You think this Energy Bill is good? Take a look at Germany and Spain, and then think again

As it stands, the Energy Bill’s proposal for improving renewables support suffers from a fatal flaw: they will be inadequate to meet the government’s own target for renewable electricity.  

Perhaps fortunately, this target has been usurped by the recently announced EU targets for renewable energy.  Despite efforts from BERR to minimise the UK contribution, this has initially been set at 15 per cent of our total energy needs by 2020.  This will require a rapid expansion not just of renewable electricity generation, but also renewables in the heat and transport sectors — which together account for around three-quarters of total energy consumed.  

With the measures in the Energy Bill effectively irrelevant, the question is therefore how the UK can design the right policies to drive renewables deployment at the necessary rate to meet this new target?

The main support mechanism for renewable power technologies is the Renewables Obligation, which requires electricity suppliers to buy a proportion of their supply from renewable sources, or to pay a penalty for failing to do so.  The required proportion increases annually.

Even at a basic level the RO has failed: the level of renewables supply has not met any of the annual targets because there are insufficient incentives to drive the construction of new projects at the necessary rate.

The Energy Bill proposes ‘banding’ the RO.  To date, the mechanism has mainly benefited established, less risky renewable technologies, particularly onshore wind.  Banding it will add value to the output of less developed renewable technologies such as offshore wind and wave which have been relatively neglected.  It should therefore act as an incentive to invest in them and to construct new projects.

This is the fifth change to the RO since it was introduced in 2001, and the most dramatic.  However, even if banding is successful, renewables are only projected to provide at best 13.4 per cent of electricity supply by 2015-16.  

This is short of the government’s current target of 15 per cent by 2015, and because the RO deals only with electricity it will make a minimal impact on achieving the EU targets across all energy sectors.  

It is increasingly obvious that the RO is failing to encourage diverse renewables growth in a cost-effective way.  Even the energy regulator, Ofgem, has pointed out that more conventional, less competitive subsidy mechanisms in other EU member states, notably Germany and Spain, deliver more renewable capacity at lower cost.

 Known as Feed In Tariffs, they provide investors with more certainty, and guarantee a market for their output, so reducing investment risk and encouraging construction.

To put this in context, between 2002 and 2007 Spain increased its wind capacity by 10,300 MW, while in contrast the UK connected only an additional 1,837 MW.  And between 1998 and 2007, Germany increased the share of renewable energy from 3.1 per cent to 8.4 per cent.  Over the same timescale, the UK moved from 0.9 per cent to only 1.8 per cent.  

Because they have effective support mechanisms in place, Spain and Germany can afford to be much more sanguine about meeting their EU targets of 20 per cent and 18 per cent respectively.

Instead of learning from international experience, however, the government is not just clinging to the RO it also appears to be trying to replicate it in other energy sectors.  The Renewable Fuels Transport Obligation is already in place for the use of biofuels in transport.  

And it looks like any mechanism to support renewable heats will also be based on the Obligation model — although it is acknowledged that this would be less effective than a feed in, it seems to be preferred because, bizarrely, it is a better ‘cultural fit’ with the RO.  In other words, take a failing mechanism, clone it and apply it to other sectors — the triumph of blind hope over experience.

It’s time to stop fiddling with the RO in the Energy Bill and trying to replicate it across the energy sector.  The EU target has presented the opportunity for a fundamental review of the UK renewable energy strategy.  Any policy maker serious about meeting the EU targets must recognise that it is time to dump the UK’s addiction to Obligations and establish effective mechanisms instead.  Feed In Tariffs would be a good place to start.

Bridget Woodman is a Lecturer in Sustainable Energy Policy, University of Exeter