Meeting renewable target will cost £1 billion for consumers
Taxpayers and consumers could end up paying over £1 billion by the end of the decade in order for the Government to meet its renewable energy targets.This is one of the findings in a report by the National Audit Office concerning the challenges which remain in meeting the target of supplying 10% of energy from renewable sources by 2010. It finds that the target is achievable, but it will mean an increase in the price of electricity of about 5% for consumers.
The study examined the policy tools the Government is using to reduce carbon dioxide emissions, the core of which is the Renewables Obligation, introduced in 2002.
It found that, despite shortfalls in the early years, the DTI is on track to meet the 10% target by the end of 2010 provided wholesale electricity prices remain at or around recent increased levels. However, it also found that the cost of reducing carbon dioxide emissions through the RO is currently significantly higher than other policy mechanisms which primarily incentivise energy efficiency.
In addition, it found that, as the RO provides the same financial support for all eligible renewable projects an approach designed to ensure market friendly projects are developed first while minimising Government intervention in the market some projects using the cheapest technologies, such as onshore wind and landfill gas, receive more support from the RO than necessary to see them developed.
The introduction of the RO was aided by including sites that still receive funding through the DTIs previous scheme to support renewables. This has meant extra income being generated for the Exchequer, paid for by the consumer through slightly higher electricity prices, accounting for between £500 million and £1 billion by 2010.
Sir John Bourn, head of the National Audit Office, said: The RO is increasing the level of renewable generation, and thus helping reduce carbon dioxide emissions, though at a price to the electricity consumer. The DTI needs to keep track of the schemes progress in improving the commercial viability of renewable generation and ensure that consumers benefit from reductions in generation costs.
The report was welcomed by the British Wind Energy Association (BWEA) who said it sent a powerful message that investor confidence is maintained through stable Government policy, and that that was the key to building up momentum over the past few years.
BWEA also agrees with the NAOs analysis that the RO is effective in supporting near commercial technologies, such as onshore wind and landfill gas, but that other technologies will need additional short-term support whilst they achieve cost savings.
By David Hopkins