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Design Flaws in United Kingdom Renewable Energy Support Scheme

Brighton Business School, The University of Brighton, Mithras House Lewes Road, Brighton BN2 4AT, UK
Academic Editor: Dimitrios Katsaprakakis
Energies 2021, 14(6), 1657; https://doi.org/10.3390/en14061657
Received: 6 January 2021 / Revised: 3 February 2021 / Accepted: 4 February 2021 / Published: 17 March 2021
(This article belongs to the Section I: Energy Economics and Policy)
Soon after the UK’s Feed-in Tariff (FiT) Scheme providing incentive prices for renewable energy was introduced in 2010, adjustments and modifications were made to eligibility criteria and incentive prices. Prices paid for renewable energy (RE) under the scheme were cut, deployment caps were introduced, and preliminary accreditation and efficiency standards were imposed. Controversy ensued as supporters sought help for the nascent RE technologies, while detractors claimed that the scheme was a wasteful means of reducing greenhouse gases. In this research, we examine how RE was incentivized under the FiT Scheme and its wider impact upon various stakeholders to assess its compatibility with liberalized electricity markets of the UK. We employ a financial performance metric to measure the direct costs of RE in compensation to investors and financial option theory to analyze the externalities of RE generation. As a means of reducing atmospheric CO2, the FiT Scheme was expensive, and the externalities imposed upon stakeholders were large. Whilst the UK scheme was effective in delivering RE capacity, our findings show that the scheme was flawed because the compensation provided to investors was greater than required while large indirect costs were ignored. Although eventually reducing feed-in tariffs addressed direct costs in compensation to RE investors, the externalities arising from stochastic renewable output under dispatch prioritization remain. Given the magnitude of externalities, large volumes of RE may be incompatible with the current design of electricity markets. View Full-Text
Keywords: renewable energy policy; feed-in tariffs and premiums; financial option theory; investor returns renewable energy policy; feed-in tariffs and premiums; financial option theory; investor returns
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MDPI and ACS Style

Haar, L. Design Flaws in United Kingdom Renewable Energy Support Scheme. Energies 2021, 14, 1657. https://doi.org/10.3390/en14061657

AMA Style

Haar L. Design Flaws in United Kingdom Renewable Energy Support Scheme. Energies. 2021; 14(6):1657. https://doi.org/10.3390/en14061657

Chicago/Turabian Style

Haar, Lawrence. 2021. "Design Flaws in United Kingdom Renewable Energy Support Scheme" Energies 14, no. 6: 1657. https://doi.org/10.3390/en14061657

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