Appetite for 'green' power will not be satisfied

 

Mar 27, 2007 -- Datamonitor

UK businesses will attempt to purchase some 34 TWh of 'green' electricity in 2007. With the volume of accredited renewable power reaching only 12 TWh in 2006, it is clear that internal company targets will be very difficult to meet. Ultimately, increasing demand for green energy is not being met by new capacity.

British industry has set internal targets to purchase 34TWh of renewable power in 2007, equivalent to around 10% of annual UK demand. The 12.2TWh of green electricity accredited in England and Wales in 2006, under the Renewables Obligation (RO) scheme, would fall someway short of end-user demand for the coming year.

Despite suffering at the hands of a sustained period of high wholesale energy prices, UK businesses are increasingly focused on sourcing premium renewable electricity. The creep of climate change and carbon emissions up the corporate agenda and is manifesting itself, amongst other things, in the shape of tougher internal renewable energy targets. According to a Datamonitor survey of 3,500 of the UK's largest energy buyers, some 28% of companies have a goal for green electricity consumption in 2007, up 7% from 2006.

With demand for renewable electricity set to grow further in the future, the drive to increase 'green' power generation capacity should have found its counterbalance. In reality, however, the UK RO scheme is failing to deliver green supplies at a rate which would meet the market demand.

Between 2005 and 2006, the last reported RO period, the UK as a whole, generated 13.7TWh of accredited electricity, some 24% shy of the scheme's 18TWh target. Despite the increasing likelihood that the UK will miss its 2010 target to produce 10% of electricity from renewable sources, leading energy companies continue to resist a revamp of the RO scheme.

Dismissing Ofgem's call for a different tact, Centrica chief executive, Sam Laidlaw, argues that an overhaul of RO "would lose a huge amount of momentum in investment decisions". His counterpart at ScottishPower, Phillip Bowman, recently noted that utilities need "more clarity about the incentives that are (currently) in place."

From a consumer perspective, ambiguities in the way that electricity is labeled 'green' are muddying the water. For example, the same MWh of power that generates a Renewable Obligation Certificate (ROC) may also create Levy Exemption Certificate (LEC) from the Climate Change Levy (CCL) a business tax on energy use. Therefore, it may not always be clear to energy buyers the form of 'green' electricity they are actually purchasing.

France's drive to have its vast nuclear fleet included in an EU initiative to produce 20% of electricity from renewable sources by 2020 only adds to uncertainties, especially if expected new nuclear builds in the UK were also marketed in this light.

Rising UK demand for green energy is not a strong enough incentive alone to bring sufficient renewable generation capacity online. With the RO scheme, ultimately, struggling to deliver this as well, UK businesses should be clear on exactly where their 'green' electricity is coming from.

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