CRC: More doomed ship than flagship?

by Jo Butlin. Published Mon 08 Jun 2009 15:42
Jo Butlin, VP of retail at SmartestEnergy

Carbon conflict: renewable energy production can help cut emissions and provide jobs and wealth. Yet, proposals for the Carbon Reduction Commitment could seriously hinder this valuable industry, writes Jo Butlin, head of retail at SmartestEnergy

Here she explains the dilemma facing the flagship programme:

“The need for action on climate change has resulted in a flurry of ambitious outpourings from policy makers aimed at improving results from a variety of sectors of the economy.

The UK currently has targets to cut emissions by 34% and to increase the amount of renewable electricity on the grid to 15%, both by 2020 – a tall order when one considers that renewable energy currently accounts for just under 5% of energy production in this country.

A majority of the new measures and regulations are designed to act on the energy sector, either to reduce consumption by business users or change to cleaner forms of production. This makes perfect sense – after all, it is in our energy usage that a majority of our emissions are produced and the greatest savings could be made.

Unfortunately, the latest set of proposals currently under consultation to reduce energy consumption – the Carbon Reduction Commitment (CRC) – could seriously hinder attempts to meet renewable generation targets.

The CRC, due to come into effect in April 2010, will initially target around 5,000 UK businesses which consume over 6,000MWh of electricity every year. The Government has already said it is likely to increase the reach of the proposals to cover around 20,000 companies in the future.

Under the terms of the proposals each affected firm will be expected to reduce their energy consumption – and therefore their emissions – against a baseline to be set next year. So far, so good, it certainly makes sense to encourage and reward energy efficiency and reduce demand on the network.

However, under the CRC framework, those companies seeking to make a further difference by buying electricity from a dedicated renewable supplier will not be allowed to use this as a contribution towards their emissions reduction. Instead, the Government has decided that all electricity purchased will be measured as ‘grid average’, regardless of whether the renewable mix
in your supply is 5% or 100%.

The scheme assumes there is no difference between electricity generated at a coal-fired power station and that generated by a wind-farm or small hydro plant.

This clearly makes very little sense and sends entirely the wrong signal to the UK renewable electricity industry and its customers, at just the time when we need to increase demand and supply of renewable energy, not squash it.

In the UK, industrial and commercial customers account for 62% of electricity consumption. Greater demand from this sector could seriously transform the renewable energy market in this country and provide a direct line of support for the independent generation sector. However, as a supplier focused on delivering renewable power to this sector, we are already seeing both customers and intermediary brokers walking away from renewable offerings for the medium-term as they pre-empt the effect of the CRC.

The Government’s position comes as a result of its own confusing structures designed to increase renewable production. Currently, for every MWh of renewable electricity produced, the generator is awarded three certificates: a Renewable Energy Guarantee of Origin (REGO), which states where and how the power was produced and is the only real proof that the power is renewable; a Levy Exemption Certificate (LEC) which allows business users to avoid paying the Climate Change Levy; and a Renewable Obligation Certificate (ROC), which can be sold on to utilities and other electricity suppliers in order for them to compensate for their shortfall in actual renewable energy production.

It is the role of ROCs which needs to be examined to rectify this situation. ROCs were designed as a direct financial subsidy to renewable energy producers to reward them for taking the financial and entrepreneurial risk inherent in deploying new technologies. This is what they should remain. They should not be allowed to be used by utilities or other suppliers to prove that they are providing renewable electricity. The only proof of this is the REGO.

This is the only certificate of proof used in the domestic market’s new ‘green supply guidelines’ as administered by Ofgem, and should be the only real measure of renewable content in the industrial and commercial sectors too.

Any power then sold to customers as renewable or green would have to be supported by REGOs and verified by independent auditors. REGOs, linked to a specific generation plant, demonstrate a direct one-for-one MWh match between renewable energy generated and renewable energy consumed. It provides unquestionable proof of reduced carbon emissions within the UK and should be justifiably used towards business customers Carbon Reduction Commitments.

If any commercial energy user wants to demand and buy 100% or even 50% renewable content in their fuel supply, as they can from Smartest Energy, then this extra difference between ‘grid average’ and the actual amount supplie as directly backed by the REGO should count towards their reduction commitments.

Business customers, particularly consumer facing industries affected by the CRC, can benefit by displaying the energy mix they buy as an indication of their wider credentials, while generators benefit from the direct support this provides.

Independent renewable energy developers and generators demonstrate exactly the sort of entrepreneurial spirit that this country so desperately needs at a time of economic malaise. They act as an economic multiplier, bringing direct and immediate benefits to their local areas as well as to the wider issues of climate change and carbon reduction.

If we fail to encourage business customers to buy renewable supply and support UK industry, we run the risk that they will display their credentials through the increased purchase of carbon offsets. While these projects may have benefits in their own right, they encourage funds to be invested, and
emissions reductions to take place, overseas rather than in the UK itself.

If we are serious about making an impact on climate change we must ensure that this truly reduces carbon emissions and does not impact on the renewable energy sector.

It is only by developing a framework where the purchase of ‘green’ power becomes clear and beneficial to mainstream industry that we have any hope of meeting our emissions reduction and renewables targets.”

Jo Butlin is head of retail at SmartestEnergy, the UK’s largest trader of independently generated power.

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