Legislative Background
At Kyoto in 1997, the European Union committed to reducing its carbon emissions by 8%, with the UK committing to a reduction of 12.5% from 1990 levels.
During the 1990s, renewable development in the UK was supported by the Non Fossil Fuel Obligation regime, the Scottish Renewables Obligation (``SRO``) in Scotland and the NI-NFFO in Northern Ireland. Initially introduced to support the nuclear industry, the regime obliged electricity companies to purchase quantities of electricity derived from non-fossil fuels and contracts were awarded through five separate rounds.
In April 2001, the Climate Change Levy was introduced imposing a levy on commercial and industrial energy users in the UK. Electricity generated from eligible renewable sources is exempt from the levy, with Levy Exemption Certificates issued by the UK regulator, OFGEM. Those certificates can then be sold on to those seeking exemption from the Climate Change Levy.
In April 2002 the Renewables Obligation was introduced obliging electricity suppliers to source an escalating percentage of the electricity they supply from qualifying renewable sources. By 2010/11, electricity suppliers will be obliged to source 10.4% of the electricity they supply from renewable sources. The UK Government has committed to the underlying regime remaining in place until 2027.
The Renewables Obligation system is based on suppliers redeeming Renewable Obligation Certificates (``ROCs``) obtained from the qualifying renewable sources and paying a penalty to OFGEM (the ``Buyout Price``) to the extent they fail to meet their obligation. The funds collected by OFGEM are then returned to the suppliers, by way of Recycling Payments, in proportion to the extent to which they meet their renewables obligation.
In 2003 the UK Government published its White Paper ``Our Energy Future - Creating a Low Carbon Economy``. In that paper the Government stated its aim to ``put ourselves on a path to cut the UK`s CO2 emissions by some 60% by 2050, with real progress by 2020``. Building on that, the White Paper included an aspiration to source 20% of electricity supplied from renewable sources by 2020.
