. The policy is due to be implemented by the end of 2014 and large areas of detail are still to be resolved. At the time of writing, it is not clear how successful this policy will be. Concerns include how funding will be allocated and strike prices set if there are more applications for support than funding available, and ensuring that independent generators are fully able to take part.
Renewable Heat Incentive (RHI) The RHI builds on a similar approach to the FIT, although is available at all scales. Unlike electricity, excess heat generation cannot simply be exported onto a grid, so
the policy aims to ensure that only useful heat is supported. The RHI opened in November 2011, initially only for ground source heat pumps, biomass, solar thermal, small-scale biogas and injection of biomethane to the gas grid. Single domestic installations were not included. To date, the scheme has been dominated by biomass boilers. Despite having a slow start, the policy is beginning to grow at a faster rate. Major changes were consulted on in 2012/13 and were implemented in the first half of 2014. These included adding some tariffs and increasing others, with the highest profile change to be the inclusion of households in April and other technologies in May. Unlike the renewable electricity policies - which are funded by consumer bills - the RHI is paid for out of general taxation. The budget is fixed to the end of March 2016, with further funding to be set after the general election in May 2015.
Renewable Transport Fuel Obligation (RTFO) The RTFO was introduced in April 2008. It is similar in principle to the RO, in that it obliges fuel suppliers to replace a proportion of supply with renewable fuels. Targets were scaled back in 2009. The Government has yet to set out a trajectory for meeting the binding 2020 targets contained in the Renewable Energy Directive, and has made this conditional on EU-level resolution of controversy over sustainability. This has undermined confidence in the sector - not only has future investment been scaled back but recent data show that even the reduced targets are not being met. This is particularly frustrating as UK-produced fuels have an excellent sustainability record, significantly exceeding expectations in environmental protection and greenhouse gas savings.
Feed-in Tariff (FIT) The FIT started in April 2010. It supports anaerobic digestion, wind, hydro and solar PV up to 5MW, as well as small scale fossil CHP. There are also proposals to support community FIT projects up to 10MW in size. Building on successful policies elsewhere, the FIT aims to be much simpler for the end user than policies such as the RO. It pays a fixed income on all generation with no need to enter into complex commercial negotiations. The FIT also gives a guaranteed minimum income for electricity not used on site - although projects are free to seek better prices elsewhere. In 2011/12 solar PV was the major beneficiary, overshooting the estimated budget by a large margin. Cost control mechanisms have been introduced for both the FIT and the RHI for all technologies, in which tariffs reduce for new entrants to a scheme if deployment reaches particular levels. Although the PV market is more stable, tariff reductions for the other technologies happened for the first time in 2014, and are causing severe market disruption.
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