Renewable Energy in UK - Term Paper Example

Renewable energy has been one of the major issues of concern in the recent past around the globe. This is mainly due to the fact that climate change has come to the lime light due to the many effects being witnessed. The changes range from the devastating Tsunami which remains in the memories of many, the El Nino and the melting of the Poles which is the causative of the highlighted effects. All this has brought focus on environmental issues. This being brought into global focus has required nations to have their domestic policies harnessed in order to achieve the wider goal of environmental preservation. The issue has been wide spread and the discussion has brought deliberations such as the Kyoto protocol which has put some recommendations to countries with high pollution levels. These are countries such as the United States and the United Kingdom amongst other developed countries. (Ruddiman 2005) The focus mainly has shifted to these countries due to their great contribution to carbon gases originating from their vast industries. Many countries have been responsive whereas others have remained adamant on their earlier stands and carbon pollution has remained as high as was first recorded. The case is however different with the United Kingdom which has established policies to oversee the reduction of carbon emissions from its industries. This campaign has not only been directed at the large scale producers but has also formed a mechanism whereby environmental consciousness is instilled to the very last individual in the consumption line. One way of making this ambitious plan work is tax cuts for those who have enacted measures of cutting down the measures; this is mainly seen in the commercial producers who receive these cuts based on the level of pollution cut. The other is compensation for use of alternative fuel besides fossil; which has been associated with high pollution levels over time. (Held 2003) The UK government has realised that the use of other sources of energy may mean additional costs for these industries thus they have come up with a compensation plan to cushion these industries against the additional costs resulting from the use of new energy sources. The other measure goes beyond the country boundaries of the UK and is an internationally agreed upon compensation plan though with a similar working formulae with the compensation strategy of the Domestic UK policy. This policy was drawn up during the Kyoto agreement where countries were expected to cut the overall carbon emission. This is aggregated and the responsive industries are awarded depending on the level of carbon cut. (Held 2003) Though this has a universal appeal, the UK is a beneficiary and to some extent, it has helped bring the carbon emission level to a reasonably manageable level. The UK government has gone that extra mile towards achieving a healthy environment and one way of doing this is by controlling what is emitted into its environment. Having realised that the link between economic and environment situation is thin and that an effect on one has a considerable effect on the other, the government sought to have a mechanism that tied these two factors together. (Edwards 2001) The most sound was a mechanism where individuals achieve an economic consideration for effort put in taking care of the environment. This said the analysts who composed of various specialists, government representatives and economists embarked on finding that particular bit of environment to be subject to this ambitious plan. It proved a daunting task considering the vast nature and the multiplicity of elements contained in the environment. Especially coming up with one element that greatly affects the environment to an extent that an effect on it would mean an overall effect on the entire scope of the general climatic conditions. After careful consideration, the individuals borrowed from the wider Germany consideration of a boost in the renewable energy industry. Renewable energy Solar energy This is natural energy gotten from the sun. To make use of solar energy however specialized panels which harness the energy rays from the sun are necessary. These present an added cost but which is the only main cost associated with the use of solar energy as the primal source of energy. (Bradford pp. 98) Solar panels are of different types depending on how they convert the sun's rays into a usable form of energy. Usable to mean a way in which it can be applied to carry out processes similar to those performed by fossil fuels such as heating water, driving automobiles etc. Solar panels may be termed as either passive or active. This is solely dependent on how they capture the sun's rays, convert the rays into a usable form and finally share the converted energy to various areas of use. Passive solar technologies entail adopting a house or building in a way that it is susceptible to solar energy. Such houses or buildings are made in such a way that they are receptive to the slightest solar rays. The materials used to construct such houses should have considerable thermal mass and proper ventilations which would allow for free circulation of air. These houses are able to convert the sun's rays into electrical form which is used to heat the household systems or carry out other duties such as cooking or lighting up the house or other adjacent facilities. Active technologies involve the use of photovoltaic solar mirrors and thermal collectors which help collect energy from the sun. This is later on stored in various forms with the most common storage being rechargeable cells. Once stored in these cells, the energy can be used even at times when there is no sun. (Bradford pp. 106) Other ways in which solar energy can be stored is through thermal storage systems which present high temperature storage systems. These can be dispensed at night when direct sourcing of energy is not possible. Other methods include the use of materials such as paraffin wax which present a cheaper, clean and environmental friendly way to conserve energy. It should be noted that unlike in the past when solar energy was only used to carry out domestic related activities, it has now been adopted to help run automobiles which present a diverse use of solar energy. Wind energy This is another clean and environmental friendly source of energy which is harnessed though the use of windmills which enable conversion of wind energy into mechanical energy later on converted to electrical energy. Windmills are large oscillatory structures erected above the ground with some positioned as high as fifty meters above the earth's surface. These are fitted with dynamos which convert mechanical energy to electrical energy later on stored in rechargeable batteries for later use. Wind energy presents an economically viable source of energy with the only costs being the installation of turbines, the erection of these turbines and the motors or dynamos as maybe referred to in some fields. (Chiras et al pp. 44) Ethanol fuel Ethanol fuel is not as marginally utilized as may be the case with the other energy sources discussed earlier. It is a not so ancient energy source as well with the recent technology being the main reason for its use. Ethanol is part of alcohol found in all alcoholic beverages; it is mainly used in propelling engines but needs be mixed with normal gasoline to achieve effectiveness. Ethanol presents a viable substitute for fossil fuels and the renewable nature and availability is all a reason for further production and use. Hydrogen cell This is the last of the available favourable and efficient energy sources. Hydrogen cells can be gotten from water and sourced using solar energy. Hydrogen can be produced in enormous quantities with the only problem in current times being its distribution as no specialized outlet points are in place to help in distribution. Unlike fossil fuels, hydrogen fuels have no harmful emissions and only leave traces of water vapour. Implementation of renewable energy in UK Among the first policies to be implemented in the UK was the Non Fossil Fuel Obligation. This was the first aimed at increasing the use of renewable energy in the UK. NFFO was formulated in 1989 and was enacted under the Electricity act of 1989. This was the first and last step towards the privatisation process of the UK electricity production and distribution. (Smith 2003) The greater idea was to ensure the sustenance and development of the UK nuclear power production under powered generators which even after privatisation of electricity distribution remained under full control of the government. The funding of NFFO was provided by the Fossil Fuel Levy. This was a charge attached to all the electricity billings in the UK. Ofgem was charged with the pooling together of funds and later submission of the same to the Non fossil purchasing Agency. NFFO required that the Distribution Networks Operators from the wider UK to source energy from the nuclear power, which is a renewable energy. This mechanism was implemented in the year 1990 and the price averaged at 7.51 pence /kWh which was to be surrendered to the renewable energy producers. (Toke 2007) This policy continued up to 1998 when the next mechanism was implemented, being the Renewable Obligation. This was effected in 2002 to succeed the NFFO previously enacted in 1990. Though it maybe seen like a completely different strategy, RO was fundamentally similar to NFFO due to the following common grounds: They both utilised a market based phenomena, this is due to the fact that the enactors thought that a market oriented mechanism would provide a desirable outcome by increasing deployment and at the same time maintaining market prices at a reasonable level to the market forces mainly competition resulting to competitive pricing. They were both aimed at ensuring that renewable energy generators remained dominant in the market and as a result, they would be a major part of the electricity grid of the country. They both did not commit fully to technological advancements as they aimed to have a distant appearance so as to avoid pulling and featuring winners which would result to competition. Working of RO RO is basically an obligatory engagement involving UK electricity suppliers who as earlier on indicated are private individuals or institutions who commit to buying a certain percentage of their total electricity requirement from renewable generators. The total percentage is priory determined and is an escalating value going all the way to the year 2027. At inception, the obligation required that that the suppliers buy a total of 3% of their requirement from these generators; this is expected to rise to a total of 10.4% in the year 20210-2011. This percentage is expected again to rise to 15.4% by the year 2015 and remain so till mid 2020's. However, there is an exception that these can be reviewed annually by the involved parties and on reviewing the reviewed commitment takes effect rendering the other obsolete making it more of a contractual engagement. The other requirement of the engagement is that the renewable generators must be situated within the UK or anywhere else as far as it is within its territorial waters. (Emmanuel 2005) These generators should also be subject to continuous monitoring and service by the required authority for a period not dating back beyond 1990, a time of the first policy implementation. Ofgem just as in NFFO is charged with the responsibility of ensuring that the system is thorough and that it operates within the stated thresholds. Ofgem is also in charge of funds and electricity quantification making it play a more regulatory than operational role. Just as is common knowledge, the level of responsibility accorder to Ofgem requires a stipulated framework of regulations to enable efficiency in its work. Besides that, it also requires to establish a recognisable way of operation as it bridges the users and the suppliers of electricity on one side and the electricity generators on the other side. (Langniss 1999) For the past decade or nearly so, it has succeeded in carrying out these functions and this is through the following: Issuance of certificates for all projects that fall within its jurisdiction. This eases identification and regulation as other constituents of the energy sector are aware of the standard required for issuance of such certifications. It also ensures that subsequent follow up is eased for all its projects. It monitors the level of energy produced (output) by the renewable energy generators and produces certificates underlining the obligation to source renewable energy to the suppliers. It monitors the compliance level of the electricity suppliers this is in regard to the total amount of electricity sourced from the renewable energy sources. It is mandatory for suppliers to furnish Ofgem with statements indicating the total ROC's produced. It examines the links-these are the links between the ROC's and exemption certificates availed to those companies compliant with the climate preservation requirements.(Smith 2002) These requirements include the purchases of a certain level of renewable energy from the renewable energy generators. The above four points indicates the various ways under which Ofgem undertakes its regulatory or supervisory duty. However, to ease the whole scenario in the initial obligatory statement, the suppliers undertake to annually present proof of the total ROCs purchased annually. These it should be noted are not a must that they are bought from one designated producer but can be sourced from different generators as far as they are all manned by the UK government. The major benefits or advantages in RO have been agreed to come from the fact that it operates a market structure. A market structure being a dominantly economic issue found its popularity with the rise of certain renowned economists such as Adam Smith who underlined the need for markets around the world. He said that markets not only provide a mechanism for price setting but eliminates the chances of having single most predominant pacesetters in the market. (Arrigo 2007) This is due to the forces of demand and supply which ensure that prices remain within a manageable level as far as they both find an equilibrium point which should not be so high to disadvantage the consumers nor should it be to low to disadvantage the producers or suppliers in a market setting. Post modern economists though have found out that markets cannot be left alone to dictate prices as there is always a threat of a predominant figure in the markets or affiliations which would result to cartels; this would mean monopolistic trends within the market. This would eliminate the very initial sense of market self regulation as the monopolists dictate the price and control demand and supply to validate their predetermined prices. (Garegnani 1970) Thus their recommendations are that governments should step in to provide the regulatory guidelines that determine the market functioning. This however they earn should not mean that government enlists its own demand and supply but means it regulates the behaviour of players already existent in the market. Such is the scenario which benefits the RO and this enables it derive certain benefits which would be impossible if it failed to be market oriented. All of these advantages are viewed from the government's point of view as it is the single most beneficiary at the end of the day. RO is a numerical representation which helps account for the total amount of units gotten from the generators. More so its numerical nature also helps from an account system which acts as a verification of compliance levels as indicated in the obligation statement. It legalises the obligation and this gives the obligation a lawful aspect and even though it provides the suppliers with the freedom of choosing how to meet their obligation and at the end of the day ensures that the obligation is achieved and enforced. RO is a financial generator, RO allows suppliers to pay for all that they buy from the renewable energy generators and this is in pursuit of their obligatory statements. Thus in a general way, RO is a way to source funds of paying renewable energy sources. The effectiveness of this however is subject to various other considerations mainly the risk factor. Therefore the main considerations for RO is to minimise cost by cutting down the risk factors, this has an effect on the capital cost which is reduced and at the same time the efficiency of the system is increased. This is made possible by several other considerations and specifically for RO the main considerations are the price, volume and balancing risk. (Langniss 1999) The ability to overcome these risks determines how the policy works and the overall outcome of the policy. An examination of the RO indicates that the ability of firms to realise the major benefits of RO lies in the size of the energy companies. Large energy companies are able to overcome the risks of volume and price highlighted in the above context. The smaller companies are not able to overcome these risks thus they may not be fully or at all involved in the RO mechanism. Analysis of these risks here follows. Price risk The price risk mainly results from the fact that the price placed on the ROC is dependent on the market forces of demand and supply. On the other hand, the total amount of ROC can only be gathered if the deployment state of the entire source of renewable energy is known. This makes the overall determination of ROC which would in turn offer an objective outlook of the overall ROCs to be demanded annually. Knowledge of this would make the environment more secure by enabling prediction. In the real scenario, fluctuations in the total amount of ROCs demanded or supplied are what present the risks to the system. (Smith 2002) These risks would be reduced if there are stipulated RO eligibility rules as these are the ones that determine the value of ROC. Knowledge of the fact that an alteration of these eligibility rules brings in an effect on the supply curve, an increase in eligibility would result to an increase in the supply and consequently the overall value of ROC would reduce. Volume risk Volume risk emanates from the fact that the ROC is priory set. This would mean that the total ROC set at any given time means that the available generators will be required to meet at however there maybe additional generators which would either raise the market stakes or a reduction in the ROC existent at any given time. (Langniss 1999) Either way a volume problem is encountered which is the one generally referred to as the volume risk factor. Balancing risk RO creates a demand for renewable energy unfortunately it brings in no other supporting mechanism to ensure effectiveness. The initial plan was that RO was expected to make choices within the electricity field of which in the long run would result to favourable gains and achievements. However, the same long term goal presents a challenge to the very present being in that the system (RO) is not as secure as the initial NFFO which preceded it. (Smith 2002) Besides, it presents problems to the smaller and independent generator operators. The balancing risk then results from the fact that these two that is the large energy companies and the smaller operators have different postulates and yet at the end of the day, it falls within them to balance the energy portfolio. Conclusion Renewable energy obviously presents an outright advantage to the well being of the environment however most companies shy off due to the belief that it comes with a higher cost. However, the idea of RO in UK or German EEG presents a wonderful chance of controlling the costs and at the same time making it obligatory for electric suppliers to source renewable energy. This creates two advantages one being improved economic status and the second being improved environmental status. The economic bit brings in this energy sector and the government as the overall regulatory body. This gives the government a chance to aid in bringing forth sanity and underlining its authority within these markets. Besides ownership of the renewable energy, generators present it with a chance to regulate a major part of the energy sector. Thus in a summary, this increases the power of the state as it takes control of a vital part of the sector and by the fact that suppliers are under obligation to source energy from its generators, makes them their subjects which confounds the state powers. References Bradford, T (2006). Solar Revolution: The Economic Transformation of the Global Energy Industry. MIT Press. Blume, D and Winks, M (2007).Alcohol can be a gas! Fuelling an ethanol revolution for the 21st century, International Institute for Ecological Agriculture. Chiras, D, Sagrillo, M and Woodfened, I (2009). 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