Renewable Energy & Emissions Trading
Building the British Model
The UK offers a model for renewable energy growth.
February 2005
By Michael Rosenfeld
The United Kingdom stands at the forefront of renewable energy market development. The 2002 Renewables Obligation sets out a progressive strategy for achieving environmental protection, energy reliability and a competitive marketplace for industry and investment. The goals are ambitious: generating 10 percent of total UK electricity supply from renewable sources by 2010; 15.4 percent by 2015; and 20 percent by 2020.
While the environmental and social benefits inherent in this obligation are unquestionably significant, so too are the positive implications for business. To meet its goals, the UK will install a minimum of 8,500 MW of renewable generating capacity by 2020, dramatically increasing the scope of what many experts suggest is already the fastest growing renewable energy market in the world. Recent third-party analysis estimates that the Renewable Obligation will be worth nearly $2 billion per year to the UK renewables industry by 2010. A January 2004 supply chain gap analysis forecasts that the UK renewable energy market will require expenditures of up to $25 billion to reach the 2020 goals, giving rise to an industry with up to 35,000 new jobs.
The UK government recognizes that the most efficient way to meet its goals is to establish an open market system with a free market pricing mechanism. The Renewables Obligation has strong pricing incentives designed to encourage suppliers to meet set targets. Under this system, eligible renewable generators receive Renewables Obligation Certificates (ROCs) for each megawatt of electricity generated. These certificates can then be sold to suppliers to fulfill their obligation (more than 5 million ROCs were issued in 2003). Suppliers can either present enough certificates to cover the required percentage of their output or pay a "buyout" price of $55/MW for any shortfall. All proceeds from buyout payments are recycled to suppliers in proportion to the number of ROCs they present.
In further support of the Renewables Obligation, the government also has helped create the world's first economy-wide greenhouse gas emissions trading program. Thirty-one organizations ("direct participants" in the program) have voluntarily taken on a legally binding obligation to reduce their emissions against 1998-2000 levels, delivering nearly 4 million tons of CO2-equivalent emission reductions in 2006.
The UK also offers an ideal financial support structure for expanding renewable energy companies. A robust supply of institutions participating in the renewable energy and clean technologies sector are available to assist in capacity building, risk financing and investment services.
The UK's building marketplace is further underpinned by a series of government policies designed to encourage business and investment. These incentives are long-term, developed to maximize the return on investments and encourage broad demand for renewable energy:
Climate Change Levy exemption: Under the guidelines of the Climate Change Agreement, a reduced rate of the Climate Change Levy is payable in return for a commitment by an end user to achieve pre-determined targets for energy usage or carbon emissions.
Landfill Tax Credit Scheme (LTCS): The LTCS encourages and enables landfill operators to support a wide range of environmental projects by giving them a 90 percent tax credit against their donations to various organizations earmarked by government as official recipients of such monies.
Capital Grants: The government has already made over $530 million in capital grants available for renewable energy ventures, across the technology spectrum, and these expenditures are likely to increase as the renewable energy market matures.
Strong Commitment to R&D: The government has pledged $90 million for research and development into emerging renewable energy technologies. A recent result of this commitment is the development of the Centre for Environment and Sustainable Energy in Aberdeen, Scotland.
Industry Support Organizations: Scores of government agencies and trade organizations as well as university research centers have been developed to assist renewable energy companies in the UK. These include Renewables UK and the Renewables Advisory Board.
The western European and American renewable energies markets are beginning to gain momentum and support. The European Union (EU) - already the largest single market in the world - has made green-supportive policies a priority. This has created a broad market that offers American companies profitable opportunities for renewable energy investments and the development of new technologies. On the flip side, the US market which analysts estimated was worth nearly $14 billion at the end of 2003, will eventually offer European companies similar investment and trade opportunities. The UK is at the forefront of renewable energy in terms of marketplace maturity; as such, it offers a stepping stone into the broader European markets, and down the road, a breeding ground for US/European partnerships as the renewable energy market becomes a global enterprise.
Energy supply and access to reliable, clean sources of energy are fundamental issues underpinning the UK's sustainable development agenda. The climate change issue is driving energy policy and generating greater support and demand for renewables. The UK government is taking its leadership role in the field of climate change seriously; to this end, it has established a progressive set of policy measures and a market framework aimed at enabling the UK to deliver a secure, safe, diverse and reliable energy supply at competitive prices, while meeting the challenges of global warming. This, in turn, has created a healthy marketplace hungry for American technology, investment, enterprise and innovation. As the demand for and application of renewable energy increases, so too do the opportunities for nimble and profit-minded American companies in this growing industry.
Michael Rosenfeld, Vice Consul in the British Consulate-General in Los Angeles, co-leads the UK Renewable Energy Strategy in the United States. He serves as a commercial officer with UK Trade & Investment, responsible for promoting trade opportunities for British companies with products and services to sell into the US market and investment opportunities for American firms targeting the UK. He can be contacted by telephone at 310 481-2986 or by email: mike.rosenfeld@fco.gov.uk.
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