In a major new report on offshore wind, Britain’s Carbon Trust argues that feed-in tariffs are simpler to administer, provides greater certainty to investors, and cost less than the existing program of Renewable Obligation Certificates. The report’s findings add to a growing chorus of support for moving Britain’s renewable energy program to differentiated feed-in tariffs like those used successfully in Germany, France, and Spain. Regardless of their findings, the report concludes that administrators are unlikely to change direction anytime soon and will continue to modify the already cumbersome Renewable Obligation.
The report, Offshore wind power: big challenge, big opportunity, was posted October 14, 2008.
The Carbon Trust is a quasi-nongovernmental organization created in 2001 with a mission to accelerate Britain’s move to a low-carbon economy and to develop low-carbon technologies.
Below are the pertinent passages from the lengthy document.
In summary, the incentive mechanism needs an effective process to track the cost curve to reduce public funding by up to £15bn and to compensate for a potential paradigm of high electricity prices under which far less funding would be required. This can be achieved either by modifying the RO or transferring to a feed-in tariff. A feed-in tariff would be simpler than applying additional modifications to the RO, which is already a complicated mechanism. In addition it provides greater certainty to investors by reducing market and political risk.
In 2006 the Carbon Trust’s ‘Policy Frameworks for Renewables’ study analysed a number of alternative mechanisms to overcome this issue, including a stepped feed-in tariff option and banded RO option. Whilst the former was demonstrated to be the most efficient, policy makers chose the banded RO option to minimise potential uncertainty and deployment disruption.
However, whilst its impact would be more predictable, its [RO] mechanics would be more complex, and further investigation is required to ensure this would not have any unexpected consequences. Furthermore, it is not clear how modifying the RO in this way would cause less disruption than a move to a simpler steeped feed-in tariff option.
At the least, the RO, an already complex mechanism, will need to undergo additional, significant modification. Alternatively, it may be simpler to move to a stepped feed-in tariff. The industry needs to be open to re-engage in this debate.