Closure of the Renewables Obligation
As one of the first major incentive regimes for the deployment of renewable energy in the UK, the Renewables Obligation (RO) has been responsible for delivering much of the UK’s renewable new-build generation. Ofgem E-Serve has announced that RO accredited power stations generated 69.1 terawatt hours (TWh) or 23.4% of UK electricity between April 2015 and the end of March 2016. However, as a demand-led scheme the higher than expected costs of the RO combined with the political positioning of the Conservative Party Manifesto prompted its early closure. First announced by George Osborne in June 2015, there have been a series of announcements and publications dismantling the regime and introducing grace periods and closure dates for specific technologies.
Today marks the day that the RO closes to all new generating capacity except those generators who are eligible for apply for a grace period. As such, it also marks the final transition to the Contracts for Difference (CfD) regime, the competitive market forces of which have already picked up the baton left by the RO and are set to deploy tens of gigawatts of generation over the next decade.
Aside from the competitive nature of the CfD, one of the most fundamental differences between the RO and the CfD regime is the diversity of generation sources which support is available for. The RO has helped bring online everything from microgeneration and small-scale solar through to offshore wind and major biomass conversions. The CfD was initially designed to do the same, however the subsequent closure of Pot 1 changed this entirely. The removal of a route to market for Pot 1 technologies represents one of the biggest barriers in the industry and as the Competition Markets Authority reflects, a poor deal for the consumer as it prevents the deployment of the cheapest forms of low carbon generation.
Furthermore, the CfD had been intended to provide the long-term certainty that major developments need to remain investible. That the Government hasn’t scheduled the next two CfD rounds committed-to within this Parliament or proposed further rounds post-2020 reflects a significant concern to many developers looking to invest in the UK. Energy UK advocates for the introduction of CfD allocation rounds taking place on a rolling one year basis, adopting the same model as the Capacity Market whilst the Levy Control Framework (LCF) should be set at least four years ahead of project delivery to give clear, long-term price-signals. We’re confident that the cost efficiencies continually being delivered by the sector will continue to drive down the cost of new-build renewable generation, necessitating decreasing amounts of support. A return to a technology neutral, market-led approach is the best way for the UK to fulfil its climate change commitments at least cost to the consumer whilst stimulating continued economic development throughout the UK.