Memorandum from the Royal Society for
the Protection of Birds
The RSPB welcomes the opportunity to contribute
to the Environmental Audit Committee's inquiry into renewable
energy. The RSPB is Europe's largest wildlife charity with over
one million members. We manage one of the largest conservation
estates in the UKwith more than 150 nature reserves covering
more than 275,000 acres.
We are very concerned that unless there are
significant cuts in greenhouse gas emissions then birds, other
wildlife and their habitats will be catastrophically affected
by climate change. One of the main ways of cutting emissions is
to bring on stream more electricity generated by renewable sources
of energy. The RSPB thus welcomes the Government's clear intent
to do so.
However, whilst we support the main thrust of
the UK Government's Climate Change Programme, including the sections
dealing with renewable energy generation, we consider that many
aspects of energy policy could be better.
We have been heavily involved in UK energy policy,
for instance working on improving the Utilities Act as it made
its way through Parliament, and responding to many DETR and DTI
consultations. Overall we have been promoting policies to create
a more sustainable UK energy policy.
This submission outlines where we think that
government's renewable energy policy is deficient and how it might
be improved. Before going into specific policies, we briefly examine
two overarching factors that have inhibited the development of
renewable generation, and an environmentally friendly energy policy
in general, under successive governments. These factors are:
(a) an undue bias towards low energy prices
at the expense of all other considerations, and
(b) a tendency to implement ever more complex
policy instruments without giving due regard to the rules governing
These two issues underlie much that is wrong
with current renewable energy policy, and may well continue to
be wrong with if conventional thinking remains unchanged. They
run like twin threads through almost all of our concerns.
The remainder of our submission makes the following
Given the low level of existing renewable
generation, the governments targets of 5 per cent by 2003 and
10 per cent are probably realistic, if environmentally inadequate.
However, even to achieve these targets,
transitional arrangements for Non Fossil Fuel Obligation and Scottish
Renewables Obligation will need to be made that allow the site
specificity of the Orders to be changed.
Longer term targets for renewables
are needed. Up to about 2050, a target increase in renewable electricity
supplied of 1.5 per cent per annum would be appropriate.
The Renewables Obligation should
be technology banded, with the buy-out price also being banded
The Obligation should not be placed
annually. If the Obligation is placed annually, the profile should
be different favouring an increase in renewables development over
The proposals for banking and borrowing
under the Obligation should be changed, eliminating borrowing.
The proposed capital grants for offshore
wind and energy crops would be unnecessary if a banded Obligation
were used, but if it is not then the grants should be significantly
The New Electricity Trading Arrangements
(NETA) will have an adverse effect on the development of renewable
TO UK RENEWABLE
2.1. The role of prices and the consumer in
Successive governments have made cost the main
consideration in renewables development. The old Non-Fossil Fuel
Obligation (NFFO) and Scottish Renewables Order (SRO) drove the
development of the lowest cost renewables. Whilst the current
Government has decided to scrap NFFO and place greater emphasis
on promoting renewables, it has retained the pre-eminence of price
in energy policy. The overarching theme of the 2000 Utilities
Act is to reduce electricity prices to the consumer and, unless
revamped since the last consultation, the Renewables Obligation
will drive the development of lowest cost renewables.
Largely as a consequence of prioritising prices
over the environment, and even over security and diversity of
fuel supply, the UK has the cheapest renewably generated electricity
in the EU but very little of itand about half of what it
does have comes from old hydroelectricity generation plants constructed
half a century ago.
Moreover, as a result of past and present policy,
electricity prices have been falling for some time and are likely
to fall further. Lower prices will tend to lead to increased consumption.
Given that the vast bulk of the UK's electricity will still be
generated from fossil fuels this will lead to increased greenhouse
gas emissions. The resulting greater global warming is unlikely
to benefit anyone, especially poorer people.
Whilst the price of electricity to consumers,
and especially to those on low incomes is important, a better
balance between the immediate and longer term benefits to consumers
is needed. Short term cost-savings should not necessarily dominate.
Achieving longer term environmental and cost benefits can well
require higher initial costs, until economies of scale are realised.
These long term benefits are also in the consumer's interest.
Perversely, whilst overall energy prices are
likely to continue to fall, and whilst legislation associated
with the renewables is likely to continue to drive the development
of the lowest cost technologies, the price of renewable electricity
to the consumer will almost certainly rise. This is because renewable
sources of energy are likely to be in short supply but are selectively
favoured financially by both the Climate Change Levy (CCL) and
the Renewables Obligation: the Levy will not be charged on renewable
generation and the "penalty" imposed on electricity
suppliers if they do not meet their Renewables Obligation will
be about 3p per unit (ie the proposed buy-out price).
In a situation where renewables are in short
supply, there will be a strong tendency for generators to sell
to their renewable electricity to suppliers, and thence on to
business, at a price just under that of "normal" electricity
plus the Climate Change Levy. There will be an equally strong
tendency for generators to sell renewable electricity to suppliers
at a price just under the buy-out price set under the Renewables
Obligation. The price of renewably generated electricity may thus
nearly double, compared to the price of "ordinary" electricity.
This is not what the Government had in mind
when introducing legislation on renewables. It illustrates one
of the problems associated with using complex policy instruments,
as is discussed further in the next section.
2.2. The increasing complexity of policy instruments
All governments like to implement policies and
measures that can be "tweaked" or that can be run in
parallel with other policy goals covering other issue areas. The
present government, for example, aims to reduce greenhouse gas
emissions whilst also eliminating fuel poverty. It therefore seeks
policy instruments that either achieve both ends at the same time
or, at least, instruments that do not conflict with each other.
Historically, this has not been a severe problem.
The policy instruments that governments have had to hand have
tended to be either quite simple or limited in scope or, more
often, both. Modifying them, or running them in tandem, has done
little to harm their effectiveness.
However, in an age of increasing policy sophistication,
policy instruments are becoming more complex and much more care
needs to be taken in their selection and application. Many of
the new instruments can be very effective but only if applied
according to specific, sometimes complex rules. Also, some are
most effective if implemented broadly and in isolation from other
instruments. They are easily distorted and rendered ineffective
by other instruments if used in the same, or overlapping, areas.
An example of this type of instrument is provided
by the new, highly fashionable emissions trading regimesmore
properly called "cap and trade" regimes. These combine
straightforward regulation, in the form of an obligatory emissions
cap (ie a target) imposed on the participants, together with a
flexible, market-based means of attaining the capby trading
parts of it between the participants.
Cap and trade schemes are potentially highly
effective but only work well, in both environmental and economic
terms, if a quite complicated set of rules is adhered to.
Also, they usually work best if broadly applied, yet they are
sensitive to the application of other instruments in the same
areas. Taxes, for example, can distort the trading markets unless
applied equally to all participants. In short, cap and trade schemes
need to be well thought out, in conjunction with other instruments,
and applied with care.
In the last year or so, government has begun
to set up three trading schemes associated with climate change
policy: the CBI/ACBE scheme under the Climate Change Levy (CCL),
the green certificates scheme under the Renewables Obligation,
and trading in Energy Efficiency Standards of Performance.
Of these, the nearest to completion is the CCL-based
scheme. It was originally envisaged as being capped by the negotiated
exemptions to the CCL, and therefore open only to those firms
with negotiated exemptions and, even then, only to those which
had committed to absolute emission reductions. At the outset,
however, the DETR and CBI correctly realised that the scheme was
rather limited in scope and should ideally be more broadly based,
so they began to modify it.
However, in doing so they also began to break,
or at least bend, the rules for cap and trade schemes. For example,
a financial incentive is to be given to firms that voluntarily
take on a capbreaking two of the golden rule of cap and
trade regimes which are that a) the sole incentive should be the
cap and b) that it should be externally imposednot voluntary.
As a result, it is questionable whether the scheme will work well.
Similarly, having established a limited, but
quite promising, cap and trade regime under the Renewables Obligation,
government has decided to support by direct grants the development
of technologies that are not currently near-market in terms of
cost, specifically offshore wind and energy crops. Yet one of
the beauties of having a cap and trade scheme is that if it is
well-constructed one does not need to use direct grants but can,
more effectively, allow the markets that they create to drive
technology development. The Utilities Act explicitly allows for
a cap to be placed so as to encourage specific technologies. Failing
to use this provision partially defeats the point of establishing
the cap and trade scheme in the first place, especially as the
levels of grant proposed so far are inadequate.
Government needs to exercise more care when
selecting and implementing policy instruments. It would be very
unfortunate if the Government's basically praiseworthy policy
on climate change mitigation were undermined by insufficient attention
to detailed implementation.
3. THE GOVERNMENT'S
3.1. The level of the targets and the chances
of achieving them
Given the low renewable generation base from
which they are to be developed, the Government's targets are probably
achievable. Higher targets would be preferable from an environmental
standpoint but might well be difficult to reach.
Indeed, the RSPB is concerned that the first
Renewables Obligation will not begin until 1 October 2001, leaving
only two years in which to attain the 5 per cent target. To do
this, the outstanding NFFO and SRO plant scheduled for 2001 to
2003 will have to come on stream without delay, which is unlikely
unless special provisions are made to speed up the planning consents
Because of the bidding process for NFFO and
SRO was based largely on the lowest cost bid, proposals were often
made which stood little chance of acceptance in the planning process.
For example, the low cost consideration made wind power profitable
mainly in sites where there were strong and steady windswhich
are often also wild areas of importance in terms of either biodiversity
or landscape. Local groups and bodies such as the RSPB therefore
often objected to them.
The new Renewables Obligation should largely
circumvent this type of problem but to meet the renewables target
it will be essential for the bulk of existing NFFO and SROs to
go ahead. Yet some of the developments are still planned for highly
sensitive sites where the RSPB has concerns about wildlife impacts.
Often, we would have no concerns if the developments could be
relocated a short distance away.
It would assist both the renewables industry
and the RSPB (and other environmental groups) if the site-specificity
of NFFO and SRO were lifted in the transitional arrangements made
for them. We could then enter into constructive dialogue with
industry over where the best sites might be, rather than fighting
lengthy and costly battles in public hearings.
3.2. The pace of renewables development
The RSPB is concerned about the pace at which
renewables are being developed. At the planned rate of development
to 2010, the UK will not have sufficient renewables coming on
stream by the middle of the century to yield the cuts in emissions
that both the Intergovernmental Panel on Climate Change and the
UK Climate Change Programme say are necessary. Given the low renewables
base, a slow start to the deployment is inevitable but it could
increase over time. Longer term targets should thus be set.
3.3. Longer term targets
Government targets are set for 2010, but not
beyond, other than a commitment in the latest consultation on
renewables that the Renewables Obligation will continue to be
placed until March 2026.
What is needed is a target that makes clear
how renewables are to develop beyond 2010. Whilst any long term
targets should be flexible to some degree, fairly firm guidance
is needed to allow industry to plan ahead. The simplest way of
doing this would be to place a yearly target, as Denmark has done.
A growth target of 1.5 per cent per annum would be appropriate
in light of the need to cut emissions by more than 60 per cent
by the middle of the century.
The RSPB advocated, and continues to support,
the Renewables Obligation. However, we consider that some of the
ways in which the Government intend to implement it will make
it much less effective than it might be. In summary, our main
recommendations are that:
the Obligation should be technology
banded, with the buy-out price also being banded accordingly;
the Obligation should not be placed
if the Obligation is placed annually,
the profile should be different;
the proposals for banking and borrowing
should be changed, eliminating borrowing; and
the proposed capital grants for offshore
wind and energy crops would be unnecessary if a banded Obligation
were used, but if it is not they should be significantly greater.
The single band Obligation proposed by the DTI
will have some potentially severe adverse effects on renewables
development. As mentioned earlier, it will drive the development
of the lowest cost renewables at the highest price (ie probably
just under the price of "normal" electricity plus the
buy-out price of 3p per unit). Moreover, it will not bring on
those technologies that are not currently near-market in terms
of cost, such as offshore wind and energy crops. Also, by driving
up the price of renewables it will tend to make many of the new
domestic renewable schemes uneconomic.
A technology banded Obligation together with
a banded buy-out, which is enabled by the Utilities Act 2000,
would largely eliminate these problems and, indeed, the need for
capital grants in support of offshore wind and energy crops. We
consider that it is illogical to set up a market-based instrument
such as the Obligation, and then use direct grants to subsidise
some types of renewables.
An annually placed Obligation creates a host
of problems. Perhaps the most important of these is that an annual
Obligation will be very hard to meet precisely. Firms with the
very best of intentions may well undershoot their Obligation.
To cope with this, at least partially, the DTI proposes to allow
firms to bank and borrow parts of their Obligation from other
Obligation periods. This complexity is completely unnecessary
and has a number of potentially adverse effects. (For example,
in a situation where both banking and borrowing are allowed, the
enforcement of compliance is likely to be more complex.) It would
be far simpler just to make Obligation periods longer, minimising
the chance that firms will miss their targets and eliminating
the need for borrowing and probably banking too.
5. IMPACT OF
In addition to the Renewables Obligation and
the Climate Change Levy (CCL), a number of other current energy-related
policies will affect renewable generation. In particular, the
New Electricity Trading Arrangements (NETA) will have an adverse
effect, as OFGEM's own environmental appraisal acknowledges.
NETA will penalise most of the more benign forms
of renewable electricity generation. By requiring generators to
predict their supply well in advance of it being delivered, the
so-called balancing and settlement mechanisms in NETA will work
against fluctuating or intermittent forms of generation. This
will penalise renewables such as wind, solar, wave and small hydroand
some forms of combined heat and power (CHP) generation too.
It can be argued that placing an obligation
on suppliers to supply a given percentage of electricity from
renewable sources will negate the adverse effects of NETA. However,
although this is generally true for all renewables, NETA will
still encourage generation by sources that can predict their output,
such as waste and biomass burning, at the expense of solar, wind,
wave and small hydro.
Government could, as mentioned above, partially
get around this problem by targeting specific forms of renewable,
by banding the Obligation. However, the targeting provisions should
be used to bring on less mature technologies, not to rectify the
deficiencies of the trading arrangements, and trying to use them
for both is likely to be counterproductive. Onshore windpower
is, for example, increasingly cost-effective and, without NETA,
it might not need special treatment for long, whereas solar power
probably will. Support under the obligation for solar might thus
be sacrificed for support for wind when there is no real need,
other than to counteract NETA.
To compound its adverse effects, both Government
and OFGEM predict that NETA will bring down electricity prices,
thereby encouraging people to use more electricity and hence emit
more greenhouse gases. Not surprisingly therefore, OFGEM's own
environmental assessment of NETA comes to the conclusion that
its environmental impacts will be negative.
33 For the detailed reasons for this effect, see the
RSPB's response to the DTI consultation on the Renewables Obligation. Back
Ensuring security and diversity of energy supply has always been
the basis of energy policy. Most renewable sources of energy rely
are almost indefinitely sustainable and locally available. They
are also available in many different forms. Taken together they
therefore represent the most secure and diverse sources of supply. Back
There are, anyway, better ways of assisting the fuel poor than
reducing electricity prices by a few percent. Back
They should include as large a number of players as possible,
have a challenging cap (target) which is externally imposed, possess
a rigorous compliance and enforcement regime, and so on. Back
CHP does not do well under new energy policy, in spite of the
fact that the Government is, in principle, keen to promote it
and has set significant targets for its development. In particular,
although it is nominally exempt from the CCL, much electricity
generated by CHP will attract the Levy because electricity sold
to licensed supplier (ie normal electricity companies) is not
exempt, many CHP plants, especially those outside big cities,
will have little choice but to sell to licensed suppliers. Back