Memorandum submitted by Green2Go
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 £4 billion 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[40]
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.[41]
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
40 http://www.ofgem.gov.uk/Sustainability/Environment/RenewablObl/Documents1/Bio-diesel%20Decision.pdf Back
41
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 Back
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