An evaluation of the consumer-funded renewable obligation scheme in the UK for wind power generation

Abstract

Wind generation increased dramatically in the UK over the last decade, partially contributed by the consumer-funded Renewable Obligation (RO) scheme introduced in 2002 as part of the government policy to support renewable energy. Despite its success in stimulating electricity generation from renewable sources, the RO scheme was closed in 2017 and succeeded by an alternative scheme, raising questions on the policy change. This paper makes the first attempt to evaluate the RO scheme by comparing the reduced spending on electricity and the costs of the scheme, focusing on wind generation. Using daily average hourly data from April 2009 to March 2021, our results from the Prais-Winsten estimation suggest that a marginal increase of 1 GW in hourly wind generation reduced the wholesale electricity price by £1.28/MWh. However, we show that the reduced spending on electricity resulted from the lower price was not enough to offset the costs of the RO scheme attributed to wind farms. Therefore, the RO scheme brought negative gain to consumers through increased wind generation, indicating that its closure was in consumers' best interest.