Banding: A game changer in the Renewables Obligation scheme in the United Kingdom

Abstract

The Renewables Obligation scheme was implemented in the UK in April 2002 to support electricity from renewable sources and was designed as technology-neutral to encourage competition. As less developed technologies were disadvantaged, banding was introduced in April 2009 to provide differentiated support to different technologies. A similar feature was used in other countries but its positive impact has not been identified empirically. This is the first quantitative study to examine the impacts of banding based on time series data from March 2003 to December 2018 in the UK, focusing on onshore wind, offshore wind, and solar. This study considers the impacts of banding via its feed-through effect on the markups and then investors' decisions on renewable projects, instead of considering it as an independent policy intervention. The counterfactual analysis shows that, if banding was not introduced, the offshore wind would remain silent for extended periods, then the UK might have difficulty in achieving its target for renewable generation. Besides, the costs of the RO scheme would be less, but additional fuel costs would be added to cover the generation gap.