Select Committee on Innovation, Universities, Science and Skills Written Evidence

Memorandum 32

Submission from Centre for Management Under Regulation, Warwick Business School

  The UK Government has highlighted the importance of climate change for several years and, despite major policy changes in that time, has now ended up with a new energy policy (DTI, 2007). The 2007 EWP was published after the UK endorsed a European Commission proposal for a 20% renewable energy target by 2020. It seems to us that much of the basis of the 2007 EWP should be questioned and re-thought in the light of this new commitment. The Science and Technology Committee inquiry is therefore a welcome and timely examination of the issues surrounding renewable energy deployment.

  The 2007 EWP has put us on a path to cutting carbon dioxide by 60% by 2050 from 1990 levels, which is welcome. However, this already seems as if it may not be enough. The 60% reduction is in line with meeting a 550 parts per million (ppm) volume of carbon dioxide by 2100, which is taken to be equivalent to a two degree centigrade temperature rise which, in turn, is taken to be the maximum average global temperature rise without risking major feedbacks (IPCC, 2007). If the 2°C is nearer to an equivalent of 450 ppm then we may need to cut our emissions even more. Most importantly, it is imperative we start to do so soon and do so at a fast enough rate to make a difference, hence the EU's new climate and energy policy. The latter is in line with the urgent global environmental imperatives, rather than political preferences.

  In our view, the UK has never taken renewable energy deployment seriously. While the Government is still consulting on nuclear power, it seems destined for a re-emergence, at least into UK energy policy if not actually into the electricity mix. This large-scale, centralised, inflexible, electricity-only technology seems far more in keeping with this Government's preference for a future energy system. This seems to us to be flawed: firstly, because it is an inflexible electricity-only technology which currently provides only 8% of total energy; and secondly, because the resources and commitments needed to get new nuclear power plants off the ground can only undermine the development of the other non-nuclear electricity and non-electricity technologies which are necessary for de-carbonising the other 92% of the energy system. Renewable energy and demand reduction have to be the fundamental answer to that de-carbonisation.

  Similarly, the ongoing commitment to pursuing carbon sequestration and storage (CCS) technologies for coal stations is equally flawed. We would not oppose the construction of new fossil fuel plants in the short term, but believe that these should be gas, which can be used over the longer term to provide flexible balancing generation to support an increasingly renewables based electricity system. The impact of CCS technology on the operational efficiency of coal stations, coupled with the possible environmental risks posed by the long term storage of carbon dioxide, mean that the use of the technology on new coal stations would offer little if any advantage over new gas. We do not believe that the issue of the security of gas supply is as severe as sometimes portrayed.

  Renewable energy policy has been supported in the UK since 1990: first, with the Non-Fossil Fuel Obligation (NFFO) and since 2002, the Renewable Obligation. The UK has been poor at deploying renewable electricity relative to other countries in Europe. It is inconceivable that the UK will be able to deliver their appropriate share of the EU 20% renewable energy target with the UK's current renewable energy policies. Other countries are managing to deploy as much renewable energy annually as we have deployed since the start of our programme in 1990. It is therefore the UK renewable energy policy which is the problem, not renewable energy technologies per se. If the UK had an effective renewable energy policy in place, we could not only meet the EU 20% renewable energy target by 2020 but it would also contribute to other energy policy objectives. For example, energy security would be improved because the so-called "electricity-gap" would be mitigated and diversity increased, and because we would reduce our need for fossil transportation fuels. This further undermines the need for nuclear power so that any potential investment in it could be re-directed to renewables and demand reduction.

  The transformation of the energy system from its current "dirty" state to being sustainable is an energy system issue, not just a technology or an economics issue. All the factors which make up an energy system have to work together to enable that transition. This means that the issue of appropriate infrastructure, market rules and incentives, innovation policy, skills, law, planning, technologies, institutions and behavioural changes and consumption issues all have to be addressed to ensure there are no "gaps" in the delivery of the new renewable energy, demand reduction and smart control[46] technologies.

    —    There is a great deal of academic literature available about the best ways to develop and deploy technologies. In essence, this is about supporting niches (or new technologies) from the idea stage through to deployment, and including nursery markets. It requires focus to reduce risk and provide certainty of long term commitment. We in the UK are very poor at this and have to change.

    —    Enabling new entrants to energy markets is more likely to encourage innovative approaches to both energy supply and demand reduction. So for example, we would like to see measures such as CERT broadened in their approach to allow non energy suppliers to have access to the energy service opportunities that are available.

    —    Our economic regulatory environment has to be altered to come in line with sustainable development. Ofgem argues that this is the case but in reality its interpretation of its Duties[47] means that its primary Duty of protecting the interests of current customers,[48] defined as keeping prices low, wins out over the secondary and tertiary concerns.

    —    Our renewable energy, transport, housing and demand reduction policy should be changed and enlarged:

    —  Focus on demand reduction should increase, including setting a carbon per household cap under the supplier obligation as soon as possible; regulating against inefficient products; and limiting generating stations waste heat;

    —  The RO should be preferably be scrapped and replaced by a feed-in tariff for all sizes and types of renewables, including microgeneration.[49] If the RO is maintained, then new technologies should be supported by a feed-in tariff in addition to the RO to provide increased certainty for investors and encourage new entry to the renewables market;

    —  Incentives for large scale CHP and renewable heat;

    —  Measures to deliver biomass strategy;

    —  Appropriate R,D and D for developing technologies;

    —  Planning difficulties improved as a result of the feed-in tariff but also with positive planning such as Merton Rule;

    —  Grid difficulties improved: the 2002 Renewable Energy Directive requirement to guarantee access (as opposed to priority access) is fulfilled meaning that the BETTA queue is reduced and access becomes easier; transmission access (including offshore wind and marine) is improved so that offshore transmission lines becomes part of the National Grid and rules and incentives of access are not geared towards non-intermittent centralised plant;

    —  Renewable Transport Fuels supported effectively; and

    —  Zero carbon homes supported:

        —  Strong building regulations for new homes; and

        —  Retrofit for existing homes.

  The Stern Review and the Government has talked about the need to establish a domestic social cost of carbon to reflect its appropriate value, as opposed to the deeply uncertain international price of carbon. This is valuable. However, as the Stern Review also highlighted, getting the price of carbon will not in itself be enough to move to a sustainable energy system. He argued that stimulating innovation (via innovation policies) and human behaviour changes are as important as establishing an appropriate price of carbon. As mentioned above, stimulating innovation requires establishing a condusive environment for change and this needs reduced risk (increased certainty). A carbon price cannot, and must not, replace a focused renewable energy and demand reduction policy.

  In general, economic theorists argue that technology should be supported either by focussed specific support, ie a renewable energy policy, or via a broad carbon policy but not both since that is open to "double dipping". In other words, renewables benefit from a specific support mechanism and, additionally, from the extent of the incentive against carbon fuels. In theory, this may be true. The size of the EU 20% renewable energy target is already raising questions of cost and concerns that such support for renewables across the EU will undermine the carbon price. However, the evidence available showing that new technologies need specific support is overwhelming as a way of mitigating the investment risks. Given the potential for renewables development in the UK, the Government must build on its support for renewables, not waver. It is unthinkable that we could deliver the amounts of renewable energy and demand reduction necessary to meet the European 20% renewable energy target without a serious, focussed sustainable energy policy. The three strands of a sustainable energy system: focussed technology and innovation policy; behavioural change and an appropriate value of carbon have to work together, as argued by Stern and as supported by evidence of how technologies have developed.

July 2007

46   Whether for efficient operation and design of networks or for efficient consumer use. Back

47   The Utilities Act requires Ofgem to "protect the interests of consumers, present and future, wherever appropriate by promoting effective competition between persons engaged in... the generation, transmission, distribution or supply of electricity..." (Ofgem 2006, p 107). Back

48   Even the balancing of the primary duty between present and future customers is not satisfactory. Back

49   The 2007 EWP wrongly calls the NFFO, the first renewable energy policy in the UK, a feed-in tariff and cites its failure as a reason for not supporting a feed-in tariff in the UK now. Back

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