UK Government to spend extra £8 million on renewables R&D

Following the Labour Government’s manifesto commitment to “a new and strong drive to develop renewable sources of energy,” the Consultation Paper examines what would be necessary to achieve 10 per cent of UK electricity requirements from renewables by 2010, identifies the steps needed to achieve this objective and examines what contribution renewables could make to reducing greenhouse gas emissions.

The Paper estimates that by 2003, 5 per cent of the UK’s electricity should be provided by renewables compared to the current figure of 2 per cent. It also claims that achieving the 10 per cent target could lead to a reduction of 5 million tonnes in UK carbon emissions.

According to the Paper, the Government’s key priority is to ensure that the share of renewables continues to rise after 2010. Measures must therefore be taken to ensure that renewables can compete in a deregulated energy market.

Under The Electricity Act of 1989, electricity suppliers in England and Wales must secure a specified amount of generating capacity from non-fossil fuel and a levy must be raised on electricity customers to meet additional costs involved. This Non-Fossil Fuel Obligation (NFFO) has been used to stimulate the market and industry to help renewable energy technologies compete in the longer term without further support.

The NFFO has provided over £600 million of support for renewables to date, but support for renewables under NFFO arrangements has declined recently, the Paper says. The figure could rise from about £130 million in the financial year 1998/99 to around £150 million a year next century. This compares with the £1,200 million originally used to support nuclear capacity.

Similarly, the Government has announced that it is to reverse the downward trend in expenditure on the renewables R&D programme which complements the NFFO arrangements. Government expenditure will rise from around £10 million in the current financial year to £18 million in the year 2001-2002.

The Paper claims that the cost of generating electricity under NFFO contracts has been halved over the past decade and the more mature renewables technologies are now almost competitive. The Fifth Non-Fossil Fuel Obligation Order (NFFO 5) was introduced for England and Wales in 1998, while the Third Scottish Renewables Order began in 1999.

The Government will also continue introducing market reforms. These, the Paper says, are aimed at improving the operation of energy markets and enabling renewables to compete more effectively. For instance, consumers can now choose their sustainable sources of electricity under electricity liberalisation.

Plans to remove institutional and market barriers to the development of renewable electricity include the separation of supply and distribution activities in the electricity sector. The Paper says the Government will examine arrangements to ensure that so-called “embedded” generators (i.e. those directly connected to local distribution systems – as is often the case with renewables producers) receive a fair price for their electricity. This, the Paper says, will minimise the cost of supporting renewables.

The Paper also says the support for renewables under the existing NFFO scheme will have to be adapted to the new competitive structures of the electricity industry creating the opportunity for other forms of market stimulation, such as the placing of obligations on the supply or distribution business.