Memorandum from Mr D J Milborrow
I am a consultant who is active in the energy
fieldespecially renewable energy. I have been involved
with these issues for 23 years and acted as Specialist Adviser
to the House of Lords Inquiry on "Electricity from Renewables"
which reported in 1999.
This submission briefly addresses four issues:
The carbon savings to be realised
from the renewables programme;
The acceleration in renewable energy
deployment needed to meet the government targets;
The cost of the programme; and
The impact of the New Electricity
1. CARBON SAVINGS
The issue of the level of carbon savings achieved
by the renewables programme is extremely important. The value
used affects the perceived cost of the renewables programme in
terms of expenditure per tonne of carbon saved. It has equally
important implications for the valuation of carbon credits.
In its fourth report of 1997-98 the Environmental
Audit Committee noted that there appeared to be some confusion
over the carbon savings from the various measures which form part
of the overall Climate Change Strategy. This confusion arises,
in part, from the way different departments link carbon savings
with reductions in electricity output. For example, energy efficiency
measures which secure exemption from the Climate Change Levy are
assumed to achieve carbon savings based on the year-round mix
of fuels in UK electricity output. Until quite recently, the DTI
position was that savings were based on the actual fuel displaced,
i.e. coal for most of the time. Their position changed dramatically
during 1999-2000 and now appears to be that renewable electricity
will save the emissions associated with gas-fired generationwhich
are much lower than those from coal. When this change of heart
was queried by a House of Lords Select Committee, the Government
did not seek to justify the new figures on carbon savings, but
simply argued "it is a complex subject in which there are
no definitive answers"
In practice, the issue is not a complex one.
On a day-to-day basis, the introduction of renewable electricity
on to the UK network will almost invariably displace coal-fired
generation. In the longer term, new renewable plant will force
the closure of old coal-fired plantnew gas-fired generation
does exactly the sameas the DTI itself observes.
Either way, the emissions savings are those associated with coal-fired
generation. If the UK is out of step with the rest of the world
on this issue, our carbon credits are liable to be over-priced,
possibly not tradable.
In view of the confusion introduced by the various
changes in estimates of carbon savings, it is explored further
in an Annex. It may be noted that further confusion has arisen
since recent figures for carbon savings from the renewables programme
are based on the "additional" savings, "above those
from existing measures". This last caveat is not always clear.
This raises the question as to what happens if the existing measures
do not deliver the 5 per cent renewables target by 2003, as the
Government expects. What matters, in terms of Kyoto commitments,
is savings relative to 1990 and it is not clear why an artificial
baseline is used.
2. MEETING THE
Although the government expects the contribution
from renewables to electricity supplies to reach 5 per cent by
2003, and 10 per cent by 2010, this will require a substantial
acceleration of recent growth rates. They have published a possible
profile, showing how the Renewable Energy Obligation may build
up towards 10 per cent of electricity generation by 2010.
Generation from all renewable energy sources is expected to build
towards 38 TWh by that date. This is shown in Figure 1.
At first sight, the target appears to be achievable,
based on the growth in total renewable electricity output since
1996. However, much of this increase has been due to increased
output from the hydro stations. Output from "new renewables"
("New RE" on the graph) is growing more slowly and may
be derived by subtracting the actual hydro output from the total
renewable output. The required output from new renewables up to
2010 may be estimated by subtracting average hydro output (as
the large hydro capacity is fixed) from the total, and this is
the basis of the lower curve. The statistical trend in output
from new renewable energy sources, between 1993 and 1999, suggests
a yearly increase 533GWh. If this rate of progress is not accelerated,
output from new renewables in 2010 will only be around 10,000
GWh (about 23,000 GWh short of the target), as shown in the Figure.
The increase in installation rates required to achieve the 10
per cent target is a little under five. The DETR noted that many
respondents to their consultation on the draft Climate Change
Programme "were concerned that the 10 per cent renewables
target would not be met"
The DETR therefore needs to assure the Committee
that this acceleration can be accommodated by the planning process.
3. COST OF
In its first consultation document,
the DTI suggested that the peak cost of a 10 per cent renewables
obligation would lie between £35 and £455 million, with
the most realistic estimate being £175 million. The latest
estimate is £630 million (ref 4). This, 3.7 per cent on electricity
bills, is inevitably bad publicity for the renewable energy sources.
On closer inspection, the increased cost is simply due to the
deficiencies of the chosen mechanism, not to any under-estimate
of the cost of the renewable energy sources. The higher prices
reflect higher financing costsdue to the higher risksand
shorter contract periods.
The thinking behind the DTI strategy is presumably
that high payments will encourage development. However, the UK
strategy lacks features which are driving successful European
Guaranteed payments for a fixed number
Priority access to the gridthis
was a feature of NFFO contracts, but no longer applies.
No artificial penaltieswhich
intermittent renewable generators will incur under NETA.
Access to funds from state-backed
banks, such as the Deutsche Ausgleichs Bank in Germany. These
provide finance for sums below the threshold for conventional
A framework which encourages community
participation, which appears to ease many of the planning difficulties
now being encountered in the UK.
The UK consumer now appears to have the worst
of both worlds. Assuming that all prices rise to the buy-out level
(as the DTI assumes), energy payments for wind, for example, will
be higher than those paid to German developers under their new
scheme. As German wind speeds are significantly lower than ours,
this makes no sense. Moreover, the complexity of the new market
arrangements and high cost of finance is likely to deter the small
developers who have been the backbone of many European renewable
energy programmes. These problems urgently need to be addressed
and it must be made clear that any extra costs associated with
renewables are small in relation to the "external costs"
of fossil generationparticularly global warming.
4. IMPACTS OF
The New Electricity Trading Arrangements seem
likely to penalise intermittent renewable generators by exposure
to "imbalance" charges. This tends to reinforce the
fallacy that introducing wind into a network causes problems.
However numerous utility studies, worldwide, have shown that modest
amounts of wind do not cause significant additions to the uncertainties
in balancing supply and demand. The "penalties" are
artificial and arise from the nature of the trading arrangements,
rather than any real technical issue.
The New Electricity Trading Arrangements muddy
the waters as the contracts at the heart of the system are generally
based on matching the needs of electricity suppliers with the
capabilities of generators. Supply and demand are both disaggregated,
to a degree. This puts the intermittent renewables at a disadvantage,
despite a rather ambiguous statement from the regulator: "The
new trading arrangements will ensure that all forms of generation
are treated equitably and this will have different effects on
different market participants, including individual CHP and renewables
There is concern that the New Arrangements (NETA) will unfairly
penalise the intermittent renewable energy sources by undervaluing
"Penalties" in the region 0.3-0.5 p/kWh have been quoted
It is important, therefore, to draw a distinction
between technical reality and accounting convenience. Market forces
do not necessarily deliver optimised systems, particularly if
the industry is fragmented. The Government, for example, concluded
that some of the early gas-fired power stations, constructed during
the "dash for gas" may not have been economic, raising
consumer prices as a result.
Again, the overall level of profit in the electricity supply industry
10 years ago was 5 per cent ; in 1998/99 it was 25 per cent .
Similarly, there is scant evidence, as yet, that the new arrangements
will improve the overall technical efficiency of the system. In
fact there are indications that the New Arrangements may result
in higher provisions of spinning reserve and standby plant and,
consequently, higher costs.
Wind energy, in particular, benefits from aggregation;
it means that system operators simply cannot detect the loss of
generation from windfarm of, say, 20 MW, as there are innumerable
other changes in system demand which occur all the time. From
the standpoint of the system as a whole, it seems a fundamental
anomaly that wind seems likely to be penalised for variability
at levels which are out of all proportion to its actual impact
on an integrated system.
1 House of Lords: Select Committee on the European
Communities. Electricity from Renewables: further documents. HL
Paper 18, December 19. Back
DTI, 2000. Energy projections for the UK. Energy Paper 68. Back
DTI, 2000. The Renewables Obligation Preliminary Consultation. Back
A summary of responses to the draft climate change programme,
DETR, November 2000. Back
DTI, March 1999. New and Renewable Energy: Prospects for the
21st Century. Back
Ofgem, 1999. The new electricity trading arrangements. Back
Milborrow, D, 2000. Trading rules trap wind in the balance. Windpower
Monthly, 16,5. Back
Moore, A, 2000. The prospects for wind energy. Renewable Energy
Policy Seminar, The Confederation of Renewable Energy Associations,
London, 17 February. Back
Department of Trade and Industry, 1998. Conclusions of the review
of energy sources for power generation. Cm 4071. The Stationery
Ofgem, 2000. Initial Proposals for NGC's System Operator Incentive
Scheme under NETA. A Consultation Document and Proposed Licence