Renew On Line (UK) 56

Extracts from NATTA's journal
Renew, issue 156 July-Aug 2005

6. UK Funding for Sustainable energy

In his Budget announcement in March, Gordon Brown said that funding for energy R&D from the science budget will rise from a current level of £40m per year to £70m per year by 2007-08, with additional support for business via the DTI Technology Programme (see below) and the Carbon Trust. He added ‘To underpin this investment, the Government will establish a UK Energy Research Partnership, bringing together public and private funders of energy research to enhance opportunities for collaboration’.  He also said that since carbon capture and storage (CCS) had the potential to significantly reduce carbon emissions from fossil fuel plants, which was particularly relevant to fast growing economies with rapidly growing fossil fuel consumption, the Government was ‘examining how it might support the development of CCS in the Climate Change Programme Review, including the potential for new economic incentives’.

Otherwise, the VAT cut on micro-CHP apart (see below), it was hardly a green budget- it froze most key environmental taxes, including the climate change levy, air passenger duty and company car taxes, at current levels.

MicroCHP VAT cut

The March budget reduced VAT on domestic micro combined heat and power (micro-CHP) appliances from 17.5% to 5%, which means that they now benefit from the same VAT rating as some other energy efficient products and the use of energy itself- a move designed to encourage people to invest in this new technology. According to the Micropower Council, ‘MicroCHP is set to revolutionise the home energy market by enabling customers to produce part of their own electricity whilst heating their homes. It is estimated that a microCHP would cut a typical household’s energy bills by around £150 a year and CO2 emissions by approx. 1.5 tonnes a year. A quarter of homes installing 1kW micro-CHP units would make a significant contribution to the UK’s domestic energy efficiency carbon dioxide reduction targets, and provide generation capacity equivalent to almost half that of today’s nuclear power station fleet.’         

 More at http://www.micropower.co.uk/

£100m for Innovation...

The March Budget may not have offered much new for renewables (see right), but Science and Innovation Minister, Lord Sainsbury, did announce £100m for the next round of the DTI’s Technology Programme with low carbon energy options being one of the areas set to benefit- along with automotive & aerospace technology. He urged UK firms and research communities to get ready to apply for the latest competition of funding from the £320m Technology Programme, which runs from 2005 to 2008 and enables businesses to take new ideas off the drawing board and into the marketplace. A new feature of the Programme will be £30m specifically targeted to create ‘demonstrators’ of next generation technologies. Tackling issues like climate change is at the forefront, with zero emission enterprises & emerging energy technologies including renewables being one of eight priority areas.

 ...and £20m p.a. for renewables

The Technology programme now subsumes the DTI’s old New and Renewables Energy programme and provides  £20m p.a. to support R&D into renewables and low carbon technologies. As detailed in our Groups section, in the first round, which was opened to submissions in April 2004,17 projects were provided with a total of £9m funding, including support for Lunar energys tidal project and Wavegens wave device. See:

 www.dti.gov.uk/technologyprogramme/successful.html

 www.dti.gov.uk/technologyprogramme/open_comps.html

..but the Government may claw back £1bn

The House of Commons Public Accounts Committee took a look at the National Audit Offices report on the DTI’s handling of UK renewable energy programme (see Reviews) and in Feb. it cross examined Sir Robin Young, then DTI Permanent Secretary. In particular it explored what had happened to the money raised by projects that had initially been supported under the old Non Fossil Fuel Obligation.  They have been transferred to the Renewables Obligation and evidently, instead of of being recycled, the revenue arising goes to the Treasury. The Committees chair, Edward Leigh MP (Con), ever keen to seek out ‘stealth taxes’, noted: ‘By excluding non-fossil fuel obligation sites within the renewables obligation £1bn is generated for the exchequer’.  Sir Robin responded ‘Sixty million pounds of the surpluses which have arisen so far have been committed by the government to promote renewable energy and that is probably about half of what has been accumulated so far’;  but he accepted that ultimately £1 bn, which was the accumulated amount expected by 2010, would go to the exchequer.  Let’s hope that at least some of this will also be respent on new renewable energy projects.

Here is what the NAO said on this issue:  ‘In 2001, the Department decided to include live NFFO sites in the Renewables Obligation. This more than doubled the supply of Renewables Obligation Certificates in 2002-03 and thus significantly aided the introduction of the Renewables Obligation by helping to create a market for Certificates. Alternative approaches available to the Department would not have provided the same momentum to the introduction of the Obligation and could have jeopardised progress against the 2010 target. However, the inclusion of these sites has increased the cost to electricity consumers, but has benefited the Exchequer by equal measure. The size of this transfer is likely to be in the range of £550m to £1 bn over the period to 2010. The additional payments made by consumers are held in a fund administered by Ofgem. Through the Sustainable Energy Act 2003 the Government has earmarked £60m of this fund to promote the use of renewable energy. The remainder is likely to be paid into the Consolidated Fund.’

Revenue funding - more please !

In the manifesto on the way ahead for renewables produced  by the British Wind Energy Association and 10 other renewable energy trade associations, including the RPA and CHPA, the extra funding given to wave and tidal  current power (see Renew 155 and our Technology section) was clearly welcomed- especially since part of it was in the form of continuous/kWh revenue funding.

But perhaps inevitably, the manifesto called for similar revenue support for other power generation technologies that were near to commercialisation under the Renewables Obligation. ‘Some extra help will be crucial if biomass, offshore wind, microgeneration and other resources are to play their role in meeting the 10% by 2010 target. Such support could take the form of an output-related ‘top-up’ payment, different for each technology and reflecting the level of extra help required.’ 

 It added ‘A precedent has been set by the recently-announced plan for the early-stage wave and tidal stream technologies, which will benefit from a £100/megawatt hour (MWh) premium on top of income available under the RO. Other technologies will require less, reflecting their relative commercial maturity.’  

The Manifesto also called for new policies to promote renewables in sectors other than electricity generation- heat and transport. It argued that “This will require the setting of targets for renewable heat and transport fuels, which should be ramped up so that 25% of all Britain’s energy needs are met by renewables in 2025. If non-electricity renewables cannot be boosted to provide 25% of the demand in their sectors by 2025, the target for power should be raised so that the overall energy goal is met.”  It added ‘Policies that can implement the heat and transport goals are already available: the Renewable Transport Fuels Obligation was enabled by the Energy Act 2004, and a Renewable Heat Obligation Bill is currently before Parliament’.

It also called for the reform of some taxes to promote investment in renewables and remove anomalies that militate against renewables. In addition it called for  specific measures to support micropower technologies and small scale renewables- following on from the Clear Skies scheme. All this as part of a strategy to get 25% of UK energy from renewables by 2025- aided by the creation of a new Cabinet level post with specific responsibility for the delivery of the UK’s Climate Change Programme within a new Dept. of Energy and Environment. The full manifesto is at: www.bwea.com/media/news/manifesto.html

* Although they were generally very pleased with the DTI’s proposals, the renewable energy trade lobby (RPA/BWEA/SRF)  offered some suggestion for improvement and clarification.  Perhaps unsurprisingly, they called for the limit on the capital grant element to be increased from 25%, at the very least for some of the more advanced projects, which were likely to be larger. They also called for the time scale of the revenue funding to be expanded beyond 5 years- not least so as to take account of uncertainties and to accommodate ‘unforeseen circumstances’ which were likely with new technologies.  They also felt that the DTI’s requirement that projects were “significantly different” from others on the scheme could create inappropriate restrictions and distortions. It could encourage some developers to rush precipitately into applications to get in first.  After all, ultimately a degree of convergence of concepts is anticipated, as was seen in wind energy, so why block this? They were also unhappy with the block on any contribution from other public sources. For example would this exclude projects using the proposed WaveHub in Cornwall, which is planned to be partly publicly funded? And what about EU funding? Couldn’t the capital grant simple be reduced by the amount coming from other public sources?

 After the Election- now what?

The Labour Manifesto included the following statement, which could be read as accepting nuclear power back into the fold:  “We have a major programme to promote renewable energy, as part of a strategy of having a mix of energy sources from nuclear power stations to clean coal to micro-generators”.  Backup for the new approach came from OXERA, Oxford Economic Research Associates, who claimed that, in net present value terms, a wind programme would cost almost three times as much as an equivalent scaled nuclear programme- £12bn in public subsidies, as opposed to £4.4bn for nuclear. OXERA said it would cost £1.6bn to build the first gigawatt nuclear plant, but £1.2bn for the rest. The £4.4bn programme could, it suggested, be split into a £1.1bn direct public capital and the provision of publicly backed debt guarantees worth about £3.3bn. However, while they include waste management and decommissioning costs, these figures don’t include the cost of public liability insurance, and they do seem optimistic- whereas the renewables estimate seems pessimistic.

The issue will now be on the desk of Alan Johnson, appointed in the Cabinet reshuffle in May as Secretary of State for the DTI (briefly renamed the Dept. of Productivity, Energy & Industry, but then changed back to DTI!)  And in particular it will be up to Malcolm Wicks, the new Energy Minister, to sort out.