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SUSTAINABLE ENERGY REGULATION AND POLICYMAKING TRAINING MANUALpage 9.130fund are divided between those suppliers who have met the obligation by obtainingthe required number of green certificates, so providing an additional valueto ROCs.In order for ROCs to be issued, the generating station that generates the electricitymust be accredited by Ofgem as capable of generating electricity from eligiblerenewable sources. The participation of a generating station in the schemeis voluntary and there are certain criteria that need to be met before a stationcan be accredited. The orders set out what sources of electricity are eligiblerenewable sources and also specify the exclusion of certain types of generatingstations, e.g. stations incinerating waste. Time limits for eligibility are placed onstations co-firing, i.e. burning biomass and fossil fuel to generate electricity.Suppliers are required to produce evidence of compliance with their renewablesobligation to Ofgem by 1 October each year. Evidence can be via ROCs or SROCs.4. PRICES AND COSTS OF THERENEWABLES OBLIGATIONUnlike the feed-in scheme in Germany, the renewables obligation does not guaranteeconnection nor specify the price that renewable generators will be paid forthe electricity that they generate—this is set by the market for all electricity generationand is usually agreed in bilateral contracts between generators and suppliers.However, in addition to the market price for renewable electricity,generators can sell their ROCs/SROCs to suppliers who have to meet their obligationsor pay the buy-out price. The buy-out price (which is set in the order andrises each year in line with the retail price index (RPI)) thus sets the basic pricefor ROCs—so long as demand for ROCs exceeds supply. However, as supplierswho meet their obligations via ROCs will also get extra revenue from the buy-outfund, this further increases what they are willing to pay for ROCs/SROCs. Togethertherefore, these features increase the market value of renewable generation. Thefollowing prices illustrate this.Illustrative prices for renewable energy under the RO: The market price for the electricity (which can be sold separately from theROC)—this has varied significantly since 2002 from around 1.5p/kWh to4p/kWh. 3p/kWh for the ROC (the buy out price started at £30/MWh or 3p/KWh). 1.5p/kWh for the extra revenue from the recycled buy-out fund.
MODULE 9: RENEWABLE ENERGY: REGULATORY AND POLICY OPTIONSpage 9.131Thus the renewable electricity generators can obtain significant additional revenuefrom the RO.The buy-out price is intended to act as a cap on the costs to be charged to consumers.In 2003/2004, the total renewables obligation across the UnitedKingdom was 13,627,412 MWh. The simple calculation of multiplying this by£30.51 gives a total cost to consumers of around £416 million.Total public support for the renewables industry (through the renewables obligation,capital grants and research and development support) is expected to average£700 million per annum between 2003 and 2006. Around two-thirds of thiswill come through the renewables obligation, the cost of which is met by electricityconsumers and will reach up to £1 billion per annum by 2010 (the equivalentof a 5.7 per cent increase in the price of electricity).The cost of reducing carbon dioxide emissions through the renewables obligationis currently higher than other policy mechanisms which primarily incentivizeenergy efficiency. However, the renewables obligation is not just in place to meetthe Government’s climate change objectives. Its other goal is to promote diversityand security of energy supplies. It is recognized that technologies that arenot mature will have higher costs, but that as they develop, these costs shouldcome down.Another cost issue is that the renewables obligation provides the same level offinancial support for all eligible renewable projects. The Government adopted thisapproach to ensure that the most economic renewable energy projects are developedfirst, while minimizing Government intervention in the market. A consequenceis that some projects using the lowest cost technologies (onshore windand landfill gas) at the best sites receive more support from the renewablesobligation than necessary to see them developed. The Department of Trade andIndustry is looking at this issue for new sites in its review of the renewablesobligation.5. IMPACT OF THE RENEWABLESOBLIGATIONThe renewables obligation has increased the total renewable electricity generatingcapacity in the UK from 1400 MW in 2002 to 2400 MW in 2004. A rough breakdownof this is as follows:
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