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5. Renewables need more funds

‘The Government has big plans for green electricity, but with no money on offer, the outlook is grey’, so said Oliver Morgan writing in The Observer  on  20 July.  That emerged as a common theme in much of the media reactions to the governments recent moves on renewable energy policy.  The Energy White Paper had been strong on vision but weak on financial back up- it only allocated an extra £60m to renewables. The announcement of the expansion of the offshore wind programme with a target of 6GW by 2010 (see Renew 145) caught the media’s attention, but, as Oliver Morgan put it ‘it does not extend to largesse from the DTI or the Treasury. The first round of offshore sites announced in 2000- 18 pilot projects of 30 turbines each located closer to shore- received capital grants, but for this much larger round totaling 1,600 turbines there is no public money.’ 

Without that, only big players are likely to be attracted to fill out the targets- and even they have been slow to move. A key problem that the power market is depressed due to NETA. Nord LB’s Kirk Taylor told the Observe that ‘banks do not want to be exposed to electricity price risk in general- prices have slumped in the past four years, and a lot of conventional generating plants are running at a loss’.

 In this situation getting capital to finance ambitious and risky new projects is hard. By itself, the Renewables Obligation does not provide sufficient support for many new projects like this- but the government is nervous about expanding the level of subsidy, fearing a consumer revolt. As it is prices could rise by 4-5% by 2010.

At the launch of the new expanded round of the DTI’s offshore wind programme last July, Patricia Hewitt told the BBC: ‘There will be a cost to renewable energy. Renewable energy is more expensive than gas-fired because gas prices are very low at the moment’. But she added: ‘The more we build of these offshore wind farms the more the price will drop as people learn to do it more efficiently’,  and she also argued that price rises to consumers could be limited by also, in parallel, investing in energy efficiency:  “As we sort out the energy efficiency side, we can make sure the bills to consumers don’t go up because people will need less electricity to get the same amount of warmth and power”.  

Fair enough, but the point seems to have been accepted that shifting to renewables will initially cost more- in effect admitting the low prices should not be the only issue for energy policy.

Environmental Audit Committee

That was also the point made by  the Environmental Audit Committee, which, in July, published a report examining the extent to which the Energy White Paper provided an adequate response to the recommendations of key previous reports- including those of the Royal Commission on Environmental Pollution, the Performance and Innovation Unit, and the Environmental Audit Committee itself. It was none too flattering- see Box right.   John Horam MP, Chairman of the cross-party Committee at the time the Report was agreed, said that there were ‘inherent contradictions in the Governmen’s strategy. It hopes for increases in electricity prices to help CHP and renewables, but wants to keep prices down to help those in fuel poverty.  We remain convinced that a transition to an environmentally benign energy system cannot be achieved on the basis of unsustainably ‘cheap’ energy, as the Prime Minister’s foreword to the PIU report indicated was a priority.’

The EAC was also unhappy with the lack of follow through ‘It is extraordinary that, after three years of intense public debate and consultations, the Government came up with so vacuous a document.  While we welcome the vision it contains and the inclusion of the 60% carbon reduction target for 2050, it is disturbing that the Government has not been able to publish an implementation plan setting out in detail how it intends to achieve its aims.’

He went on: ‘We are particularly concerned at the proliferation of ad hoc bodies in the energy sector- with the creation of a Sustainable Energy Policy Network, a Sustainable Energy Policy Advisory Board, and an ad hoc Cabinet Committee. This is no way to address the Strategy Unit’s criticism that the present allocation of departmental responsibilities in the energy sector is incoherent.’

 Environmental Audit Committee- key points

DTI leans on OFGEM

The DTI has produced draft guidelines that require the energy regulator OFGEM to make sure energy companies work towards meeting challenging environmental and social goals.  OFGEM will have to report annually on how it is contributing towards these objectives. The guidelines strengthen OFGEM’s role in helping to meet the Government’s target of putting the UK on a path to cutting carbon dioxide emissions by 60% by 2050 while continuing to protect the interests of consumers. They  place responsibility on the regulator to: remove any barriers that might prevent progress towards these targets; provide a framework within which business is encouraged to work towards these objectives.

Many environmentalists had criticised OFGEM for not supporting green energy options sufficiently, but to be fair, OFGEM could only operate within the rules given to it by the government, which basically called on it to ensure that market competition worked fairly. The new rules may help improve matters.