Memorandum submitted by Renewable Energy
Foundation (Bio 03)
INTRODUCTION
1. Renewable Energy is widely believed to
have a significant role in tackling climate change. However, the
Renewable Energy Foundation judges that the extent and character
of this role is often misunderstood, even in governmental circles,
with the result that policy is structured around expectations
which are both unrealistic and likely to encourage deployment
of renewable energy in ways which are sub-optimal. We conclude
that analysis drawing upon the experience of our European neighbours,
who have made extensive experiments aimed at reducing emissions
via the means of renewable energy technologies, leads to the view
that, amongst several other misapprehensions, bioenergy's role
has been incorrectly evaluated.
2. The Foundation has argued for this view
in a detailed submission to Sir Nicholas Stern's review of Climate
Change Economics[1]
and we refer the Committee to our submission to that Inquiry.
[2]In
this introduction we summarise and draw on that thesis as a necessary
context for the brief responses to the Commitee's 10 questions,
which conclude this document.
3. As part of its submission to the Stern
Review the Foundation commissioned a report from one of Germany's
leading energy analysts, Dr Wolfgang Pfaffenberger, Professor
of Economics (European Utility Management) at the International
University of Bremen, and Director of the Bremer Energie Institut.
[3]Professor
Pfaffenberger indicated that German endeavours with regard to
emissions reduction, particularly via renewable electricity, have
been unsatisfactory in a number of regards, a fact which is now
increasingly widely recognised in Germany itself.
4. The four main conclusions of Professor
Pfaffenberger's study may be summarised thus:
(i) Subsidy support for renewable technology
in Germany has encouraged the production of renewable energy,
but it has sheltered renewables from the disciplines of the market,
resulting in unbalanced development. In Professor Pfaffenberger's
words:
To promote market introduction would
require that renewable energy producers regularly become responsible
for marketing their product by themselves. It would require that
they produce the balancing services necessary for a marketable
product and combine these services with their renewable product.
The present system is clearly a system where the renewable energies
are outside of the market whereas on the other hand of course
they influence the market.
5. We believe that this comment applies
with equal force in the United Kingdom, where the Renewables Obligation
has the superficial appearance of a free market instrument, but
has created an artificial, indeed a "hothouse", situation,
with all the undesirable results that such a forced growth entails.
(ii) Renewable electricity is, relative to
other means, an expensive method for the reduction of greenhouse
gas emissions. (We note that this empirical experience confirms
the findings of the National Audit Office report on Renewable
Energy published earlier this year, [4]and
also endorses the views expressed in the House of Lords Report,
The Economics of Climate Change[5])
Professor Pfaffenberger writes:
Whereas the promotion of renewables
in Germany was definitely effective in the sense of increasing
capacity and production it was certainly not cost effective in
the sense of getting the highest effect per Euro in terms of greenhouse
gas reduction or production from renewable sources.
This is a very important conclusion.
(iii) Because of difficulties in balancing
the grid due to the presence of stochastic wind generation Germany
is now faced with the need for costly and largely unanticipated
measures to ensure stable supplies. These increases in cost have
implications for industry, as Professor Pfaffenberger indicates:
A system of national support for renewable
energy in the way the German system has been designed definitely
changes the competitive position of any industry that works for
the international market.
6. There is no compelling evidence that
the situation in the United Kingdom is significantly different.
Indeed, in-so-far as the UK's grid is islanded, as opposed to
being richly interconnected as is the case in Germany, balancing
problems and associated costs are more probable here (for comments
on this matter we refer the Review to the articles by Hugh Sharman
in Civil Engineering, [6]discussed
below). Furthermore, in some respects the regulatory framework
in the UK is less favourable to industry. For example, Professor
Pfaffenberger writes that while intensive energy users in Germany
are granted partial exemption from the impact of renewable energy
laws, cost increases have still resulted in a crisis in these
industries. In the United Kingdom, of course, far from being sheltered
to any degree, industry is exposed to increased costs via both
the Climate Change Levy and the Renewables Obligation.
(iv) The introduction of renewables has not
necessarily had a positive net effect on the economy. In a crucial
passage Professor Pfaffenberger writes (the emphasis is ours):
Part of the motivation for promoting
renewable energy is to substitute local generation for imported
energies and in this way promote economic activity and employment.
A number of studies have been carried out during recent years
to investigate the effects of the promotion of renewables in this
respect.
The results are not very encouraging
(see Hader, 2005 and Hillebrand, 2005). Basically, of course,
investing in renewable energy plants creates employment in industries
producing these investment goods. On the other hand the extra
cost of renewables adds to the cost of energy and in this way
destroys purchasing power that otherwise could have created demand
and indirectly employment in other areas. Whereas the gross
effect of spending money on renewables is always positive, the
net effect may be negative.
7. We draw attention to this last point
because it bears with considerable weight on the way in which
the United Kingdom conceives of renewables within its climate
change policy. Any climate change policy which is economically
deleterious for the proposing state will actively discourage emulation
at international level, and will thus fail to contribute to climate
change mitigation, since it is only by carrying the developing
world in the direction of lower emissions that a domestic policy
can achieve significance. The United Kingdom emits roughly 550
million tonnes of CO2 per year. [7]This
is roughly 2% of the global total of 24,000 million tonnes. [8]It
should be immediately apparent that the United Kingdom has no
effective quantitative role in global climate change policy, but
instead can only contribute by:
— Demonstrating and exporting good
practice.
— Providing an economically compelling
example.
8. Rapid growth in the developing world
further emphasises this point, and may be conveniently indexed
via electricity. China is at present approximately five times
the size of the UK electrically, with an installed capacity of
roughly 357 GW, generating approximately 1,800 TWh. [9]The
UK has an installed capacity of roughly 74 GW and generates around
400 TWh per year. By 2020 it is estimated that China will need
to generate some 11,000 TWh, with an installed capacity of approximately
2,400 GW. [10]In
other words, by 2020 China will have grown sixfold electrically
and be some 30 times the size of the UK in this sector. While
nuclear and hydro-electrical power will provide a considerable
portion of this energy, the bulk is expected to come, necessarily,
from coal and gas.
9. Seen against such a backdrop, it is obvious
that the United Kingdom climate change and energy policies will
be at best futile unless they are economically attractive and
sufficiently practical to induce emulation in China, and elsewhere.
Consequently, as we have emphasised in our 2005 Manifesto, [11]it
is essential to recognise that the goals of the 2003 Energy White
Paper must be prioritised correctly, even though this resequencing
may seem counterintuitive.
10. It is widely agreed that energy must
demonstrate favourable credentials in a number of areas, and ideally
should be:
11. However, it should be noted that these
are qualities which should be characteristic of the overall energy
portfolio. It is not enough that the various component technologies
of our portfolio should demonstrate them individually. Each technology
must manifest these qualities in such a way that:
— The ability of other technologies
to deliver their benefits is not impaired.
— The value of the energy sector as
a whole is not seriously compromised.
12. We suggest that the criteria should
be arranged in the sequence given above, reflecting their priority
and consequence. The logic of this sequence can be explained as
follows:
— If security of the primary sources
cannot be guaranteed, then reliability at the point of use is
questionable.
— If security and reliability of supply
are compromised, then our economy will be damaged.
— If our energy supplies are insecure,
unreliable, and unaffordable we will be unable to maintain and
develop the high technological economy necessary to support our
social aims and control the emissions of a large urban and industrial
society.
— If the energy system in its total
sense is unclean, as is seen in the CIS countries and parts of
the developing world, then our social aims will be compromised
by ill health in our population.
— And finally, if we cannot achieve
any of the foregoing aims, our overall energy policy will be unsustainable,
and the well-being of the United Kingdom and its people will be
poorly served in the short, medium, and longer term.
13. This sequencing and logic differs radically
from that found in the Energy White Paper, which we believe
is gravely and dangerously flawed. [12]In
particular we note that the White Paper foregrounds emissions
abatement as the principal goal, and allows other goals to settle
into subordinate positions in no particular order. In criticising
this policy framework the Renewable Energy Foundation is not suggesting
that emissions abatement is unimportant, but, rather, that placing
it centre-stage is likely to compromise our ability to reach other
essential objectives.
14. In the light of this we are drawn to
conclude that the Renewables Obligation has created sub-optimal
investment patterns in renewable technologies, and that significant
revision, learning from the experience of Germany and Denmark,
is required. We refer the Committee to the many publications from
Denmark and Germany now confirming that wind energy is at best
a fuel saver, and offers only a very low "capacity credit"
(the ability to replace "firm" capacity in the portfolio).
We recommend that the Review is mindful of both the E.ON Netz
Wind Report 2005 and the recent articles in Civil Engineering
by the leading energy consultant, Hugh Sharman. [13]
15. From these documents, and from Professor
Pfaffenberger's report for us, we conclude that the UK's current
policy is heavily over-dependent on wind energy. This imbalance
is largely the result of the simplistic structure of the Renewables
Obligation, which is "unbanded", and makes no distinction
between the manifest merits of various technologies. The consequence
has been an investment scramble for the least capital intensive
ticket to the RO subsidy stream (initially land-fill gas, now
wind), regardless of the intrinsic value of the technology adopted.
This is doubly unfortunate, since the overemphasis of one technology
has resulted in the neglect of others, such as tidal and bioenergy
systems, which have more offer in terms of secure and firm energy
provision. While wind power will undoubtedly form part of the
UK's future portfolio, the current levels of proposed development,
particularly in Scotland and Wales, are, from a national perspective,
irrational and do not constitute a wise use of scarce capital.
CONCLUSION
16. From the above analysis we conclude
that there is no necessary conflict between the two major
goals of any UK energy policy:
— Configuring energy provision to serve
our own economic needs.
— Fulfilling the United Kingdom's international
responsibilities in relation to climate change.
17. Indeed, if the energy policy promises
economic disadvantage it will by the same token be ineffective
as a climate change policy because it will fail to carry the developing
world in the same direction. Thus, we conclude that:
Economic viability and attractiveness is the
first and fundamental test of any climate change policy for the
United Kingdom.
18. Considering the Committee's questions
against this backdrop we reach conclusions that may vary from
those obtained from other sources.
RESPONSE
19. In order to facilitate reference we
preface each response with the full question as given in the Committee's
call for evidence.
Q1. What is the real scope for biomass and
biofuels to contribute to tackling climate change? What proportion
of the UK's energy and transport fuel needs could they provide?
20. As noted, the UK, overall, has no significant
quantitative scope for tackling climate change, and we are consequently
concerned that the rider question here embeds the false assumption
that the UK can in fact contribute quantitatively. Bearing in
mind our analysis above, we note that:
(i) Biomass is not only capable of reducing
emissions but also of contributing firm capacity to the electricity
generation portfolio of the UK and thus strengthening its grid.
Thus although its potential proportionate contribution to the
UK's electrical energy needs is modest, because of landmass limitations,
this is still a potentially and economically attractive example
to other regions of the world where land is less of a limiting
factor.
(ii) Biofuels, both biodiesel and bio-ethanol,
can reduce dependence on imported hydrocarbons. It is feasible
to supply 5% of the UK's current petrol consumption from existing
domestic surplus food grains, without additional planting. This
is a real contribution, and can offer an economically compelling
example by maintaining agriculture in a healthy condition, and
reinforcing the UK's ability to cultivate a proportion of its
own food needs.
(iii) Biogas production has some scope in
the United Kingdom, in both rural and urban areas, for heating
and other uses not requiring high compression, and effective demonstration
and innovation here could stimulate wider and more efficient applications
in the developing world.
Q2. How cost-effective are biomass and biofuels
in comparison with other sources of renewable energy?
21. Simplistic calculations may be offered
to the Committee suggesting that biomass and biofuels are costly,
relative to other renewables. However, the truth is that all renewable
energy sources struggle to be competitive when compared to conventional
alternatives, and thus require subsidy support. However, these
renewable technologies are not equal in intrinsic merit, and thus,
this question needs to be understood as asking "How do the
merits of biomass, biofuel and other renewable energy technologies
rank in deserving subsidy support?"
22. Due to the potential for "firm"
generating capacity evidence by biomass, and the obvious merits
of biofuel and biogas, we submit that organic energy has a very
high merit rating in spite of any scalar limitations.
Q3. How do biofuels compare to other renewables,
and with conventional fossil-fuels, in terms of carbon savings
over their full life-cycle?
23. Life-cycle emissions budgets for biofuels
for transport and biomass are contentious, and heavily dependent
on the farming styles assumed, but similar doubts exist with regard
to the currently accepted life-cycle emissions calculations available
for other technologies. For example, there is genuine and deep
uncertainty with regard to the actual savings arising from the
introduction of stochastic renewable electricity generation. Comparisons
between biofuels, biomass, and other renewables are thus inconclusive
in terms of scale. However, we can be certain that neither can
offer scope for quantitative savings comparable to that available
from clean generation in the conventional sector, via, for example
carbon-dioxide capture and sequestration. While this is an important
consideration and, particularly so since the developing world
is certain to derive much of the energy it requires from fossil
sources, it also serves to remind us that the UK should not be
looking to renewables for bulk savings. In short, we feel that
this question is insufficiently subtle in its framing. Instead,
it would be more profitable to ask whether biofuels, biomass,
have acceptable carbon balances, promising economics, intrinsic
technological merits (storable energy, firm generation), and scope
for application in the developing world. The answer to all these
questions is positive.
Q4. Not all biomass is equal — potential
carbon savings depend on, for instance, farming practice. What
can be done to ensure energy crops are sustainably produced?
24. Intensively cultivated wheat fields
may currently call for as many as 10 to 20 separate tractor passages
in a season, but bioenergy crops do not require such attention,
largely because there is real potential for significant reduction
in the use of fertilisers and pesticides. The greatest threat
to attainment of these desirable goals lies in the nature of the
subsidy support mechanism, which could very easily, if great care
is not taken in its design, simply act to encourage energy intensive
farming to maximise subsidy share. Avoiding this flaw, without
removing the incentives for effective farming, will be no trivial
matter.
Q5. What impact will UK Government and EU
actions have in increasing demand for, and production of, biomass
and biofuels?
25. The regulatory regime is crucial to
adoption of biomass and biofuels. In the area of biomass for electricity
it is imperative, as REF has argued repeatedly, that the Renewables
Obligation is revised so as to recognise the intrinsic merits
of firm renewables, and that thus more will be offered to those
technologies which have more to offer.
26. In relation to biofuels we recommend
that duty be waived provided that the feedstock is grown in the
British Isles. We are aware that this may present legal problems,
and charges of protectionism, but simple duty breaks are likely
to encourage imports of organic feedstock, or of processed biofuels,
thus defeating the object of enhancing security of supply and
reducing emissions.
Q6. What level of financial and policy support
do bioenergy technologies require in order to achieve the Government's
targets for renewable energy?
See our response to question 5 above.
Q7. What impact might an increase in energy
crops in the UK and the rest of the EU have on biodiversity, production
of food crops and land use and the environment more generally?
27. There is some anxiety amongst the public
that energy crops might increase the trend towards a narrow range
of crop types, with all that this implies for wildlife. However,
this need not be the case; indeed, with bio-ethanol it is clear
that the growth of feedstocks for this product would encourage
the re-adoption of traditional rotation patterns, and if conducted
correctly reduce the use of herbicides and pesticides, a combination
that could, with adequate management, be positive for biodiversity
and the general environment.
Q8. Does bioenergy production constitute
the best use of UK land for non-food crops? Should UK and EU policy
focus on increasing domestic production of energy crops and biomass,
or are there merits in importing biomass for energy production,
or raw feedstock or refined biofuel, from outside the EU?
28. Opportunities for non-food crops in
the UK are not numerous—timber is practically the only serious
alternative—and it is unlikely that bioenergy projects would
interfere significantly with this use. Indeed, with careful management
it is possible that the introduction of energy crops in tandem
with other projects could enable the viability of some timber
forests that would otherwise be uneconomic.
29. It is our view that the benefits of
bio-energy are to a large degree dependent on the domestic origin
of the biomass or feedstock. The underlying reasons for this,
in order of significance, are:
(ii) Economic benefits to agriculture, enhancing
food security by supporting the sector.
(iii) Benefits (i) and (ii) above combine
to constitute an economically compelling example to the developing
world.
(iv) Energy required to import materials
may negatively affect the overall emissions budget of the organic
energy produced.
Q9. What more can be done to make more efficient
use, as an energy source, of the by-products of agriculture and
forestry (eg wood waste and other organic waste)?
30. It is the Foundation's view that energy
from waste is an area which might benefit from special support
since it is potentially "firm" and has other aspects
offering social utility. Agricultural and forestry waste are a
sub-category of waste, and are generally speaking, fall readily
into the "renewable" category. Special support for "renewable"
waste could therefore be provided by modifications under the Renewables
Obligation.
Q10. What lessons can be learned from other
countries' experience in the production and use of bioenergy?
31. German and Danish experience leads us
to conclude that:
(i) We must be realistic about the scale
of biomass and biofuel production, particularly in a small landmass
such as the United Kingdom. While the potential is real, it is
limited and consequently must not be oversold for political reasons.
Due to exaggerated claims with regard to renewables the educated
public is increasingly wary of claims tinged with salvationism,
and over-forceful marketing may stimulate rejection.
(ii) The viability and appropriateness of
biomass for electricity is crucially dependent on the correct
scaling of the project. Our view is that larger scale biomass
generators (say 20 MW and upwards) are unlikely to be suitable
for broadscale application, due to fuel demand and consequent
vehicle movements. Justifiable public opposition is likely in
such cases. Smaller units, however, may find a niche and offer
compelling benefits to the areas in which they are situated, especially
when seen as part of an integrated demand-side management package.
(iii) Biomass for electricity should wherever
possible be designed as CHP to ensure adequate economics (this
point can be confirmed by examination of those biomass projects
currently operating in the UK).
(iv) While the clear and immediate application
for bioethanol and biodiesel is as transport fuel, thus enhancing
security of supply and reducing emissions, in the future it will
be increasingly desirable to look at non-transport applications.
Renewable Energy Foundation
January 2006
1 http://www.hm-treasury.gov.uk/Independent_Reviews/stern_review_economics_climate_change/sternreview_index.cfm Back
2
The document is available from the Foundation's website: http://www.ref.org.uk Back
3
http://www.iu-bremen.de/directory/02826/ Back
4
National Audit Office, Department of Trade and Industry: Renewable
Energy, report by the Comptroller and Auditor General, H 210
Session 2004-05, 11 February 2005. Available from http://www.nao.org.uk/ Back
5
House of Lords Select Committee on Economic Affairs, The Economics
of Climate Change, 6 July 2005, Chaper 5. Back
6
Hugh Sharman, "Why Wind Works for Denmark", Proceedings
of ICE: Civil Engineering, 158 (May 2005), 66-72; and "Why
the UK should build no more than 10 GW of Wind Capacity",
Proceedings of the Institution of ICE: Civil Engineering
158 (November 2005), 161-169. Back
7
For latest emissions data see DEFRA:http: //www.defra.gov.uk/environment/statistics/globatmos/gaemunece.htm Back
8
Current estimates can be obtained from the Energy Information
Administration of the US Dept of Energy: http://eia.doe.gov/ Back
9
See International Energy Annual data on: http://www.eia.doe.gov/emeu/iea/ Back
10
See statements by Zhang Guobao, vice-minister of the National
Development and Reform Commission quoted in the China Daily,
19 October 2004: http://www.china.org.cn/english/BAT/109757.htm Back
11
Manifesto 2005, Renewable Energy-the Need for Balance and Quality,
Published by the Renewable Energy Foundation, January 2005. Back
12
See, for example, Energy White Paper: Our Energy future: Creating
a Low-Carbon Economy (Dti: London, 2003), pp 7ff. Back
13
REF's abstract of the E.ON report is available from www.ref.org.uk,
and the full report http://www.eon-netz.com. Hugh Sharman's papers,
"Why Wind Works for Denmark", Proceedings of ICE:
Civil Engineering, 158 (May 2005), 66-72, and "Why the
UK should build no more than 10 GW of Wind Capacity", Proceedings
of the Institution of ICE: Civil Engineering 158 (November
2005), 161-169. Back
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