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Don’t change horses midstream: the impact of EMR on low-carbon electricity producers

The way low-carbon electricity is supported by the government is changing drastically. For the last decade, electricity generators have used an emissions trading system known as the Renewable Obligations (RO) scheme. Current plans are to phase this scheme out completely by 2017, replacing it with a form of feed-in tariff scheme instead. These changes present the industry with an entirely new range of challenges and uncertainties.

On September 10th, Alon Carmel of the Department of Energy and Climate Change (DECC) presented their case for the new policies to the major players in the South West’s low carbon energy industry. The event, hosted by RegenSW and Osborne Clarke in Bristol, set out to allay the concerns of the industry, and to give electricity generators a chance to voice their opinions ahead of the final implementation of the new scheme in 12 months’ time.

Generators have a choice between 2014 and 2017, as both the RO scheme and the new Contract-for-Difference (CfD) feed-in tariff scheme will be in operation. Choosing between the two is potentially the most consequential decision generators can make in the next 3 years; the subsidy provided by both schemes is vital to the existence of many generators, and the profit margins of all of them.

Electricity bills are a huge issue for the next election, and choosing the degree of subsidy offered by the new CfD scheme will play a big part in keeping the cost to consumers low. That said, novel renewable energy technologies such as wave and tidal power count on a high level of subsidy in order to develop their technology and lower production costs. This event was the first chance for many to see the degree of subsidy their technologies would receive under the new scheme.

The government is braced for a great deal of criticism over the level of support offered in their new scheme, and are prepared to consider changes where appropriate. However, a panel of academics and consultant hired by DECC have concluded that too much attention is being paid to the industry in making energy policy decisions. This suggests that electricity producers should expect a cooler reception from the government when recommending changes to the new policy.

For now, the advice to electricity producers from Osborne Clarke is not to change to using the new scheme; there is a degree of mistrust in the scheme from banks and financial institutions, who don’t wish to risk using an untested policy. This makes borrowing more expensive, and impacts both the generator’s profits as well as the cost to consumers. There is a fear that most generators will follow this advice, creating a looming crisis in 2017 when the RO scheme ends.

This blog is written by Neeraj Oak, from the department of Complexity Sciences at the University of Bristol.

Neeraj Oak


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