Economic efficiency versus industry building

Since the new RO system only went live on 1 April 2002 it is still too early to tell whether it will succeed over the long term where NFFO failed. What can be said is that it continues to emphasize economic efficiency, in this instance depending on trading of ROCs to minimize cost, rather than competitive bidding. Consequently there is a danger that much of the benefit of the new policy will go to foreign manufacturers nurtured in a less demanding environment.

Indications so far point to a more stable market that the RO has fostered, encouraging wind manufacturers to set up operations in the UK. The trailblazer here has been Vestas, which has a successful assembly plant at Campbeltown on the Mull of Kintyre in Scotland, and mergered with NEG Micon, a leading blade production plant on the Isle of Wight (off England's south coast). Since UK engineering firm FKI acquired Germany's DeWind, it has started manufacturing operations in Loughborough, and REpower has a joint venture with Peter Brotherhood. Danish Bonus has also been seeking out possible sites. In most cases, the profits will be sent abroad, although the UK economy will benefit from jobs and investment, as well as business further down the supply chain.

One of the ironies of having a mechanism which claims to promote economic efficiency and seek least-cost solutions is that it can result in higher-cost finance. The prices achievable under the RO are not known with any certainty and uncertainty only increases the further into the future one looks. The prices are also dependent on the overall activity level in the market (which affects the amount of money to be recycled), and are at risk due to supplier default. With bank financing, the higher the risk attached to an activity, the higher the cost of capital will be, and as the cost structure of many renewables (particularly wind) is heavily capital intensive, this pushes up the cost of the power output.

Was this article helpful?

0 0
Renewable Energy Eco Friendly

Renewable Energy Eco Friendly

Renewable energy is energy that is generated from sunlight, rain, tides, geothermal heat and wind. These sources are naturally and constantly replenished, which is why they are deemed as renewable.

Get My Free Ebook

Post a comment