The need for action on climate change has resulted in a flurry of ambitious outpourings from policy-makers aimed at improving results from a variety of sectors of the economy.
The UK currently has targets to cut emissions by 34 per cent and to increase the amount of
renewable electricity on the grid to 15 per cent, both by 2020 – a tall order when one considers that
renewable energy currently accounts for just under five per cent of energy production in this country.
Unfortunately, the latest set of proposals currently under consultation to reduce energy consumption from the business sector – the
Carbon Reduction Commitment (CRC) – could seriously hinder attempts to meet renewable generation targets.
The
CRC, due to come into effect in April 2010, will initially target around 5,000 UK businesses, which consume over 6,000 megawatt-hour (MWh) of electricity every year.
Under the terms of the proposals each affected firm will be expected to
reduce its energy consumption – and therefore its emissions – against a baseline to be set next year. So far, so good – it certainly makes sense to encourage and
reward energy efficiency.
However, under the CRC framework, those companies seeking to make a further difference by buying renewable electricity will not be allowed to use this as a contribution towards their
emissions reduction. Instead, the Government has decided that all electricity purchased will be measured as ‘grid average’, regardless of whether the renewable mix in your supply is five per cent or 100 per cent.
This clearly makes very little sense and sends entirely the wrong signal to the UK renewable electricity industry and its customers, at just the time when we need to provide a direct line of support for the independent generation sector.
As a supplier of
renewable energy to the business sector, we (SmartestEnergy) are already seeing both customers and intermediary brokers walking away from renewable offerings for the medium-term over concerns about the
CRC.
The Government’s position comes as a result of its own confusing structures designed to increase renewable production. Currently, for every MWh of renewable electricity produced, the generator is awarded three certificates: a Renewable Energy Guarantee of Origin (REGO), which states where and how the power was produced and is the only real proof that the power is renewable; a
Levy Exemption Certificate (LEC) which allows business users to avoid paying the Climate Change Levy; and a
Renewable Obligation Certificate (ROC), which can be sold on to utilities and other electricity suppliers in order for them to compensate for their shortfall in actual renewable energy production.
It is the role of
ROCs that needs to be examined to rectify this situation. ROCs were designed as a direct financial subsidy to
renewable energy producers to reward them for taking the financial and entrepreneurial risk inherent in deploying new technologies. This is what they should remain. They should not be allowed to be used by utilities or other suppliers to prove that they are providing renewable electricity. The only proof of this is the REGO - as recognised in Ofgem’s new green supply guidelines for the domestic market.
Any power then sold to customers as renewable or green would have to be supported by
REGOs and verified by independent auditors. REGOs, linked to a specific generation plant, demonstrate a direct one-for-one MWh match between renewable energy generated and renewable energy consumed. It provides unquestionable proof of reduced carbon emissions within the UK and should be justifiably used towards business customers’ Carbon Reduction Commitments.
Independent renewable energy developers and generators demonstrate exactly the sort of entrepreneurial spirit that this country so desperately needs at a time of economic malaise. They act as an economic multiplier, bringing direct and immediate benefits to their local areas as well as to the wider issue of climate change.
It is only by developing a framework where the purchase of ‘green’ power becomes clear and beneficial to mainstream industry that we have any hope of meeting our emissions reduction and renewables targets.
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