Executive Summary
The UK’s transition to renewable electricity was supported by a series of government policies designed to encourage investment in wind, solar and other low-carbon technologies. These schemes have been successful in increasing renewable generation, but many were designed at a time when renewable technologies were significantly more expensive than they are today.
The largest of these legacy schemes is the Renewables Obligation (RO). Although the scheme closed to new projects in 2017, many accredited generators continue to receive support for up to 20 years. The cost of these historic policy decisions is recovered through electricity bills rather than general taxation.
We believe this approach is no longer appropriate. Legacy renewable support schemes were government policy decisions made for the benefit of the country as a whole. As such, they should be funded through general taxation rather than increasing the cost of electricity.
How UK renewable electricity is supported
Estimated share of generation receiving the three principal support schemes, 2024/25
Methodology and sources
Why were renewable support schemes introduced?
During the late 1990s and early 2000s, renewable electricity was significantly more expensive than conventional generation. Investors required long-term financial support before they were willing to build large-scale wind farms and solar projects.
Successive governments introduced support mechanisms to:
- Increase renewable electricity generation.
- Improve energy security.
- Reduce carbon emissions.
- Encourage investment in new technologies.
- Create confidence for long-term infrastructure investment.
These policies achieved their objective. Renewable electricity now provides a significant proportion of the UK’s electricity generation.
The Renewables Obligation
The Renewables Obligation (RO), introduced in 2002, became the UK’s principal renewable support mechanism.
Under the scheme:
- Renewable generators receive the wholesale electricity price for every unit of electricity they generate.
- In addition, they receive Renewables Obligation Certificates (ROCs).
- Electricity suppliers must purchase enough ROCs or pay into a government buy-out fund.
- The cost is ultimately recovered from electricity consumers through their bills.
This means an RO-accredited wind farm receives two sources of income:
Wholesale electricity revenue + Renewable Obligation support
Unlike newer Contracts for Difference (CfDs), RO projects continue to benefit when wholesale electricity prices rise.
Why are consumers still paying?
The UK has honoured the long-term contracts offered when these projects were built.
Many RO projects receive support for around 20 years from the date they were accredited, meaning payments will continue well into the 2030s even though the scheme itself closed to new projects in 2017.
These are not costs associated with generating electricity today.
They are the continuing cost of a historic government policy.
The problem
The current system places historic policy costs onto electricity bills.
This creates several problems:
- Electricity appears more expensive than its true generation cost.
- It discourages households from switching to electric heating and electric vehicles.
- Businesses face higher electricity costs, reducing competitiveness.
- Consumers often believe renewable generation itself is expensive when much of the cost relates to legacy policy support.
Government policy has created an unusual situation where electricity is expected to replace fossil fuels while simultaneously carrying many of the costs of the transition.
Our position
We support honouring all existing contractual commitments made to renewable generators.
However, we do not believe consumers should continue paying for historic government policy through their electricity bills.
Instead:
- Existing RO, Feed-in Tariff and similar legacy commitments should continue unchanged.
- The funding responsibility should gradually move from electricity bills to general taxation.
- Electricity bills should instead reflect the actual cost of supplying electricity, operating the networks and providing retail services.
This would improve transparency without changing the contractual rights of renewable generators.
Why general taxation?
Renewable support schemes were national industrial policy.
The benefits extend far beyond electricity consumers:
- Lower national carbon emissions.
- Improved energy security.
- Reduced dependence on imported fossil fuels.
- Development of domestic renewable industries.
- Progress towards legally binding climate targets.
These are public benefits that accrue across society.
Funding these policies through general taxation recognises that the costs should be shared across the wider economy rather than falling disproportionately on electricity users.
Looking forward
The UK has already moved to a better support mechanism through Contracts for Difference (CfDs).
Unlike the Renewables Obligation, CfDs limit windfall profits by requiring generators to repay consumers when wholesale electricity prices exceed their agreed strike price.
As legacy schemes naturally expire over the coming decade, the electricity market should become simpler, more transparent and less dependent on historic subsidy mechanisms.
Moving remaining legacy policy costs into general taxation would accelerate that transition while making electricity more affordable for households and businesses.
Conclusion
The Renewables Obligation helped build the UK’s renewable electricity industry and should be recognised as an important part of the energy transition.
However, the continued cost of those historic policy decisions should no longer be hidden within electricity bills.
Electricity consumers should pay for the electricity they use.
Historic government policy should be funded transparently through the public finances.