Effectiveness and economic efficiency of support mechanisms for private sector investment in renewable generation technologies

Mr Jostein Kristensen

 The recent proposal for a Renewables Directive  from the European Commission has set a target on the UK to source 15% of total energy consumption from renewable sources. This is likely to require the development of a large amount of additional UK renewable electricity generation capacity using a variety of technologies. Some of these technologies—in particular, certain offshore generation technologies—have yet to be proven commercially viable. This is the case even with the financial supports provided in the UK, which include the Renewable Obligation and the associated tradeable Renewable Obligation Certificates. We present recent and on-going research by Oxera to assess whether current UK policies are likely to be successful in bringing forth sufficient renewable generation capacity by the private sector, and whether alternative policies (some seen elsewhere in the EU) are likely to be more effective, efficient, and/or robust.

Based on a dynamic investment model, several scenarios of UK renewable generation deployment are shown, including an economic assessment of the efficiency of existing and potential price or quantity policy levers. In addition, the effectiveness of schemes designed to provide financial supports to renewable generation developers in the form of either price or quantity mechanisms is assessed. This approach can provide insights into the kinds of policy frameworks that could make long-term (and largely sunk) investments in renewable generation capacity more probable.

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