4. Yet more reviews.. Tory Energy Review 

In their own interim energy review, released just before the governments review, the Conservatives said that nuclear power should be used only as ‘a last resort’. Shadow trade secretary Alan Duncan said his party wanted to ‘explore every conceivable method of generating electricity before we go to nuclear’. The Tory review says that when it comes to nuclear there would have to be ‘total transparency over the full lifetime costs of nuclear power, clarity over nuclear waste and no subsidies or special favours’ and that it was ‘vital to give green energy a chance to demonstrate its potential on a level playing field with other sources of electricity’.  They repeated the same message after the governments review emerged- and said it was ‘content free’.

Commenting on their own review, David Cameron said: ‘Where the government sees nuclear power as the first choice, under our framework it would become a last resort; where the Liberal Democrats rule out nuclear power, we rule out subsidies and special favours for nuclear power’. He also stressed the ‘enormous contribution’ local councils could make to cutting emissions and the scope for decentral power: ‘we are still lumbered with the same backward-looking, central-planning mindset that has dominated thinking on electricity since the first half of the last century.  There will always be a need for a robust and secure National Grid; energy security is vital. But it is a myth that it can only be provided from remote and inefficient power stations or that electricity has to travel hundreds of miles to market. We live in a fast-changing world of scientific research and innovation. I want Britain to be at the forefront of the green energy opportunity and I want local government to be in the forefront of Britain’s environmental progress. We need to think in an entirely new way about energy. The future of energy is not top-down, it’s not centralised- it’s bottom-up and decentralised.’

He added ‘Decentralised energy- electricity generated in smaller, more local units such as neighbourhood combined heat and power schemes- could make an enormous contribution to reducing carbon emissions and improving energy efficiency. Decentralised energy offers an exciting vision of 21st-century energy supply, re-engineering the system and opening it up to new, smaller technologies and more local participants. This would be to the long-term advantage of the consumer as well as helping to tackle climate change.’

 He noted that Barnsley council has pioneered the use of biomass heating, while Woking borough council ‘has pioneered the use of decentralised energy to reduce carbon emissions through the use of combined heat and power; solar power, geothermal power, and hydrogen fuel cells’.

David v Goliath…  

At the 2006 Ashden Awards for Sustainable Energy event in London in June David Cameron  commented “There are two models for the future of energy. One of them is an old fashioned, Whitehall directed, top down approach that seeks to pick a technology that will provide for our needs for decades to come through a central grid. The other is a smarter, localised, bottom up approach that allows different technologies to thrive in a web of interconnectivity.”

Carbon Trust on RO

Emerging just before the Energy Review, the Carbon Trust’s new report ‘Policy frameworks for renewables’ claimed that the UK will not meet its renewable energy targets (maybe only getting to 10% by 2020, instead of 20%) in part because the Renewables Obligation (RO) is inefficient- and will cost consumers perhaps £1bn more than is needed to help fill the 18% energy gap (14GW) that is seen as emerging by 2015 as existing conventional/nuclear power plants are retired. Instead of the RO, the Trust suggests a Renewable Development Premium ‘market pull through’ mechanism- in effect a Renewable Feed-In Tariff, with guaranteed prices reflecting the needs of each technology and falling in steps as the they and their markets, mature. The Trust sees something like this as vital to keep offshore wind expanding, and also to help marine renewables like wave power expand- although it thinks that the existing additional capital and revenue funding scheme for wave and tidal power (the Marine Renewables Deployment Fund) should be retained as the initial support mechanism for developing technologies, after which  they would then be taken up by the proposed  ‘pull through’ mechanism, to help them get fully established.

The problem is that the variable market determined prices under the RO mean that developers and investors have to charge premiums to cope with the uncertainty- so, as comparisons with Germany and elsewhere who use REFIT show, it’s more expensive than REFIT and also delivers less capacity. The Trust claims that, if we allocated the same money as will be raised by the RO, their proposed Renewable Development Premium could deliver 3.5GW more capacity from wind by 2015- so that by then renewables overall would be supplying around 16% of UK electricity, with more to follow as wave and tidal kicked in fully after 2020.  

The Renewable Energy Association gave conditional support to this idea, but warned that ‘the industry needs to maintain momentum, while these issues are resolved. Renewable companies have invested heavily in the Renewables Obligation; this talk of replacing it after only four years could send shock waves through the investment community.  Designing and introducing new measures could also blight the industry with months or years of delay.’

Similarly, the British Wind Energy Association, while agreeing that a ‘do nothing’ policy  was no use, argued that ‘the Government’s first priority should be to announce a firm 20% target for 2020’ and urged caution ‘over any discussion of dismantling the RO’.

The BWEA’s new CEO Maria McCaffery said: ‘The RO is a market-based mechanism which has been very successful in bringing forward new investment in the renewables sector; the confidence of these new investors must be safeguarded while extending the benefits of support to newer technologies such as the emerging offshore wind, wave and tidal stream sectors. The failings that some perceive in the RO mechanism would be largely solved by action to speed up the supply of projects through resolving planning and grid connection delays for the thousands of megawatts of projects currently stuck in the system.’

*In the event the Energy Review opted for a banded RO- which, as noted earlier, the REA felt was a bit less disruptive. 

Next- the Stern Review 

The Treasury review of the economics of climate change, being carried out by Lord Stern, has received a lot of very interesting evidence, including ideas from Japanese car company Toyota emerging from a seminar on transport policy. Toyota see the global energy future possibly developing with carbon capture and storage playing a major role helping to reduce emissions to below current levels by 2100. Hydrogen from renewables also plays a role in their scenarios as does nuclear and energy saving. Cars are of course their main  concern, and they look to hybrids and then hydrogen fuel cells in the longer term.

REA on RO  

Amongst the many other submissions to the Stern Review, was one from the UK’s Renewable Energy Association who looked at the cost of renewables under the Renewables Obligation (RO): ‘the consequence of the high risk characteristics of the RO mean that customers are paying more for renewable electricity than they should- and that despite the high prices- many projects are still not able to proceed, as the cost of financing a project is so high’.

They add ‘whilst the current market value of renewable electricity generation sold on a short-term basis appears high... the prices available to generators on a long-term basis are significantly lower. Supply companies are paying this high price for renewable projects that were built before the RO was introduced and passing this cost on to their customers, yet renewable generators that want to build a new project will see nowhere near this income for their output. This is because suppliers discount the future values of ROCs significantly- due to the risks inherent in the RO.’  

For example, ‘Banks do not regard ROCs as a secure income stream against which to lend project finance.  Therefore generators must seek fixed price contracts with suppliers.  However suppliers are reluctant to give long term contracts at fixed prices, because they fear they may be left having to pay out prices which reflect historical ROC values which have since fallen significantly or at worst are worth nothing as the obligation has been fulfilled or potentially even withdrawn due to policy change.’ The REA say the RO quota should be raised from 2015-6 onwards ‘to keep the cliff edge further away’.  

And that’s basically what the Energy Review proposed. 

See:  www.r-ea.net/content/images/articles/cliffedge2.pdf

There are many other useful submissions from academics, pressure groups and agencies- a veritable feast of analysis ranging from studies of ecological footprints to system modelling. The Stern review will be reporting back later this year. Meanwhile take a look at the other evidence at: www.hm-treasury.gov.uk/independent_reviews/stern_review_economics_climate_change/sternreview_responses.cfm#individuals_AM 

Policy inversions

It’s odd that the Stern review should follow the Energy Review which in turn followed the Climate Review. Logically you would think it should have been the other way around- first work out the costs of climate impacts and possible mitigation options, then look at the energy options in detail and finally come up with implementation policies. But then the whole approach seems odd. New Statesmen pointed out the very different approach once taken by Tony Blair who, in 1988, as shadow energy secretary, launched the following attack on the Tories’ climate policies: ‘What is unbelievably depressing about the government’s response is that they see, in the evidence about greenhouse gases, not an opportunity to promote environmental concern, but a chance to make the case for nuclear power’. 

* The Liberal Democrats have pulled out of the joint climate change initiative with the Tories, saying David Cameron will not commit his party to any specific policies.