A renewables obligation is a mechanism set up in the UK to promote the growth of renewable energy. It requires electricity suppliers to obtain a specified fraction of their energy from generators using renewable energy sources. This fraction will increase to 10% by 2010. The obligation sets up a market in tradeable green certificates (renewable obligation certificates, ROCs). Suppliers have to buy a certain number of ROCs to show that they have obtained the specified fraction of renewable energy. This they can do by buying ROCs directly from the renewable generator or on the open market. Alternatively, they can pay a buyout price of 3 репсе/kWh to make up any shortfall.
Renewable generators of electricity will earn revenue from selling both electricity and ROCs, which will give them extra income. The idea is that, as the price of ROCs rises, developers will be encouraged to build more renewable energy generators. Market forces will generate competition and favour the most economic renewable sources. Furthermore, the increase in production will help reduce prices as the technology improves (see Section 11.2.2). The renewable sources included are solar, small hydro, wave power, tidal energy, geothermal energy, biofuels, and on – and off-shore wind power. The buyout price limits the amount of financial support for renewables to 3 репсе/kWh, compared with a wholesale price of currently ~1,8 pence/kWh.
How well this policy will work will depend not only on the supply and demand, but also on the ease of obtaining planning permission, the integration of renewables into the electricity grid, and on not penalizing the intermittent nature of renewables in favour of the predictability of fossil-fuel generated electricity. The renewables obligation does not discriminate between different renewable sources, so it is not encouraging the development of emerging technologies such as wave power and tidal energy. Investment in a wide range of new technologies is important for stimulating innovation, building up expertise, and for not pre-judging what is the best technology.
The need for a reduction on CO2 emissions is now well established and widely recognized. But the amount of reduction required is very large, and we conclude by outlining a strategy, called stabilization wedges, put forward by Pacala and Socolov in 2004, that would hold the overall increase of CO2 to around 500 ppm, a level thought to reduce the threat of dangerous climate change significantly.