Calls grow for ROC reforms

The government is facing calls to undertake major surgery on its green energy policy after the consultation period for proposed changes to its renewables obligation (RO) legislation came to a close today.

In its 2006 Energy Review Report the government announced plans to reform its renewables obligation (RO) legislation, which requires electricity suppliers to source a certain proportion of their energy from renewable sources and pay green energy generators for certificates that prove they have met their obligation.

The reforms included proposals for banded levels of support for different renewable technologies in an attempt to ensure greater adoption of wave and tidal energy and moves to provide suppliers with greater certainty over the long term price of renewables obligation certificates (ROCs).

Speaking earlier this year, Martin Gibson of venture capitalists Atlas Ventures welcomed the proposal claiming that limited subsidy support for wave and tidal energy schemes had stopped the UK taking advantage of a potentially massive source of energy.

However, throughout the consultation on the proposals the government has faced calls for far more significant changes to the entire RO mechanism, which critics claim is unwieldy, expensive and failing to provide the necessary increase in green energy capacity.

Ofgem has recommended that the government introduces greater flexibility to the price of ROCs to limit the cost on suppliers and their customers. An Ofgem spokesman said that under the current scheme the price of ROCs has remained high even when electricity prices have also been high, allowing renewable energy generators to benefit from a greater subsidy than is required to make their investments profitable.

Meanwhile, the Renewable Energy Association trade body has urged the government to revisit its banding proposals for offering different numbers of ROCs for each MW/h of energy based on the type of renewable energy, arguing that the changes will deliver too deep a cut in support for wind and other established technologies and still not deliver adequate financial incentives for wave and tidal power projects.

It also recommended that the government extend the scheme up to 2030 and more clearly define the so-called "energy crops" that are eligible for ROCs.

However, while many within the renewable energy industry remain broadly in favour of a scheme that has helped to deliver significant subsidies other environmentalists are calling for a complete overhaul. A coalition of green lobby groups, led by The World Future Council and backed by Friends of the Earth, Greenpeace and many MPs including Lib Dem shadow environment secretary Chris Huhne, are calling on the government to replace the RO with a feed-in tariff (FIT) mechanism similar to that which has proved successful in Germany.

FIT schemes ensure energy fed from clean technologies into the grid receive a guaranteed above market price. Advocates of such schemes argue they are cheaper and require far less bureaucracy than the RO approach. They also point to the model's considerable success in Germany, which has resulted in the country having 200 times the solar capacity and 10 times the wind power capacity of the UK.

"FIT schemes are proven as the best way of transitioning to renewable energy generation," said Miguel Mendonca, researcher and campaigner at The World Future Council, which has submitted a major report on the effectiveness of FIT schemes to the government as part of the RO consultation period. "The problem with the current system of certificates is that as they can be traded investors don't know what they will be worth in the future. The government feels these green certificates are more compatible with a liberalised energy market, but FIT schemes are far better at giving investment security."

FITs are also far more cost effective for energy customers, according to the WFC, which claims that in Germany the scheme has added just €1.50 to each household's monthly energy bills while revolutionising the green energy industry, driving demand for new clean technologies, creating economies of scale for the embryonic industry, and creating over a quarter of a million jobs.

The UK government has previously resisted calls for an FIT scheme, arguing that major reforms to the RO scheme would create disruption to the market and undermine investment security.

But Mendonca insisted that the WFC's report shows that it is possible to introduce an FIT scheme without undermining the existing RO mechanism. "We are advocating that the FIT should be introduced for small-scale renewable energy generation to start with while the RO continues," he said. "Once it is in place for small feed in systems on households and offices then the larger energy players will realise it is a secure and simple means of supporting green energy. "

However, with many large scale energy producers broadly in favour of the RO scheme and the subsidies it delivers for their green energy investments major changes to the RO appear unlikely in the wake of the consultation exercise. Instead, modest reforms that provide a financial boost to wave and tidal energy projects and deliver a degree more security to long term investors are the most likely outcome when the government's proposed changes eventually make it into law sometime after April 2009.

However, Mendonca and others are convinced that with recent government leaks revealing it will not hit European targets for renewable energy generation it is only a matter of time before the government gives serious consideration to a FIT scheme.

"The government knows it is in trouble with its green energy targets and has seen that being exposed," he said. "There is also a large coalition of support building around the FIT approach."