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SUSTAINABLE ENERGY REGULATION AND POLICYMAKING TRAINING MANUALpage 9.128to subsidize nuclear power, which the Government had been unable to privatizealong with the rest of the electricity industry, as the electricity generation companieswould not have been viable as private companies if they included thenuclear power stations. However, the Government decided to broaden the obligationto include specified renewable energy technologies. The Electricity Act1989, enabled the raising of a fossil fuel levy (i.e. on all fossil—coal, gas andoil—fuel generated electricity) to pay for the NFFO. The NFFO operated via biddingfor support in various technology bands—developers of eligible types ofrenewable electricity generation bid for support and those who were successfulreceived subsidy payments (which varied according to the technology) on top ofthe market price that they would otherwise be paid. However, this scheme stimulatedonly small amounts of renewable energy generation—up from 1.8 per centof total electricity generated in 1990 to 2.5 per cent of electricity in 2000).Following the election of a new Government in 1997, support for renewable energywas reviewed was the aim of overcoming three main problems with the NFFO: Limited development of renewable energy (some commentators have arguedthat this was largely due to the low-cost cap imposed on support via the NFFOrather than the nature of the mechanism itself); Ending the must-take or priority access contracts that renewable energy generatorswho received support via the NFFO received—these were felt to separatethem too much from the reality of the marketplace; That a support mechanism shouldn’t “pick winners” by giving different levelsof support to different technologies.(Mitchell and Connor, 2004)The result of the review was the establishment of the renewables obligation.3. RENEWABLES OBLIGATIONThe renewables obligation was introduced in 2002 to boost the amount of electricitygenerated from renewable energy. The United Kingdom has set itself a targetto generate 10 per cent of its electricity from renewable sources by 2010 and15 per cent by 2015, as part of its commitment to reducing greenhouse gas emissions.The renewables obligation is the main policy instrument to achieve thisand its main feature is that electricity suppliers (retailers) have to source a setpercentage of the electricity that they sell to customers from renewablesources. This started at 3 per cent in 2002 and will rise to 15 per cent by 2015in line with the national target.
MODULE 9: RENEWABLE ENERGY: REGULATORY AND POLICY OPTIONSpage 9.129The current main sources of renewable electricity generation that are eligible forthe financial support provided by the renewables obligation are: Hydroelectricity power stations with a capacity of less than 20 megawatts; Wind farms both onshore and offshore; Electricity generated from landfill gas and sewage gas; Electricity generated by burning energy crops and other natural waste, anduntil 2016, electricity generated from power plants which co-fire such materialwith coal.Over time generation from other technologies such as wave and tidal powerplants, which are also eligible, is predicted to increase.The 2010 target only includes electricity generated from sources eligible for therenewables obligation. It therefore excludes electricity generated by large hydroelectricitypower stations and some forms of energy from waste (notably incineration).The legal basis for the renewables obligation (RO) is contained in Section 32 ofthe Electricity Act 1989 (as amended in 2000) which enables the Secretary ofState, by order, to impose an obligation on suppliers (“the RenewablesObligation”). This power has been devolved to the Scottish Executive in respectof suppliers in Scotland (Renewables Obligation Scotland (ROS)). The RO and theROS came into effect on 1 April 2002 and are scheduled to stay in place until31 March 2027. An obligation period runs from 1 April to 31 March each year. TheGas and Electricity Markets Authority (Ofgem) is responsible for the administrationof the orders.The orders place a legal obligation on each licensed electricity supplier to produceevidence that either it has supplied a specified proportion of its electricitysupplies from renewable energy sources to customers in the United Kingdom, orthat another electricity supplier has done so, or, that between them, they havedone so. Section 32B of the Act allows for “green certificates” to be issued undersection 32 orders. Such certificates certify that a generating station has generatedfrom renewable sources an amount of electricity and that it has been suppliedto customers in the United Kingdom. These are known as RenewablesObligation Certificates (“ROCs”) (issued under the RO) or Scottish RenewablesObligation Certificates (“SROCs”) (issued under the ROS). These certificates canbe purchased separately from the electricity in respect of which they were issued.So suppliers can meet this obligation by contracting with renewable energy generatorsto buy their output directly (and receive “green certificates” for doing so),or by buying the ROCs separately from the renewable power generated.Alternatively, a supplier can discharge its Renewables Obligation, in whole or inpart, by paying the buy-out price to a central fund. The proceeds of the buy-out
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