A CLA INTRODUCTION TO RENEWABLE ENERGY
For many years, Government and most commentators
(including environmental NGOs) have confused renewable energy
generation with renewable electricity. All supply side efforts
have been addressed at the electricity sector, and the prospects
for renewable heat and transport fuels have been largely ignored.
Policy in these sectors has been addressed at efficiency of use
and savings, rather than in new, renewable sources of supply.
This is particularly disappointing as in the
UK the residential and tertiary building sectors have been shown
to be the largest overall end users of energy, mainly for heating,
lighting, appliances and equipment. The energy consumed in buildings
in the UK amounts to 46% of the national total (27% from the domestic
sector and 19% from the non-domestic sector). This equates to
about 235 million tonnes of carbon dioxide every year-or about
63.5 million tonnes of carbon per year (MtC/year).
Renewable road transport fuels have largely
been ignored in UK policy to date, partly owing to a confusion
about the land use implications. Government seems to be willing
to incentivise growing biomass for electricity production, and
to harbour concerns that if biofuels were also taken up, this
would in some way conflict with land availability for Short Rotation
Coppice and Miscanthus. Given the need for new and profitable
non food uses for land, the potential CO2 savings from
biofuel use, and the income opportunities it offers to growers,
the CLA considers these concerns to be misplaced.
Further, recent concerns over security of supply,
together with the EU Biofuels Obligation has pushed the renewable
transport fuels debate to the top of the agenda.
1. The Government has adopted a target that
5% of all electricity shall be produced from renewable resources
by the end of 2003, and 10% by 2010. Technology has improved so
that the pollution caused by traditional electricity generation
can be reduced through the treatment of flue gases to reduce acid
rain, but CO2 is an inevitable by product of burning
hydrocarbons and is believed to be the main contributor (by volume)
to global warming. The true cost of nuclear power is still uncertain:
whilst the generation of power is claimed to be cheap, and does
not involve CO2 emissions, the costs of decommissioning
closed power plants and the storage of nuclear waste are, as yet,
unquantifiable. The Cabinet Office Performance and Innovation
Unit recommended that options for future nuclear electricity generation
should be kept open, but made no firm proposals for replacement
of the existing nuclear power stations, which are due to be decommissioned
in the next 10 years.
2. The use of coal, the traditional source
of energy for electricity generation, has been much reduced over
the last decade, which has involved the restructuring of the coal
industry and significant price reductions. There is currently
an abundance of natural gas but reserves are limited in the medium
to long term. The technology to allow it to be used for the generation
of electricity (in Combined Cycle Gas Turbines or CCGT) at a competitive
price has been developed, and accordingly it is becoming a major
source of power. Its waste emissions are much less polluting than
those of coal (though greenhouse gases are still produced). Whilst
this source will help to address the pollution limits in the short
term; the position for the longer term remains uncertain. Moreover,
uncertainty over supplies contributes to price volatility, which
saw bulk prices for gas jump by 100% in 2000-01, and directly
lead to a fall in electricity generated from gas, and an increase
in coal fired generation. This increased the CO2 emissions
from the sector in 2002-03.
3. During the 1980s and 1990s, Government
provided limited encouragement for more environmentally friendly,
renewable sources of energy through the "non fossil fuel
obligation" (NFFO). This allowed renewable energy promoters
to bid for renewable electricity supply contracts at premium prices
to overcome the inherent risks of the high capital cost of new
and emerging technology and uncertain performance of alternative
4. This mechanism was replaced under the
Utilities Act 2000 by a new procedure, the "Renewables Obligation".
This (briefly) provides that any retail seller of electricity
is required to source a percentage of what it sells from renewable
resources. The first Renewables Order (RO) was made in April 2002.
5. It is estimated that the majority of
the Government's target of 10% renewable electricity by 2010 may
be created in the form of wind energy. A significant proportion
will be offshore, subject to sufficient grant aid with the additional
costs of offshore generation being made available, but most will
be land based turbine proposals. DTI projections include a significant
place for biomass electricity in the mix. Unless biomass generators
come forward, it is likely that the Government's 10% target will
not be met.
6. At the same time, the Utilities Act made
provision for the replacement of the electricity trading and pricing
mechanism. Previously, the "Electricity Pool" produced
a half-hourly price determined by the seller's cost of generation.
The top bid that satisfied market demand became the pool price
for contracts made in that period. Smaller generators (like biomass
and wind) were able to make sales contracts by reference to the
pool price, which offered administrative convenience and secure
7. The New Electricity Trading Arrangements
(NETA) are far less advantageous to small scale generators, and
particularly bad news for small scale combined heat and power
generators. Under NETA, bilateral contracts are the norm, with
balancing of supply and demand taking place only at the margins.
Government aims to ensure by this that electricity retailers will
be able to negotiate cheaper prices for their customers for guaranteed
supplies. Unfortunately, in the nature of things CHP electricity
is an intermittent resource and is penalised on price under the
marginal trading arrangements. It seems likely that CHP generators
will seek to bundle their output with other renewable resources
(such as wind or hydro) in order to be able to offer a more stable
renewable electricity supply to the market. However, such bundling
services are only now being made available and inevitably involve
an additional cost. In the interim, the electrical generation
output of CHP in the UK has actually fallen, and many environmentally
beneficial CHP projects have been abandoned or shelved. The electricity
regulator, Ofgem, was asked by government to look at the impediments
that NETA throws in the way of the development of renewable energy,
but failed to deliver.
8. One of the key issues for potential renewable
generators is whether the value they can appropriate from the
Renewables Obligation plus the CCL exemption (see below) is sufficient
for renewables generation to be commercially viable. The Renewables
Obligation works through a mechanism under which electricity suppliers
require renewable certificates to cover the statutory level of
renewable production, otherwise they must pay a fine of 3p/Kw
Hr. This "buy-out" price has been set at a level which
enables wind generation, but not other forms of renewables. Moreover,
in the competitive market, renewables generators are not able
to appropriate all of the value of the buy-out price or the CCL
exemption. In addition, there wider cost reductions have driven
down the market price for electricity. These risks mean that other
technologies are currently simply not viable.
9. As against this, further developments
in the field of electricity contracts may improve the long-term
viability of renewable generation. The first is the development
of a "green electricity", where consumers are offered
the opportunity to purchase electricity generated from renewable
sources and delivered via the grid. A number of regional electricity
retailers are offering green tariffs, but they have not penetrated
10. The second is the ongoing work to ensure
that generators will be offered a credit for delivering energy
into the grid at a point closer to its consumption, rather than
on the standard access charge which takes account of the preponderance
of conventional generating capacity based on large scale coal
and nuclear fired plant in areas remote from the demand for the
power. This is a key issue as well-located generation capacity
can reduce the need for unsightly long distance transmission pylons.
At the same time, if "net metering" is introduced it
will revolutionise the economics of small scale self generation
projects. (net metering gives the small scale generator a credit
for the electricity exported to the grid at the same price as
the electricity purchased for consumption).
11. CLA has long argued that there is significant
market failure in that the specific wider public benefits of biomass
energy (described in the CLA Biomass handbook) are not recognised.
The current Renewables Obligation, combined with NETA, imposes
a "one size fits all" or technology blind approach to
renewable electricity. This is directly resulting in several damaging
outcomes, in our view.
12. These include:
Increased requirements for public
expenditure by way of direct grant aid necessary to incentivise
A lack of consumer choice in how
renewable energy is delivered, and increasing concern amongst
communities threatened by inappropriate land based wind turbines.
A failure to deliver the benefits
to the rural economy from biomass jobs and incomes.
A failure to deliver the prospects
for market driven conservation and environmental improvements
from the increase in woodland cover.
A failure to capitalise on UK engineering
excellence, leaving the field (and huge potential export markets)
to foreign competition.
13. The CLA has long argued that a more
rational approach would be to "band" the Obligation,
so that different technologies could compete with each other within
the separate bands, each having a buy-out price that recognises
the emerging technology costs and wider benefits they deliver.
Current Heat Policies
14. Given that the consumption of energy
(and the current contribution to greenhouse gas production) comes
largely from the use of heat in domestic and commercial premises,
Government has been slow to address the question of renewable
heat production. The combined GHG output of domestic and industrial
energy use, largely by way of heat, amounts to about 50% of the
15. Policies introduced to date include
the Climate Change Levy (CCL), the development of the Carbon Trust
(and the grants it is able to offer for energy saving) together
with the Energy Savings Trust Community Energy schemes and housing
policies providing grant aid for insulation.
16. The CCL is a flawed policy tool, from
the point of view of the environment, of rural business and of
prospects for biomass heat generation:
First, in that it applies only to
business use of energy, and therefore fails to address the very
large domestic contribution to GHG emissions.
Second, in that intensive energy
users have been able to negotiate reductions, but the basis for
these has not been transparent.
Third, that the revenue raised has
not been redistributed evenly, the National Insurance bills of
manufacturing being lower than those of the service sector.
Fourth, that the CCL does not apply
to heating oil, which is covered by other taxes.
17. Under the CCL, rates currently payable
|Solid Fuel (coal coke etc)
18. For more details on CCL, contact the HMCE climate
change levy helpdeskTel 0161 827 0332, or visit www.hmce.gov.uk/business/othertaxes/ccl.htm.
19. In the context of renewable electricity, generators
need to seek levy exemption certificates from Ofgem. For direct
supply of biomass, or heat contracts using renewables, no levy
is payable, which provides a direct saving to the customer. The
savings that business customers enjoy may be captured by the energy
supplier, or shared with the customer.
20. The Carbon Trust is tasked with supporting the transition
to a low carbon economy in the UK.
Particular initiatives that the Carbon Trust are operating
include the long standing energy efficiency best practice programme(see
www.energy-efficiency.gov.uk) and it is launching a new initiativethe
Foundation element of the Low Carbon Innovation Programme. The
aim of this programme is to assist developing technologies overcome
technical and non-technical barriers across the innovation chain.
Details are available at www.thecarbontrust.co.uk/foundation.
For details of the work of the Carbon Trust contact:
The Carbon Trust
3 Clement's Inn
Tel: 020 7170 7048
Fax: 020 7170 7020
18. Businesses can make very substantial savings in heat
and energy usage, and the Carbon Trust has recently set up a free
advisory servicewww.actionenergy.org.uk/which is
specifically aimed at providing assistance in this area
19. The cumulative effect of current support for heat
is wholly inadequate for the task in hand. Energy used to provide
space heating requirements remains one of the largest sources
20. Thus the CLA has joined with many other organisations,
including the Renewable Power Association, Slough Heat and Power,
the Friends of the Earth, the NFU, British Biogen and the Combined
Heat and Power Association to argur for the early introduction
of a Renewable Heat Obligation, modelled on the Renewable (electricity)
21. A heat obligation, if introduced, promises significant
carbon savings at approximately one third the cost of the RO.
22. Meetings have been held with DTI Ministers and we
are determined to drive the agenda forward.
23. Government has argued that the relatively high level
of road fuel duty, and the differentiation between the rates for
leaded and unleaded fuels, together with differential rates of
road fund licence rates address the environmental outputs of road
24. Many commentators seek to downplay the role for renewable
transport fuels by promoting the prospects for hydrogen powered
cars. This, however, fails to recognise the very significant CO2
output of road transport (approximately 25% of all UK emissions)
and the long time frame and huge investment required to switch
from petrol and diesel to hydrogen. Moreover, creation of hydrogen
requires huge amounts of electricity, and unless this is generated
from renewable resources, no CO2 savings are made.
25. Policy on urban air quality has lead to the "powershift
programme", which provides incentives (including capital
grants and a significantly reduced rate of fuel duty) for those
willing to switch their vehicles to Liquid Petroleum Gas (LPG)
or Compressed Natural Gas (CNG).
26. Only in the 2002 budget was a concession made for
renewable fuels. Biofuel now attracts a 20p/litre reduction from
standard duty rates. Unfortunately, this is not enough to bridge
the gap between the costs of production of biofuels (biodiesel
and bioethanol) and those of fossil fuels, so is unlikely to create
a significant demand for biofuel crops. The current rate may encourage
production of biofuels from recovered vegetable oils (from catering
establishments) but there is only a limited supply of material.
27. Government, under considerable pressure from lobbyists
(including the CLA), undertook research into the environmental
benefits of growing biofuels and this is available at the sheffield
hallam website (http://www.shu.ac.uk/rru/reports.html ). This
shows that biofuels save up to 70% of GHG on a whole life cycle
basis and improve air quality in addition.
28. At the same time, Government (DfT) has this month
responded to the European Commission Biofuels Directive. Member
states have a wide discretion, and some encouragement, to set
targets for biofuel production and provide tax incentives to make
it happen. The EU has set a quality standard for biodiesel, which
is not yet in place in the UK. This causes concern, as poor quality
fuels on sale will tend to undermine the potential market.
29. Other European competitors are already well down
this road, and biofuel is already commercially available in many
EU countries. At the same time, Brazil production from biomass
(sugar cane) peaked at just over 50% of "petrol" consumption,
or 30% of its road fuels, and currently lies in excess of 35%
of "petrol" use. The USA is (2002) massively increasing
its investment in this area. In some mid-western states, substitution
of biofuels from maize in petrol already exceeds 20%.
30. Whilst there are technologies for small scale conversion
of home-grown crops to road transport fuels, it is expected that,
if Government provides suitable incentives, the market will develop
quickly through conventional channels.
31. DfT has recently consulted on a draft Biofuels strategy,
and we append our response at the annex. The CLA has welcomed
the DfT consultation, urged early action to introduce a Renewable
Fuel Obligation with appropriate environmental safeguards (not
extending to carbon accounting) with a binding obligation applied
to suppliers on a rising scale, starting at 2% in 2006, increasing
in steps to 5.75% by 2010 and reaching at least 10% by 2020 and
argued this should be accompanied by the maintenance of the existing
fuel duty reduction to avoid unacceptable fuel price increases.
32. The CLA also supports increased grant aid at regional
and national level to provide assistance to the infant renewable
fuel processing industry in face of established competition.
33. If the UK is to meet its Kyoto commitments, and go
further to address the recommendations of the Royal Commission
on Environmental Pollution (RCEP) for deep and lasting cuts in
GHG emissions, policy action is required on all fronts.
34. RCEP has recently published a report on the failure
of the biomass sector to deliver, pointing the finger firmly at
a lack of joined up thinking in Government.
35. Moreover, choosing renewable transport fuels offers
an environmentally friendly way of reducing the impact of car
use, without attacking the motorist.
Further information on these issues are available on the
CLA website, www.cla.org.uk
Recent CLA responses to Government consultations are to be
found under "policy" "Government responses"
Response to draft PPS22.
Response to Renewable Fuels consultation.
Response to The Renewable Obligation consultation.
Response to the Energy White Paper Review.
CLA handbooks (priced publications) for businesses interested
in developing renewable energy include:
CLA 25: Wind Farms and Wind energy as an enterprise.
CLA 30: Biomass: energy from the land as an enterprise.
11 October 2004