Ofgem's proposal to replace the renewables obligation

Ofgem response (24 pages, PDF) to the DTI consultation on possible changes to the renewables obligation scheme.

The press notice (3 pages, PDF) highlights the unnecessary costs of the renewables obligation method for subsidising renewable electricity generation, and proposes instead a return to "an arrangement based on auctions of long-term contracts that offer renewable generators a fixed return and link the level of support to the wholesale electricity price". The notice argues that the Government's banding proposals for the renewables obligation are not capable of avoiding the unnecessary subsidy.

Ofgem alleges that the renewables obligation leads to subsidies that are disproportionate to their objective of reducing carbon emissions, and the response briefly mentions the risk that the European Commission may decline to authorise the Government's banding proposals under Article 87. The Commission has endorsed the renewables obligation on several occasions in the past (see the decisions), holding that the reliance on a market mechanism was sufficient to overcome its doubts about the proportionality of the blanket subsidy arrangement, but has not yet published its view on the latest proposals for England and Wales and Scotland.

For further information or advice please contact Franck Latrémolière.

Filed under Electricity, Ofgem, State aid.

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