Press Release - Department of Trade and Industry: Renewable
Energy
11 February 2005
Sir John Bourn, head of the National Audit Office, reported
today that the Government is on course to achieve a significant
increase in the level of electricity generated from renewable
sources - as part of its response to global warming - but a number
of challenges remain to achieving its 10 per cent target for
renewable energy by 2010. Pursuit of the target will result in
costs for the consumer and taxpayer exceeding £1 billion a year by
the end of the decade, which will increase the price of electricity
by around 5 per cent.
To tackle climate change the Government is looking to reduce
carbon dioxide emissions by some 60 per cent from current levels by
2050. Given the scale of the reduction it is implementing a variety
of policy tools of which promoting renewable energy is only one.
The Department of Trade and Industry has put in place a package of
policies to encourage the development of different types of
renewable energy, many of which would not be commercially viable
without financial support. The core of the policy is the innovative
Renewables Obligation, introduced in April 2002. This is a scheme
designed to encourage greater electricity production from renewable
sources by increasing the income renewable generators receive above
and beyond the market price of electricity.
The Department has also made available capital grants to support
offshore wind farms, and bioenergy power stations which generate
electricity from fuel sources such as energy crops. It also
provides research and development grants for those technologies
which are not yet commercially viable, such as wave and tidal
schemes.
The NAO’s main findings are:
- Two years after the introduction of the Renewables Obligation,
the level of electricity supplied from eligible renewable sources
was 2.4 per cent against a quota of 4.3 per cent.
- Despite shortfalls in the early years, the Department is on
track to meet the 10 per cent target by the end of 2010 provided
wholesale electricity prices remain at or around recent increased
levels, and its responses to a series of challenges prove
effective.
- The cost of reducing carbon dioxide emissions through the
Renewables Obligation is currently significantly higher than other
policy mechanisms which primarily incentivise energy efficiency.
The Government has identified the need for a range of measures to
reduce carbon dioxide emissions including renewable energy and it
is unlikely that other policy tools such as a carbon dioxide tax
would yield the targeted level of renewable generation in the
timescale required.
- The Renewables Obligation is a system which provides the same
level of financial support for all eligible renewable projects. The
Department adopted this approach to ensure that the most economic
renewable energy projects are developed first, while minimising
Government intervention in the market. A consequence is that some
projects using the cheapest technologies (onshore wind and landfill
gas) at the best sites receive more support from the Renewables
Obligation than necessary to see them developed. The Department is
looking at this issue for new sites in its current review of the
Renewables Obligation.
- To aid the introduction of the Renewables Obligation, sites
that still receive funding through the Department’s previous scheme
to support renewables, were also included in the new scheme. An
indirect consequence of their inclusion is the generation of income
for the Exchequer, paid by the consumer through slightly higher
electricity prices, which will accumulate to between £500 million
and £1 billion by 2010.
Stability is needed to maintain investor confidence in the
renewables sector which is a crucial factor in determining the
effectiveness of the scheme. This has limited the Department’s
ability to modify the scheme in the short term. The Department
nevertheless needs to watch the balance between industry and
consumer interests, and to consider factors, such as any reduction
in the unit costs of renewable generation, which will influence the
best way to reduce carbon dioxide emissions.
Sir John Bourn said today:
"The Renewables Obligation is increasing the level of
renewable generation, and thus helping reduce carbon dioxide
emissions, though at a price to the electricity consumer. The
Department needs to keep track of the scheme’s progress in
improving the commercial viability of renewable generation and
ensure that consumers benefit from reductions in generation
costs."
Notes for Editors:
- Press Notices and reports are available from the date of
publication on the NAO website, which is at www.nao.org.uk. Hard
copies can be obtained from the Stationery Office on 0845 702
3474.
- The Comptroller and Auditor General, Sir John Bourn is the head
of the National Audit Office which employs some 800 staff. He and
the NAO are totally independent of Government. He certifies the
accounts of all Government Departments and a wide range of other
public sector bodies; and he has statutory authority to report to
Parliament on the economy, efficiency and effectiveness with which
Departments and other bodies have used their resource.
Press Notice 15/05
All enquiries to Bill Schaper, NAO Press Office:
Tel: 020 7798 7335
Mobile: 07795 120838