Friday, September 05, 2008

Suck My ROC

Oh dear. The Guardian just discovered feed-in tariffs. And it thinks that their success, for that it what it is, is proof that the system of encouraging renewable generation development is broken.

The Guardian has "revealed" that "a little-known scheme designed to promote the development of renewable energy" will net it the UK millions of pounds because it's worked. To your capitalist power trader big, that's known as a lucrative below-market power contract; to your renewable energy policy expert, that's proof that the government can step in and encourage new ventures if the market does not initially recognise their value.

The Non-Fossil Fuel Obligation was set up in the late 90s to provide renewable electricity producers with a guaranteed price for what they made. It was much more than electricity producers in general used to get when they used coal or gas or nuclear to make electricity, and it was enough for them to raise financing. But it wasn't enought to spark a massive rush towards wind power, as happened in Germany and Spain.

The government, rather sensibly, made sure that if prices went above the rather generous levels that it set then it would capture the excess. Which may, though I do not know enough about the specifics and am thus speculating wildly, be one reason why people preferred building wind farms in Germany. The UK has since replaced it with a ludicrously complicated regime called renewable obligation certificates, which sulks in second place in the stupid-ways-to-encourage-new-renewable-power-development Olympics behind the US production tax credit.

To Charles Hendry, the Conservative shadow energy minister, it's a "stealth tax", and his response is the best reason this expatriate has yet found for keeping faith with the Labour party. Hendry, at the urging of the indubitably wily, yet I fear equally dim reporter Juliette Jowit, suggested that the revenue "seems to be going into a general pot," rather than going towards more renewable subsidies.

This argument leaves to one side the awkward fact that Hendry evidently has no idea what is happening to the money that's been made from the scheme. Which makes the whole story one of those glorious UK political journalism stories that are fishing for something bad to be said the following week. Though it's unlikely that the umbrage level will rise to any appreciably intolerable level.

More worrying is that the article seems to pass off the horrible move upwards of commodity prices upwards as some kind of nefarious energy trading scheme on the part of the government rather than a largely unexpected, and basically unimportant, consequence of a worthy, if flawed, incentive regime.

We haven't yet had a decent picture anywhere of how government will reconcile making consumers absorb the higher external costs of fossil-fuelled generation (and the NFFO was a rather inelegant move towards this) and high energy prices. I doubt we'll get an indication from this tawdry little story of what way the UK government will jump. But we have discovered that the UK political class is probably ill-equipped to have a sensible conversation about it.

[UPDATE: Ah, the coherent explanation is in Oliver Tickell's piece, which explains where the NFFO revenue goes, laments the fact it hasn't been directed towards transmission projects, but does seem to indicate that it's a much better system than the ROC. But I'm still struggling to understand why it's a terrible thing that the UK government that captures the NFFO surplus when it's government that, by and large, that has to cope with the external costs of fossil fuel generation.]


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