Qualitative Evaluation of Financial Instruments for Renewable Heat
23 June 2008
By Daniel Radov et al.
In 2007 the European Council agreed that by 2020, 20 percent of EU energy use should come from renewable sources. The target applies to all energy use, including electricity generation, heating, and transportation. The European Commission has proposed that in the UK, 15 percent of energy should come from renewable sources by 2020. Although the UK (like many European countries) has relatively well-developed policies designed to promote renewable electricity, there are very few policies in place to promote the use of renewable energy for heat.
This report, commissioned by the UK Department for Business, Enterprise and Regulatory Reform (BERR), considers a range of policy options that could be used to provide financial support to renewable heat technologies to increase their use across the economy. After reviewing and evaluating a "long list" of policy options (including grants, taxes, quantity-based targets, expansion of existing cap-and-trade schemes, and unit subsidies for heat output), the report focuses in detail on three short-listed policy options. The short-listed policies include quantity-based targets, direct price supports that would resemble the "feed-in tariffs" used in some countries to promote renewable electricity, and "hybrid policies" that combine features of the other two. The authors provide an in-depth discussion of how the short-listed policies would work in practice, and highlight the uncertainties and further research required before such policies can actually be implemented. A key question that emerges from the work is how relationships between customers, energy suppliers, and renewable heat suppliers would evolve.
