Policy on renewable energy in the United Kingdom
Renewable energy policy has undergone some drastic changes over the past few months. Since announcement of the 10 % renewable energy target, the DTI has been busy defining strategies to attain such ambitious targets. This strategy revolves around:
- A system of Renewable Obligations
- The Climate Change Levy.
Below you will find the explanation of both and how they interact with the market for green electricity in the United Kingdom.
The Climate Change Levy
The Climate Change Levy was introduced in April 2001 as an energy tax (electricity and gas) placed on business energy users, namely industry, commerce and public sector entities such as your local authorities.
The level of this tax is set at 0.43p/kWh. However, business energy users have the option to claim exemption from the Levy by switching their energy supply to green power.
Exemption from the Levy is conditional to business customers being able to prove that: the electricity they purchased was produced by eligible generators (UK based accredited generators) and that there exists documents (renewable source declaration), which legally establish that this production did take place.
Such proof is given by certificates, also referred to as Levy Exemption Certificates. In this system the certificate is not decoupled from the physical delivery of electricity. Domestic customers are not liable for tax exemption when they buy electricity from renewable sources.
Fig 1: The Climate Change Levy
The Renewables Obligations
The renewables Obligations come in replacement of the Non-Fossil Fuel Obligations. It requires your electricity suppliers to purchase a portion of the electricity they deliver to their customers from renewable sources. The consultation paper on the design of the system is currently out for comments and available for download at http://www.dti.gov.uk/renewable/consultations.htm
Originally scheduled to start 1 October 2001, the obligations will come into force 1 January 2002 at the earliest. The Renewables Obligation applies to all licensed electricity suppliers in England and Wales, this means that new entrants to the electricity supply market and companies with a low market share also need to comply.
The level of the obligation will gradually increase so that in 2010, 10 % of the sales from all electricity suppliers should come from renewable energy sources. The current contribution of renewables account for 2.8 % of the total electricity sales. The table below illustrates the expected increase in the obligation during its period of existence.
| Period |
Total obligation as % of sales |
| 2001/2002 |
|
| 2002/2003 |
3.0 |
| 2003/2004 |
4.3 |
| 2004/2005 |
4.9 |
| 2005/2006 |
5.5 |
| 2006/2007 |
6.7 |
| 2007/2008 |
7.9 |
| 2008/2009 |
9.1 |
| 2009/2010 |
9.7 |
| 2010/2011 |
10.4 |
| 2011/2012 to 2026/2027 |
10.4 |
The scheme allows for some flexibility. Suppliers have several options to comply to their obligation, each being discussed below.
- Buying renewable energy from an accredited generator and supplying this electricity to UK customers. The supplier will then need to demonstrate compliance to the regulator OFGEM via a system of Renewables Obligation Certificates issued by OFGEM to the generator.
Fig 2: Renewables Obligations: Electricity and certificates from the same source
- Buying Renewables Obligation Certificate independently from the physical power that gave rise to their issue. Suppliers do not have to integrate the physical green power into their sales and only need to pay the price of the environmental value of renewable generation somewhere else in the UK.
Fig 3: Renewables Obligations: Buying certificates and electricity from different sources
- Paying the buy-out price to OFGEM. The buy-out price was introduced by the DTI as a cap-price for Renewables Obligation.
Green electricity in the picture
The new framework for support of renewable energies interacts with the market for green electricity at two different levels:
- Non-domestic customers: if your purchase of green power is rewarded by an exempt from the Climate Change Levy, you are helping the government reach a pre-established target. However, if your consumption of green power is not eligible for exemption, you are making an unsubsidised effort towards expansion of renewable capacity. Thus your contribution helps the UK reach the target faster.
- Domestic customers. Given the push given to the demand for green electricity by non-domestic customers (they can then claim exemption from the energy tax), the amount of green electricity left on the market for residential customers is greatly reduced. This explains why UK electricity suppliers do not publicise their green offers so much. By asking your supplier about the availability of a green scheme, you will stimulate the installation of NEW renewable capacity. And each new capacity installed reduces the CO2 emissions further.
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