The Effect of Renewable Obligations on Electricity Prices - Estimates for the Uk

As global warming escalates, largely fueled by greenhouse gas emissions from electricity generation, European nations have enacted regulations to encourage the use of renewable energy sources (RES-E). This paper provides a detailed analysis of how adjustments in Renewable Obligations, specifically quota obligations and the prices of Renewable Obligation Certificates (ROCs), influence electricity prices in the UK, spanning two separate periods: 2011-2013 and 2021-2023, using a regression analysis. In the first period, we observe a significant positive association between the prices of ROCs and the market price of electricity, underscoring the direct influence of ROC pricing mechanisms on energy costs. However, the data does not support a similar impact from quota obligations, suggesting that while ROC prices are integral to electricity price formation, quotas do not exhibit a directly proportional effect. In contrast, in the second period the scenario changes. Here, quota obligations become significant, indicating a growing influence on electricity prices as the UK’s energy policy evolved. In this later period, the effect of ROC prices on electricity prices is not significant. This research contributes to the ongoing discourse on the economic implications of RES-E policies and their burden on consumers. The insights gathered herein provide a foundational understanding of the impacts that RES-E regulations have on electricity prices, serving as an essential resource for policymakers and energy economists alike.