House of Commons - Innovation, Universities, Science and Skills

Select Committee on Innovation, Universities, Science and Skills Fifth Report

2 RENEWABLE ENERGY AND THE UK

12. There are a variety of benefits to be gained from increasing the proportion of electricity the UK generates from renewable sources. These range from environmental benefits such as lower greenhouse gas emissions, to socio-economic ones (reducing the UK's dependence on fossil fuel imports, for example).

13. The arguments in favour of renewable energy generation have been well rehearsed and we do not attempt to discuss them further in this report. Indeed, the assumption that it is desirable to increase renewable energy production is central to UK and EU energy policy.[5] The question in hand is not whether the UK should increase renewable energy production per se, but to what level it needs to be increased, and how the country might best facilitate the deployment of renewable energy technologies in the UK.

14. It is important, however, to understand the costs of renewables to the Exchequer and the consumer, as with all electricity-generation technologies. Ofgem has estimated that renewable energy subsidies added £60 to consumer bills in the last financial year and that this will keep increasing. Dieter Helm, Professor of Energy Policy at Oxford University, has calculated that it costs consumers £510 for each tonne of CO₂avoided through wind energy.[6]

Targets

15. In March 2007, the European Council agreed an Energy Policy for Europe. This policy set a number of energy targets, including a commitment to increase the share of renewables in EU energy consumption from 8.5 per cent in 2005 to 20 per cent in 2020.[7]

16. As a means to achieving the 2020 renewable energy target, the European Commission (EC) proposed a draft Directive on the promotion of the use of energy from renewable sources.[8] Published on 23 January 2008, the Directive recommends renewable energy targets for each Member State. As described previously, the Directive proposes that 15 per cent of UK energy be sourced from renewables by 2020, a more than ten-fold increase on the 1.3 per cent recorded in 2005. At 15 per cent, the EC Mandated Target proposed for the UK is less than half that of Sweden (49 per cent), Latvia (42 per cent), Austria (34 per cent) and Portugal (31 per cent). The differences between Member States' targets, in part, corrects for a nation's starting point—the percentage of renewable energies in 2005—and "provides for a fair distribution of effort".[9] The Directive is expected to come into effect in 2010.

17. The Government is currently negotiating the proposed EC Mandated Target of 15 per cent renewable energy in gross UK consumption by 2020. Malcolm Wicks MP, Minister for Energy, Department for Business, Enterprise and Regulatory Reform (BERR), told us "this is a perfectly reasonable negotiation"[10] and that the final target will be "there or thereabouts".[11] We find the decision to negotiate with the EU for a lower target surprising given that the Renewable Energy Association, for example, believe that with appropriate policy support the 15 per cent target is achievable.[12]

18. The Government's argument for a lower EU Mandated Target appears to be predicated on cost. In evidence to the BERR committee, the Minister said:

19. Renewable electricity is currently more expensive to produce than electricity sourced from fossil fuels.[14] It is therefore essential that the cost of attaining the UK's EC Mandated Target is properly understood. To this end, the Government commissioned research to determine the financial implications of compliance with the proposed target of 15 per cent renewable energy by 2020. The estimated costs, and carbon savings, to the UK are summarised in Table 1.

Table 1. Costs and benefits to the UK of meeting the proposed EC Mandated Target
Annual cost in 2020	At least £5 billion
Lifetime cost	£70 billion
Carbon saved in 2020	67 MtCO₂
Value of carbon saved in 2020	>£1 billion
Lifetime carbon saved	1628Mt CO₂
Value carbon saved	£29 million
Cost effectiveness (£ per tonne of carbon - lifetime)	£43 per tonne CO₂

Source: Poyry Energy (Oxford) Ltd, Compliance costs for meeting the 20% renewable energy target in 2020 (2008)

20. In considering the economic cost of increasing renewable energy-generation, it should be remembered that there are also economic benefits to be gained from supporting a burgeoning renewables industry. Germany, for example, has a strong history of promoting renewable energy and, in 2006, domestic turnover in this sector totalled €21.6billion, an increase of 19 per cent on the previous year.[15] The increased turnover of the German renewables industry has been matched by an increase in jobs. Between 2004 and 2006 the number of people employed in the sector rose from 157,000 to 230,000. Current estimates indicate up to 500,000 people will be employed in the sector by 2020.[16]

21. We are disappointed that the Government is seeking to lower the target of 15 per cent renewable energies by 2020, as proposed in the EU Draft Directive on the promotion of energy from renewable sources.

RENEWABLE ELECTRICITY

22. It will be up to Member States to decide on the mix of contributions from the heating and cooling, transport and electricity sectors necessary to reach their EC Mandated Target for renewable energy consumption. We note, however, that the draft Directive on the promotion of the use of energy from renewable sources mandates that Member States source at least 10 per cent of transport fuel from biofuels by 2020.

23. John Loughhead, UK Energy Research Centre (UKERC), told us that it would be technically difficult to substantially increase the share of renewables in the UK's heat sector by 2020.[17] Although some renewable heat technologies are now cost effective in some situations (such as large scale biomass heating off the gas grid), most are not commercially competitive with gas heating.[18] At present the amount of renewable heat in the UK is extremely low (0.6 per cent of heat demand[19]). Based on the assumption that 10 per cent of transport fuel will be derived from renewables, UKERC calculated the contribution required from the renewable electricity sector necessary for the UK to meet the overall EC Mandated Target of 15 per cent renewable energies by 2020. Two situations were considered: either 5 per cent or 10 per cent renewable heat energy. In the former situation, UKERC estimate that 54.5 per cent of electricity will need to be renewable, in the latter, 42.8 per cent renewable electricity will be required[20]. All the witnesses we spoke to expected that it will be necessary to source 35-40 per cent of electricity from renewables if the UK is to generate 15 per cent of energy from renewables by 2020[21]. In light of the estimates from UKERC, however, it is possible that the share of renewable electricity required to meet the UK's 2020 targets will increase beyond 40 per cent.

National targets for renewable electricity generation

24. In 2006, 4.55 per cent of the UK's electricity was generated from renewables.[22] Increasing renewable electricity production to 35-40 per cent of supply by 2020 represents a significant challenge, particularly as the Government's targets for renewable electricity are completely inconsistent with this ambition. National Targets are to:

increase the share of renewable electricity to 10 per cent of total supply by 2010, with an aspiration for this to double by 2020;[23] and
triple renewable electricity to approximately 15 per cent of supply by 2015.[24]

25. As shown in Figure 1, the UK's National Targets are clearly inadequate to meet the proposed EC Mandated Target for the UK. The 2010 target would generate only half of the renewable electricity required, and meeting the 2015 target would require renewable electricity production to double in the following five years.

Source: ec.europa.eu/eurostat/

26. When asked to comment on the adequacy of the Government's renewable electricity targets, the Minister told us that:

27. The Minister went on to tell us that "the momentum in terms of our total energy coming from renewables is increasing, I would argue, quite dramatically year by year".[26] Similarly Michael Duggan, Deputy Director of the Renewables Obligation team, BERR, reported a "tripling of the deployment" of renewable technologies over the last five years.[27] We note, however, that Mr Duggan's statement is predicated on a low baseline - 1.8 per cent renewable electricity in 2002 (excluding large-scale hydro) - and that it will be necessary to double the current level of renewable electricity-generation if the UK is to achieve its 2010 target of 10 per cent of supply from renewables (see Figure 1).

28. We appreciate that the UK renewables targets laid out in the May 2007 Energy White Paper were set prior to the publication of Member States' proposed EC Mandated Targets in January 2008. However, the European Commission proposed the overall target of 20 per cent renewable energies by 2020 in January 2007, and Member States accepted the proposal in March of the same year.[28] Given that the UK Government has expressed its commitment to the EU 2020 renewables target[29], we find it disappointing that it has not acted to update its own Renewable Energy Strategy sooner, and further, that it maintained its commitment to the targets laid out in the 2007 Energy White Paper in Budget 2008.

29. We do not consider current UK targets for renewable electricity generation to be of sufficient scale or ambition. The Government's commitment to triple renewable electricity production by 2015 will equate to the production of approximately 15 per cent of total electricity supply. If the UK is to meet the proposed EC Mandated Target of 15 per cent renewable energy by 2020, it would then become necessary to more than double renewable electricity-generation capacity between 2015 and 2020.

30. It is not only the adequacy of the UK's targets for renewable electricity generation that concerns us, but also the lack of progress that has been made towards achieving them. Take the Government's ambition to source 10 per cent of electricity from renewables by 2010. Since this target was announced in January 2000[30], the share of renewable electricity in overall UK consumption has increased from 2.7 per cent of supply in 2000 to 4.6 per cent in 2006.[31] Based on current rates of progress, it is forecast that renewable electricity will constitute 6 per cent of gross electricity supply in 2010.[32] We find it highly unlikely that, given current progress, the UK will meet the Government's ambition for 10 per cent of electricity to be generated from renewables by 2010, let alone the EC Mandated Target for 15 per cent renewable energies by 2020.

RATIONALISING THE TARGETS

31. Targets for renewable energy generation comprise two tiers. The first tier, or 'headline' target, stipulates the proportion of total energy to be generated from renewable sources, whereas the second tier outlines the contribution required from the electricity, heating and cooling and transport sectors to meet the overall target. In the case of the UK's EC Mandated Target for renewable energy, the headline target will be determined by the European Commission, and the form of the second tier by the Government.

32. In conducting this inquiry we found the plethora of UK renewables targets to be confusing and unnecessary. Possible targets for renewable electricity-generation now range from 10 per cent of supply by 2010[33] to 40 per cent of supply by 2020.[34] The forthcoming consultation on a new renewables strategy for the UK represents an opportune time to revisit these targets and to promote a unified message.

33. We recommend that, as soon as the UK's EC Mandated Target is known, the Government outline the UK's renewable energy targets in a single statement. This statement should set the context for the Government's new Renewable Energy Strategy, stipulating the country's 2020 target for renewable energy generation, and signposting the contribution required from the electricity, heating and cooling and transport sectors required to meet the headline target. In addition to setting targets for each renewable energy sector, it is vital that the Government's Renewable Energy Strategy provides a clear policy framework for achieving them.

5 DTI, Our energy future - creating a low carbon economy, CM 5761, p12, HM Treasury, Meeting the Energy Challenge, Cm 7124, May 2007; Commission of the European Communities, Memo on the renewable energy and climate change package (Memo/08/33), January 2008 Back

6 http://www.timesonline.co.uk/tol/news/environment/article3257728.ece, The Sunday Times, 27 January 2008 Back

7 Commission of the European Communities, Memo on the renewable energy and climate change package (Memo/08/33), January 2008 Back

8 Proposal for a Directive of the European Parliament and of the Council on the promotion of the use of energy from renewable sources, COM(2008) 19 Back

9 Commission of the European Communities, Memo on the renewable energy and climate change package (Memo/08/33), January 2008 Back

10 Q 345 Back

11 Ibid. Back

12 Q 8 Back

13 Uncorrected transcript of oral evidence taken before the Business Enterprise and Regulatory Reform Committee on 31 January 2008, HC (2007-08) 293-i,Q 150. Back

14 Ev 382 Back

15 Federal Ministry for the Environment, Nature Conservation and Nuclear Safety, Development of renewable energies in 2006 in Germany, February 2007 Back

16 Federal Ministry for the Environment, Nature Conservation and Nuclear Safety, EEG - the renewable energy sources act, July 2007 Back