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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