Memorandum submitted by Green2Go (LCT 39)

Background

Green2Go was established in 2007 to provide renewable and sustainable heat and power solutions to its public sector and private sector partners, helping them to meet and exceed their challenging sustainability targets. Green2Go is a subsidiary of Equity Solutions & Partners Limited, a well established investment organisation who invests in Public Private Partnerships. The Equity Solutions Group have invested, procured or acted as principal leader on over £4bn of infrastructure transactions. Green2Go is actively encouraging and implementing low carbon alternative fuel options and associated infrastructure solutions across the Equity Solutions and other partners' property portfolios.

Green2Go welcomes the opportunity to submit evidence at this stage in the Committee's inquiry. This submission addresses a number of points raised in the inquiry's terms of references and focuses on Green2Go's concerns around apparent inconsistencies in Government policy on the promotion of sustainable bio-fuels.

 

1. What opportunities exist for the creation of a green new deal whilst pursuing a low carbon economy? Which technologies have the biggest potential? Has the Government done enough in its stimulus package?

Green2Go produces sustainable bio-diesel through a process which recycles used cooking oil which would otherwise be a waste product. The resulting bio-diesel not only avoids the indirect land use debate but also ensures a waste product is diverted from landfill, thus contributing both to reducing carbon emissions and waste minimisation. We believe bio-diesel produced in this way has a key role to play in enabling the UK to meet challenging international targets.

However, a recent ruling by the administrator of the Renewables Obligation (RO), the main support scheme for renewable electricity projects in the UK, has the potential to stifle the industry. Methanol is a commonly used reagent in the process of producing bio-diesel from used cooking oil (UCO). Ofgem recently ruled^[1] that bio-diesels produced in this way can no longer be included in the RO scheme because of the presence of a small proportion of fossil fuel derived methanol. This ruling is based on a literal interpretation of the law which classes the entirety of the bio-diesel produced in this way as a fossil fuel under Article 9 of the Renewables Obligation, despite the fact that the fossil fuel element of the fuel is relatively small (around 11% fossil fuel by mass) and the majority comes from the recycled waste stream. The ruling stated that where fossil fuel derived alcohols are used, no Renewables Obligation Certificates (ROCs) will be issued at all, even for the biomass-derived portion of the bio-diesel involved. The ruling was met with concern from the renewables industry on the basis that exclusion from the scheme would not help to encourage the generation of renewable energy. Indeed, Ofgem itself concluded that its ruling runs counter to the desires of the majority of respondents to the 2008 consultation whilst noting that decision was outside their remit in their role as administrators of the scheme and a policy issue for DECC.^[2]

It is Green2Go's position that Ofgem's ruling on bio-diesel is likely to have a devastating effect on the UK's nascent bio-fuels industry and will have serious ramifications for future domestic supply of renewable energy. Energy production in the UK has been set high long term targets for renewable sources yet the legislation, or at least the Ofgem interpretation of it, acts as no incentive to the use of currently available renewable fuels in the generation of electricity and heat. In addition, the ruling runs counter to recommendations made in the Gallagher Review which recommended the Government should introduce incentives to spur the development of advanced technologies such as the use of idle or marginal land, algae or residues to produce bio-fuels.

The negative impacts the ruling will have on the UK's renewables industry seems to highlight the apparent inconsistency between the Government rhetoric of incentivising the generation of renewable energy, as clearly reiterated in the recently published Renewable Energy Strategy, and the effects of its policy on the ground. This is particularly concerning in light of the Government's desire to position itself as a world leader in tackling climate change in the run up to December's UN Climate Change Conference in Copenhagen.

It is further worth noting that if the bio-diesel is used as transport fuel, it is still eligible for Renewable Transport Fuel Obligation (RTFO) certificates. The Renewable Fuels Agency, the Government body which implements the RTFO, has stated that the fossil-fuel sourced methanol being used in bio-diesel production is accounted for in the organisation's life cycle analysis calculations for bio-fuel sustainability reporting. However, for some reason, Ofgem does not hold the same view presenting an apparent inconsistency across policy on the use of bio-fuels for electricity generation and in transport. In addition, Ofgem differentiates between substances which are contaminants and those that alter the structure of the fuel in question, a further inconsistency. Some generators are therefore able to claim ROCs on a proportional basis and some are not, based on an arbitrary technical issue relating to the way in which methanol affects the structure of the bio-diesel. Whilst we understand that DECC is expected to consider the consistency of its policy as part of the implementation of the Renewable Energy Directive, Green2Go is concerned by the time this is implemented the detrimental effect on the domestic industry will be irreversible.

Whilst the recently published Renewable Energy Strategy and accompanying documents were very clear in reiterating the Government's intention to support the renewables industry and promote sustainable bio-fuels, it is vital that its policy is scrutinised to ensure it is having the desired effect on the ground.

There is a significant opportunity for on site micro-generation powered by sustainable bio-diesel and other waste derived products. This opportunity is not being taken due to the uncertainty created by the Ofgem ruling and the limited returns proposed for this technology in the draft Renewable Electricity Financial Incentives.

 

2. What are the most important drivers, nationally and internationally, for a low carbon economy in the UK? To what extent do the outcomes of the international negotiations at Copenhagen matter?

As set out above, one of the most important drivers for a low carbon economy in the UK is that the Government takes the appropriate steps to promote sustainable bio-fuels. Following the Gallagher Review, steps were taken to slowdown bio-fuels obligation levels in the UK despite the fact that many bio-fuels, including those produced from used-cooking oil, avoided the indirect land use change debates entirely. Whilst much debate is going on at EU level around the promotion of sustainable bio-fuels, this distinction has only recently been reflected in Government policy, clearly presenting significant challenges for the sustainable bio-fuels industry. For example, recycled methanol (another waste product) use is encouraged in the rest of Europe and certified by the EU as a sustainable second generation fuel, yet once again the use of this in the production process excludes the bio-diesel from the RO scheme based on the Ofgem ruling.

The Ofgem ruling outlined above is expected to have a significant effect on the UK's renewable energy industry which, alongside other challenges, will potentially cause many small innovative producers to go out of business. Although producers have moved ahead with the use of bio-methanol and bio-ethanol which are allowed under the Ofgem ruling, these are a much more costly alternative which adds further pressure to the already struggling industry, and has led to a significant number of micro-generation schemes being halted. As well as affecting the bio-fuels industry, the Ofgem ruling has also had serious cost implications for micro-generation and combined heat and power (CHP) system projects, making many projects unviable. Given the clear role such technologies can play in achieving the Government's carbon reduction targets, it is concerning that inconsistent Government policy is preventing further projects from going ahead.

The international negotiations to take place in Copenhagen are clearly vital in agreeing an international way forward to tackle climate change. The UK Government is likely to receive significant negative PR in the run up to the December UN summit on Climate Change in Copenhagen for almost certainly killing off the UK bio-fuels industry - in 1994 the UK lead the world in the development of renewable energy, yet in 2009 the UK ranks 52nd. The recently published Low Carbon Industrial strategy argues that Britain is at the leading edge of developing sustainable biofuels - if progress is to be maintained, the Government must ensure its policies and schemes such as the RO adequately incentivise so-called sustainable or advanced bio-fuels.

It is also important for energy security that the government promotes the use of on site renewable micro-generation. This can be done by simplifying and speeding up the process of connection to the grid and setting the financial rewards at a level which encourages the most effective technologies. A sustainable bio-fuel combined heat and power system will deliver an 85% reduction in carbon compared with traditional grid heat and power.

 

3. How important is it to the UK economy that it becomes a leading developer and exporter of low carbon technologies? What Government policy needs to be in place to do this?

Green2Go would support the objective of the UK becoming a leading developer and exporter of sustainable bio-fuels yet, as outlined above, Green2Go would argue Government policy needs to be much more consistent across climate change mitigation, energy, and waste management policy as well as making a clear distinction between sustainable and non-sustainable bio-fuels.

In addition, Green2Go would argue that the support provided to the renewable fuels and renewable power generation industry in the UK is limited in comparison to the support provided in other countries. This has resulted in approximately half the bio-diesel used on UK roads being produced outside the UK and mainly in the US; this in itself raises additional carbon miles considerations. The number of bio-fuels / bio-mass power generation schemes is also significantly lower than other countries. Green2Go hopes that the vision set out in the recently published Low Carbon Industrial Strategy will be realised, but this will be contingent on the Government addressing a number of inconsistencies in its current policy.

 

4. Are we seeing impacts of a downturn on demand and investment in low carbon technologies? If so, how can this be addressed given the need to meet long term targets? What obstacles to investment are there?

There is undoubtedly a reduction in the interest in investing in low carbon technology in the UK. It is essential the government provides long term certainty and the correct level of return to encourage businesses to invest.

As above, the Ofgem ruling is having a direct effect on the ability of the sustainable bio-diesel industry to innovate as the direct cost effect of the ruling means that less is available for investment in research and development, an important engine of growth for a future low carbon economy. To address this, Green2Go would like a see a reconsideration around the eligibility of bio-diesel produced using recycled / waste methanol in the RO scheme. More broadly, and as set out above, Green2Go would urge the Government to ensure its policy effectively incentivises the production of sustainable bio-fuels and encourage the UK's nascent industry.

September 2009

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[1] http://www.ofgem.gov.uk/Sustainability/Environment/RenewablObl/Documents1/Bio-diesel%20Decision.pdf

[2] The archived consultation document can be accessed online at http://www.ofgem.gov.uk/Sustainability/Environment/RenewablObl/Documents1/Bio-diesel%20glycerol%20and%20the%20Renewables%20Obligation.pdf