UK Renewables Obligation to cost consumers GBP1-bil/yr: report

London (Platts)--15Sep2005

The UK Renewables Obligation, introduced by the Department of Trade and
Industry in April 2002, will cost consumers GBP1-bil ($1.828-bil) each year by
2010, rising to GBP1.5-bil each year by 2015, according to a report published
by the House of Commons Thursday.

     The UK government's target is to supply 10% of the UK's electricity from
renewable sources by 2010, and 20% by 2020. But the DTI is facing financial
and non-financial difficulties in achieving this target, the report said.
     Support to develop new and emerging technologies and the cost of
upgrading the electricity grid so that it can carry the renewable energy
generated is likely to total GBP2-bil or more up to 2010.

     The Renewables Obligation is currently at least four times more expensive
than the other means of reducing carbon dioxide currently used in the UK,
which include levying a charge on non-household users of energy and
controlling the carbon dioxide emitted by key industries. A carbon tax would
be a less complex way of reducing carbon emissions, the report said.

     Projections of renewable generation up to 2010, commissioned by the
National Audit Office, suggest that provided electricity prices remain high,
capital and operating costs continue to fall as the industry's experience
grows and new planning policy eases the problems developers have faced in
getting sites commissioned, the DTI could achieve the 2010 target.
     Under less favorable price and cost conditions, the level of 2010
renewable generation could fall to roughly 7.5% of electricity supplied
compared with the 10% goal.

     The National Audit Office predicted that output from onshore wind sites
should grow from 0.4% of the UK's total electricity supply in 2003-2004 to
nearly 3% by 2010-2011, the report said.

     The report also suggested that the DTI should reduce excess support for
the scheme by perhaps phasing out support for lower cost renewable
technologies which have limited growth potential, such as landfill gas, or
limit the number of years individual generating sites can benefit from the
scheme. Around a third of the support provided by the Renewables Obligation
exceeds the extra cost of renewable generation, according to the report.

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