Memorandum from the Country Land and Business
1. The CLA welcomes the opportunity to give
evidence to the Environmental Audit Committee on the subject of
renewable energy. We represent some 50,000 landowners, who between
them own around 5 million hectares of rural land in England and
Wales. Many of our members have farm businesses, and are therefore,
energy users, other members are involved with the production of
renewable energy, with woodland management, and others own land
that will be affected by climate change, and even, in some cases,
threatened by future flooding from the effects of global warming.
2. The CLA welcomes the commitment expressed
by Government to renewable energy. As the representative body
of land based businesses, we are deeply concerned as to the potential
long term effects of climate change. We also look to the potential
beneficial effects on land use and bio-diversity from the widespread
introduction of energy crops and making better use of existing
woodlands. Equally importantly, we recognise the potential for
embedded generation and local heat markets to regenerate fragile
rural economies and to provide opportunities for diversification
and new jobs to replace those lost in traditional agriculture.
Our concerns are threefold:
First, that the policy objective
is flawed. By introducing an explicit limitation on the cost of
renewable energy to consumers, the argument is unbalanced. Conventional
energy producers impose huge costs on consumers through their
contribution to global warming. Conventional patterns of electricity
production and distribution have also caused huge damage to the
landscape from the introduction of long distance power lines.
Unless these costs are specifically factored into the costs of
conventional energy, consumers will be mislead into thinking renewable
energy is "expensive".
Second, whilst we welcome the proposal
to achieve 10 per cent of the UK electricity requirements from
renewables by 2010, this concentration on the electricity market
(which only represents some 32 per cent of the total energy use
in the UK) falls far short of the holistic solutions which the
CLA and others have consistently recommended to Government. The
CLA calls for further consultation on the measures necessary to
improve the takeup of renewable energy in the heat market (which
constitutes 45 per cent of the share of primary energy demand)
as a matter of urgency.
Third, the CLA is concerned that
the policy instruments set out in the document fall short of what
is required, in our view, in order to ensure the policy objectives
can be met.
3. The CLA has welcomed the Government's
approach to renewable energy, and the resources that are proposed
to be devoted to it. However, we have grave reservations about
the detail of many aspects of the new programmes, which are set
out below in our answers to the questions set by the Environmental
Are the Targets Properly Formulated and Achieveable
4. In a word, no. The Government has set
out proper and potentially achieveable targets for the production
of renewable electricity, representing some 32 per cent of energy
used in the UK. However, we have seen little in respect of the
heat market, which accounts for 45 per cent of all energy consumed.
5. The CLA welcomes the target of 5 per
cent of electricity from renewable sources by the end of 2003,
rising to 10 per cent by 2010, but rejects the crude mantra that
such development must be subject to the costs to the consumer
being acceptable. The CLA views the effects of climate change
with concern, and suggests that electricity consumers who have
suffered flooding this autumn, those who live in low lying areas
facing coastal set-back, and those who face losses from extreme
weather should have a voice.
6. It is, in our view, quite improper to
fail to address the issue of heat usage, and we urge the Committee
to look at this issue in detail. Responsibility for sponsorship
of the issue falls between two Departments (DETR and DTI), and
whilst some acknowledgement of the concerns may be covered by
tax allowances funded from the climate change levy, there is,
in our opinion, considerably more that could and should be done.
7. At the same time, DTI appears to have
set its face against the proposal that the proposed renewables
obligation for electricity should be banded, which the CLA believes
to be a mistake. The CLA considers the huge potential benefit
to the countryside from a widespread adoption of biomass energy
cropping and production should also, in our view, be explicity
recognised in the targets.
8. The CLA welcomes the intention expressed
in renewable energy policy to ensure that embedded generators
are given the benefit of avoided costs within the system. However,
we are concerned that it has not yet been demonstrated how this
may successfully be achieved, nor how monopolistic owners of electricity
networks can be required to make available opportunities for renewable
generation within the system.
9. We remain concerned that the regulatory
structure for electricity networks owned by RECs incentivises
capital investment in new power lines, rather than holistic approaches
including embedded generation.
10. Embedded generation, especially small
scale embedded generation, has potential for rural development
and sustainable jobs and income in the countryside. It is important
that the reform of the electricity market provides mechanisms
that facilitate these benefits.
11. Embedded generation has the potential
to avoid both large and small scale development of transmission
lines. In many cases (the North Yorks PictonShippingly
proposal) such transmission lines do enormous harm to the landscape.
In many others they are unwelcome on the grounds of amenity and
concern for potential health risks. Proper planning for embedded
facilities within the network will confer benefits to amenity
by reducing the demand for unsightly overhead wires.
12. This has implications for DTI Section
36 consents and for DETR guidance on planning consent and overhead
lines. The CLA recommends that developers of new power lines should
be required by consenting authorities to undertake a test before
being granted consent. Developers should show that provision of
an embedded generation facility at a key point would not answer
the need for reinforcement or a new overhead transmission line.
13. There is a further issue on the question
of openness in relation to the monopoly powers enjoyed by RECs.
Prospective embedded generators need access to information in
order to ensure that connection prices and embedded benefits are
properly assessed. The Regulator will have a key role in ensuring
14. Further, there is a wider role for Government
in ensuring the general public are aware of the significance of
renewable energies. There is much R&D and many themes that
would find a wider audience if promoted: the Central Office of
Information may have a role here.
15. Regrettably, whilst the overall target
for reduction in greenhouse gas production appears to have been
met to date, this is as a result of the continuing switch from
coal production to combined cycle gas fired power stations and
the input of nuclear power rather than from increased production
of renewable energy.
16. Government policy development and the
new instruments to deliver renewable electricity have been held
up since the start of the new administration by the proposals
to revolutionise the electricity market (the New Electricity Trading
Arrangements or NETA) and the consequential measures.
17. DTI abandoned the previous NFFO support
mechanism, sponsoring only one round of bidding since the election
(NFFO, 5 July 1998), without having any replacement mechanism
in place. Even now it seems that the first Renewables Order under
the new arrangements will not be made for at least six months.
18. There has been considerable concern
from renewables generators seeking planning consents for new developments
for over five years. Complaints, including some truly disturbing
statistics and wholly misinformed comments by planning inspectors,
led for calls for Government to address the issues.
19. Only at the end of 2000 was a project
set up to look at the regional renewable resource base, which
has yet to report. Given that regional development agencies have
all now completed, or nearly completed their plans, it will not
be until the next review that the information is able to inform
regional planning. Even then, development control decisions will
be made in accordance with guidance in PPG 25 and existing local
plans unless urgently reviewed.
20. Until the planning framework is altered
to take proper account of the need to develop renewable energy,
applicants for planning consent will continue to face an uphill
21. The CLA fully expects the DTI to disappoint
all those who have an interest in the promotion of biomass energy.
A note setting out our analysis and the predicted outcomes is
attached at Annex 1.
22. The grant aid proposed for the support
of the offshore wind industry is likely to be effective, providing
the sums are made available as indicated. However, capital grant
aid is not a sustainable solution for biomass production, as it
has a different cost structure.
23. All renewable energy producers will
require that the renewables order when made offers the opportunity
to make "bankable" contracts with electricity purchasers.
Without this, development finance will not be made available.
24. There is evidence to suggest that electricity
purchasers are seeking a large proportion of the benefits that
DTI have factored into their estimations of returns to producers.
Whilst it is never the first option for regulators to intervene
in contracts made in the market, it is suggested that this is
an area that needs careful watching. Unless bankable contracts
are available, the development of new renewable energy will not
25. The CLA calls for Government to recognise
the advice provided by its own renewable energy expert resource,
ETSU, that financing renewable energy projects calls for long
term solutions. The hands off market approach to the development
of renewable energy described in the consultation paper is flawed.
26. The introduction of a buy-out price
effectively puts market power in the hands of the licensed supplier.
In such circumstances, there is no incentive for suppliers to
make long term contracts with renewable generators, except at
prices that are very advantegous to them.
27. Accordingly, the best estimate is that
only the very cheapest renewable energy producers will be able
to find bank funding in these circumstances, and there will be
no funding for R&D of any kind. There may be some new renewable
generation capacity created by very large companies who have the
ability to finance from their balance sheets, but even this source
of finance is likely to be limited by shareholder concerns unless
generators can achieve a better proportion of the price available.
28. Members of British Biogen have reported
that electricity suppliers have suggested discounts of more than
50 per cent on the total sums available under the proposed policies
in return from long term contracts.
29. The solution proposed by the CLA is
1. The Obligation should require suppliers
to offer long term contracts with price indexation.
2. The regulator should be empowered to intervene
where parties can show evidence of unsustainable pricing or abuse
of market power.
3. The demand profile should be calulated
to ensure a continuous market shortage as against available renewable
energy resources. This is necessary to ensure incentives for renewable
developers to invest in new capacity.
4. The take up of the MAFF supported grants
for planting energy crops should be kept under review as against
the development of biomass power stations under the Obligation.
Government should explicitly agree to review its position on dual
banding in 2003, depending on the position then.
5. In the interim, enchanced capital grants
under the Obligation together with fiscal measures under the Climate
Change programme should be made available to biomass developers.
6. Government should take steps to ensure
that the position of SMEs is not adversely affected by the New
Electricity Trading Arrangements.
7. Government should urgently address the
market failure where embedded generation benefits are captured
by monopolistic RECs.
8. Ofgem should be empowered to become a
purchaser of last resort for long term contracts where suppliers
9. The changes to the planning system (set
out below) should be introduced.
10. A new National Expert Energy Resource
Centre should be funded.
30. The CLA recognises the arguments for
excluding large scale hydro and energy from waste from the Obligation.
However, there are considerable concerns that much biomass may
be wrongly described as waste, and thereby fail to be included
in the Obligation.
31. Definitions will be particularly important.
The draft Renewable Directive offers a model definition of solid
biofuels which the CLA commends to Government, as follows:
products from agriculture and forestry;
vegetable waste from agriculture
vegetable waste from the food processing
wood waste, with the exception of:
wood waste that may contain halogenated
organic compounds or heavy metals as a result of treatment;
treated wood originating from
building and demolition waste;
32. However, as Government will recognise,
the CLA does not accept that to reject dual banding on the basis
that it amounts to "picking winners" and then for Government
to pick the recipients of grant aid in order to mitigate the inevitable
effect this decision will create for non converged technologies
amounts to credible policy.
33. The CLA has struggled with the concept
of "acceptable costs to the consumer". It is recognised
that there is a real problem of energy poverty in the UK, not
least amongst rural constuencies. However, best practice would
be to ensure that the social security provisions for those in
need were adjusted to meet any costs imposed by the renewables
34. The issue is not, in our view, whether
the headline cost of a unit of renewable electricity is comparable
with one produced from polluting power sources, but whether the
overall costs to the consumer from not producing sufficient renewable
energy are acceptable. Even if the 10 per cent of renewable energy
required under the current proposals was to cost double the amount
of conventional energy, the effect on overall consumer prices
would be very small, and comparable with the reduction of VAT
from which consumers have recently benefited.
35. Moreover, the additional benefits of
embedded generation in saved transmission losses and reduced need
for unsightly overhead power lines should, in our view, be factored
into the equation.
36. The CLA considers that the polluter
pays principle should be applied. Proposing limits to increased
costs for renewable energy is wholly inappropriate on this basis.
The purchasers of the greater amounts of energy are those who
are contributing most to global warming, and price signals are
the best mechanism to ensure that energy use meets the Kyoto commitments
on greenhouse gas production.
37. That being said, there are clearly issues
as to the economic competitiveness of the country as a whole.
It would be inappropriate to require renewable electricity at
any cost, without understanding the effects on industry and consumers,
and the possible alternatives for securing reductions in emissions,
such as renewable heat production and energy efficiency.
38. On balance, whilst the renewable energy
requirement is limited to only 10 per cent of the market, we see
no need for the mechanism provided for in the Utilities Act of
a buy-out procedure. Indeed, such a procedure may be likened to
the purchase of medieval "indulgences". The CLA, having
consulted with renewable energy producers, is confident that 10
per cent of the electricity market can be reliably supplied without
undue costs falling on consumers, provided the regulatory framework
39. In the light of the buy-out procedure
established in the Utilities Act, it is necessary to ensure that
the buy-out cap prices are appropriate. It should be noted that
capped prices are unlikely to paid in full, and that by no means
the entire costs will pass through to the consumer. However, given
the current make-up of the renewable sector, we propose a buy-out
price of 5.5p for newer renewables.
40. The UK is a relatively wealthy country,
with (save in the transport sector) relatively low fuel costs.
In these circumstances, and with the potential for competition
among renewable energy suppliers, it appears that the risks of
not addressing climate change are greater than the risks that
consumers may see a small increase in their electricity bills.
41. Moreover, as the use of conventional
electricity is clearly a major contributor to greenhouse gas production,
an increase in electricity prices to ensure the production of
renewable energy follows the "Polluter Pays" principle.
42. Accordingly, the buy-out price under
the Obligation should be set at a figure which ensures that the
renewable generating capacity required can be created. The NFFO
bid prices in the last rounds produced averages from 2.49p (energy
from waste) to 5.79p (biomass). Given competition among generators,
the vast majority of all renewable electricity produced will be
purchased by suppliers at prices well below the theoretical maximum.
The ability to borrow will mean that there will be very little
recycling of buy-out monies. The CLA suggests that the appropriate
buy-out figure in these circumstances should be 5.5p, to reflect
the discounting evident in the market by suppliers.
43. Indexation of the buy-out price is welcome
44. The DTI estimates of the costs of the
obligation to the consumer are exaggerated. By no means all of
the energy produced will be sold at the buy-out price. Even were
it to be so, it would still represent a very modest cost for what
is a relatively wealthy nation.
The Impact of the Reform of the Electricity Market
45. It appears that NETA will adversely
affect the ability of renewable operators to achieve finance,
especially in the area of wind power. The added costs to SMEs,
and in particular SMEs involved in the production of intermittent
energy, will be, in many cases, a sum greater than the benefit
achieved by exemption from the Climate Change levy.
46. It is suggested that support be provided
by way of grant aid to set up renewable energy trading co-operatives,
who would then be able to aggregate the output of their members
on a not-for-profit basis. Without this assistance, it seems likely
that market intermediaries will capture a disproportionate amount
of the returns to renewable energy generators.
47. Certainly, NETA adds trading costs to
companies, particularly when compared to the simplicity of pricing
for non pool generators under the existing system.
The Level of Government Spending on Renewables
48. The guarantees to existing NFFO contract
holders are a necessary and welcome expenditure, which must be
maintained until all the contracts have come to an end. Equally,
existing support for the DTI research undertaken by ETSU is welcome.
49. No new R&D expenditure has yet been
made in the area of renewable energy generation, despite several
50. The amount proposed for the support
of non convergent renewable technologies (£75 million) may
provide a necessary kick start for offshore wind, but even ETSU
has been unable or unwilling to say how many biomass power stations
will benefit therefrom.
51. The CLA has consistently argued that
providing support for non convergent technologies through a banded
obligation would transfer the costs of R&D from scarce Government
resources to the consumer, through a market based mechanism that
would in itself ensure value for money.
The Level of Government Support for Non-fossil
Fuels for Electricity Generation Over Time
52. Regrettably, it appears that support
of one kind another will be required until the external (environmental)
costs of burning fossil fuels are fully internalised.
53. Such support is the price necessary
to continue with the existing cheap fuel policy. Without it, Kyoto
commitments cannot be met.
54. The MAFF support for energy crops is
very welcome, but without support for biomass power stations which
are required to purchase the crops produced, is likely to be less
than wholly successful.
The Interaction of the Planning System and the
Development of Renewable Resources of Power Generation
55. There are real and growing problems
with achieving planning consent for renewable energy developments
in almost all areas. The DETR has itself refused consent on appeal
for 12 out of 14 windfarm proposals in the last three years. Local
Planning Authorities have recently refused consent for a proposed
biomass plant in Wales, and other renewable developers report
very significant costs and delays building up throughout the planning
56. The regional energy strategy proposed
by Government, whilst welcome, needs further specific bolstering
in order to become fully effective. Regional targets should be
based on a best estimate of potential within each region for its
contribution to the overall target for greenhouse gas reduction,
and require that renewable resources are allocated physical targets
within that framework. Each region should be required to make
a contribution to the overall national target of not less than
the estimated energy use within that region.
57. The regional strategy will need to be
linked to Planning Policy Guidance, so as to produce a presumption
in favour of consent for renewable energy developments up to the
targeted renewable energy output unless substantial harm to interests
of acknowledged importance can be demonstrated.
58. Firstly, that any new regional renewable
energy targets will either need to be imposed on the ongoing regional
planning consultation process, or it will not come into effect
until regional plans are reviewed in five years' time (too late
to meet the Government's targets for greenhouse gas reduction).
59. Secondly, whilst renewable developers
are making strenuous efforts to build relationships with local
communities (in accordance with best practice guidelines which
were prepared by ETSU in consultation with representative groups
including the CLA), there is an enormous weight of ignorance and
prejudice about the whole subject of climate change and the relative
costs and benefits of addressing the issue, and further detailed
concerns about the effect of the technologies on local areas.
Independent experts such as the planning inspector in the recent
Barningham Moor windfarm appeal opine that the energy benefits
of wind power are "insignificant", and that pollution
savings are "uncertain". In other cases, local planning
officers have commented "there is much debate both locally
and nationally as to just how effective power generation from
biomass is in assisting the reduction of air pollution",
going on to say "wood as a fuel is neither clean nor green,
just a renewable energy resource". Whilst the CLA would not
wish to judge whether the outcome of the Barningham Moor appeal
was the correct one in all the circumstances, such comments go
to the heart of Government policy for renewables.
60. It is unrealistic in our view to expect
that policy for the delivery of renewable energy can be delivered
in these circumstances.
61. Accordingly, the CLA calls for two further
policy instruments, in addition to the regional targets, in order
to deal with the constraints, as follows:
1. Revised Planning Policy Guidance Notes
It is clear from experience that PPG22 is not
performing. It fails to provide appropriate signals about the
national importance of renewable energy development, and to deal
the the status of the advice to be sought from expert statutory
consultees as against that offered by NGO lobby groups, which
is seldom balanced or scientific. A wholesale revision is called
At the same time, PPG23 might usefully better
address the relationship between emission controls, which in our
view should be left to the statutory regulator, and planning considerations.
2. A new national Expert Energy Resource
The Government should, in our view, be considerably
more proactive in promoting its policies for renewables, and be
prepared to support its policies with expert evidence made available
to inform the public, and Local Planning Authorities on the issues.
Accordingly, the CLA calls for the establishment
of an expert energy resource centre, that would supply clear and
unbiased experience in reader friendly format on a range of renewable
energy issues, including:
(a) Government policy on renewable energy
(b) the relationship between pollution control
and planning control in the context of future emissions;
(c) the role of the Environment Agency in
protection of the environment and control of emissions;
(d) the results of research into the costs
and benefits (including environmental costs and benefits) of renewable
Revised Planning Policy Guidance should refer
Local Authorities to the resource centre for advice and require
that due weight be given to the independent evidence provided.
Such an resource center might form part of a
new Renewable Energy Agency or be developed either as a stand-alone
unit, or as a sister to ETSU.