Memorandum submitted by the Renewable
Energy Association
THE ENERGY DIMENSION TO A SUSTAINABLE RECOVERY
PATHWAY
OVERVIEW—A
GREEN NEW
ENERGY DEAL
The pathway to recovery from this economic downturn
must take us in a new direction, not return to the unsustainable
model of the late 20th century. Extreme energy price volatility,
climatic disasters and an unsustainable financial system have
led to the present crisis and shown what we need to avoid in future.
That is why experts like Professor Lord Stern
have called[71]
for at least 20% of the economic stimulus packages now being put
forward to be deployed on "green" initiatives. Analysis[72]
shows that President Obama's recent package delivers about 12%,
the Asia Pacific region led by China achieves 23% while France
and Germany average 15%.
To match these aspirations, the emerging UK
package requires a green stimulus component around £10 billion.
A major part should be deployed in the energy sector, led by energy
efficiency. We can improve competitiveness, jobs and prospects
for a sustainable recovery by investing a modest amount in renewable
energy. Our immediate proposals total £695 million in
the four areas summarised below.
Decentralised energy
— Rebalance, refinance and extend the Low
Carbon Buildings Programme to 2011 with an additional £230 million,
creating some 10,000 jobs and establishing a trajectory to
make DECC's 2020 target of seven million sustainable homes
realistic.
— Provide an additional £130 million
in Bioenergy Capital Grants to stimulate new biomass heat projects
and anaerobic digestion facilities.
Bulk energy supply and transport energy
— Interim increase of the multiple for
offshore wind in the Renewables Obligation to 2 ROC's per
MWh, with a corresponding adjustment to the buy-out price.
— A £60 million package for demonstration
heat networks, biogas injection into the grid and bioenergy fuels
and vehicles. Supplemented by policy and regulatory reform to
accelerate consenting and strategic investment.
Energy infrastructure
— Systematic smart metering roll-out trials,
initial development of intelligent distribution networks and related
services, supported by regulatory reform to permit strategic investment
and funded with £165 million.
Skills, training and awareness
— A total of £110 million to
provide skills training and jobs for workers in the energy, building
services and bio-energy sectors.
Further details mapping these proposals into
a longer term recovery plan follow.
ACCESS TO
CAPITAL
We support the proposal of a Green Bond issue
to fund this public investment, which should leverage a further
£2 billion in private capital. However, this sector
faces the same credit squeeze as other industries, so it is crucial
for government to:
— Ensure that the credit being made available
to industry actually flows rapidly to companies in this strategically
important sector.
— Provide guarantees on finance for renewables
and energy efficiency projects.
POLICY CONTEXT
The following outline puts the immediate investment
proposals in the context of a longer term recovery and growth
plan, against timeframes described as follows:
— Short term: The next two years or so,
in the depth of the recession, while additional stimulus is required.
A prime opportunity to make important strategic quantum changes
while economic progress is slowed.
— Medium term: The period to 2020 exemplified
hopefully by economic recovery along a new and more sustainable
pathway.
— Long term: The period after 2020.
Energy policy needs to recognise that the long
term objective is a sustainable energy production and interconnection
system. In this context energy efficiency is paramount, measures
like carbon capture and storage may be interim solutions, but
the long-run trend will be to an ever more renewable energy mix.
Centralised power and fuel production and distribution
will continue to provide a substantial contribution, but this
system will also involve a much higher proportion of decentralised
energy. Policy measures need to evolve rapidly to accommodate
energy users as well as suppliers, and to achieve a coherent balance
between the two. These twin approaches are reviewed individually
below.
DECENTRALISED ENERGY
The Energy Act has created for the first time
a platform which enables decentralised energy to be addressed,
by introducing innovative tariffs for heat and biomethane, and
by stimulating energy users to adopt renewable electricity alongside
the incentive the RO gives to energy suppliers.
Long term objectives
To fully decarbonise the energy use of the nation's
building stock by 2035.
Medium term goals
Recent government strategy announcements plan
for energy upgrades in seven million homes by 2020—and we
would propose that be increased to 12 million. We must also
ensure that the zero carbon standards to which new buildings will
be constructed are robust and make full use of renewable energy
incident on the site. Similar measures are needed in the non-residential
building stock.
The introduction of effective renewable heat
and electricity tariffs in 2010 and strong legislative measures
supporting energy efficiency will enable the bulk of the required
investment to come from building owners and occupiers, with funding
from the financial sector. Government support will be needed as
a market catalyst and for the social and rented sector and fuel
poverty alleviation.
Short term opportunities
The electricity and heat tariffs will be the
primary driver towards the target above and ideally both should
be introduced together by the start of 2010. Alternatively, there
is an opportunity to prepare the market for their introduction
through extending and refinancing the Low Carbon Buildings Programme
until 2011.
Expanding the LCBP to deliver 70,000 systems
in 2010 would put us on course for the cumulative 2020 target
of seven million upgraded homes. The non-domestic phase of the
programme should be extended too. The following adjustments will
enable the programme to achieve this growth:
— Open up Phase 2 to competition from
all suppliers and to new products.
— Reverse the funding limits imposed on
Phase 1 in Nov 2006 and March 2007.
— Remove the 45kW cap on heat projects
(to match the future tariffs).
The additional funding required for this extension
would be £230 million. Indicatively this would safeguard
and create a total of nearly 10,000 jobs,[73]
many of them in the building services industry. Failure to prepare
for the introduction of the tariffs will suck in imports and undermine
UK competitiveness.
— To prevent hiatus, the government must
make an immediate announcement that new installations installed
before the tariffs start will be eligible.
Government should also facilitate, as described
below, EIB funding for a national roll-out of the Re-Charge scheme
pioneered in Kirklees.
It should lift restrictions in the CERT to enable
rapid replacement of the four million band G boilers still in
service, supported by additional £100 million funding
annually.[74]
Decentralised energy also offers strong job
creation opportunities in the rural economy, which should be pump-primed
too. We propose that the Bioenergy Capital Grant Scheme is expanded
with a further £130 million for biomass heat installations,
advanced biofuels, biogas plants and biomethane injection.
CENTRALISED AND
TRANSPORT ENERGY
Long term objectives
The government can provide more certainty by
setting firm dates for secure, zero carbon electricity, gas and
liquid fuels supplies. We support the 2030 date proposed
by the Committee on Climate Change for decarbonising electricity.
Medium term goals
These 2020 milestones towards a sustainable
energy infrastructure should be set:
— An internal target for 20% contribution
of renewables to total energy (this would safeguard the probability
of meeting the legally binding 15% EU goal).
— Investment in the UK supply chain especially
advanced technologies like wind turbines, photovoltaics and marine
renewables.
— A coherent framework linking policies
on waste management and energy.
— RD&D on complementary storage approaches
including load management and interactions with the future vehicle
fleet.
— Active support for R&D and commercialisation
of second generation biofuels technology to enable a significant
contribution to existing EU targets.
— The capture and distribution of heat
used in existing power plant, where feasible, and the requirement
that any new traditional generating capacity is able to productively
use its surplus heat and fit CCS (assuming it is proven).
The majority of the investment for these developments
will come from traditional sources, provided that the regulatory
regime is appropriate, clear and stable.
Offshore wind is expected to show the highest
growth in contributing to the centralised renewable electricity
contribution for 2020. The targets will be at risk if early acceleration
in this sub-sector were unduly hampered by the recession. The
recommendations on investment and project finance in the final
section below will be crucial for many such sub-sectors.
Short term opportunities in bulk heat and power
Immediate short term actions to accelerate activity
in this area are:
— Extend guarantee of support for RO-eligible
plant from 17 to at least 20 years.
— Interim increase in the ROC multiple[75]
for offshore wind projects commissioned after April 2009 to
2 ROCs per MWh until the first timetabled review of ROC banding
in 2013 (when the multiple would be expected to revert to
1.5), combined with:
— An interim (for the same period) increase
in the ROC buy-out price or quotas,[76]
if required, to neutralise the impact of the above change on the
ROC market price and so ensure that other technologies are not
disadvantaged.
— Streamlined consenting both for generation
projects and related infrastructure.
— Review of the terms of the Marine Renewables
Deployment fund and other measures required to bridge tidal and
wave energy generation from "proof of concept" to commercial
deployment.
— Installing at least five demonstrator
heat networks, one supplied by a suitable existing (biomass co-firing)
power station.
— Part-funding the installation of one
demonstration large scale advanced waste gasification plant.
Short term opportunities in transport
— Reverse the decision to slow down the
annual quotas in the Renewable Transport Fuels Obligation.
— Implement the Renewable Energy and Fuel
Quality Directives so as to maximise GHG savings by introducing
"carbon linkage", in a way that also stimulates high
quality biofuels unsuitable for blending (such as pure plant oil)
and UK development of "second generation" biofuels.
— Convert 500 buses to operate on
biomethane and biofuels for use at the 2012 Olympics.[77]
— Plan a nationwide infrastructure for
future proven low carbon transport options, including fuel chains
for high blend biofuels (and in due course hydrogen) and renewable
electricity charging stations.
Many of these are policy actions rather than
tangible investments, as bulk energy is inherently less susceptible
to short-term measures. The combined new cost to the government
stimulus package would therefore be £60 million.
ENERGY INFRASTRUCTURE
Long term objectives
Our aging energy infrastructure needs upgrading,
to accommodate more decentralised energy and changes to the bulk
energy market including the potential development of a hydrogen
network. These should be strategically planned and implemented
to coincide with advances in the overall energy system.
Medium term goals
Some of the major medium term requirements are:
— The development of a strategic on—and
off-shore transmission grid to ensure capacity for new generation
capacity and improve international connectivity.
— To enable rapid development of the decentralised
energy sector the distribution infrastructure also needs upgrading
from passive to intelligent networks.
— Future-proofing the user interfaces through
the use of smart meters and interactive load management.
Short term opportunities
These early actions will accelerate activity
and create employment:
— Provisions for the gas network to accept
biomethane from renewable sources and early injection system demonstrators
in four different regions.
— Representations to the European Union
to increase the funding for offshore transmission infrastructure
or the proportion of the existing package[78]
accessible by the UK.
— Intensive targeted smart metering roll-out
trials in four local areas, potentially in conjunction with CESP
projects.
— Revision to the transmission regulation
regime to enable strategic planning and investment in coordinated
electricity networks both on—and off-shore.
— Revision to the distribution regulation
regime to permit strategic network reinforcement in advance of
proven consumer need.
— Upgrades to low rated switchgear and
urban substations and reinforcement of distribution networks to
enable connection of more decentralised systems.
— Trials of "intelligent grid"
approaches: Active Voltage Management, autonomous control, demand-side
management, dynamic ratings and associated controls.
— Full funding of the Centre for Sustainable
Electricity and Distributed Generation and the Electricity Networks
Strategy Group so they can meet their objectives.
The combined investment in these activities
is estimated at £165 million.
SKILLS, TRAINING
AND AWARENESS
Long term objectives
This new industry sector is expected to be the
major energy provider in the long term and to contribute more
in 2020 to the UK mix than either coal or nuclear energy.
It is also a sector where the opportunity still exists to establish
an early mover advantage and become a significant player on the
world stage.
Medium term goals
Some medium term requirements are:
— A major increase to the training and
educational facilities reflecting the modern sustainable energy
technologies, which will be adopted.
— Research and development programmes co-ordinated
between industry, academia and the various government departments
and agencies involved.
— A far higher level of awareness of the
requirements for a sustainable economy including the implications
of a sustainable energy system.
Short term opportunities
Action here will support employment through
re-skilling, especially in the hard-hit construction sector. We
propose that government provides £110 million for:
— Sustainable energy skills development
in the energy sector.
— Training programmes in energy efficiency
and renewables installation skills for 10,000, including 10% of
the 60,000 heating engineers.
— Installation of advanced sustainable
energy equipment on offices and homes (perhaps unsold show homes)
in all regions to provide on-the-job training and demonstrators
of retrofit technologies (and to enhance their saleability).
— Create 5,000 bio-energy jobs linked
to environmentally sound agriculture and or environmental conservation
through a 33% two-year grant for each post.
ACCESS TO
CAPITAL AND
FISCAL MEASURES
This sector of the new economy is not immune
to the present credit squeeze, and it is vital that this situation
is rectified to safeguard existing plans and to leverage the additional
£2 billion of private sector expenditure these proposals
would attract.
— The government must ensure that the steps
it has taken to free up credit actually feed through to manufacturing
and other companies in the sector, perhaps based on the Irish
model.
— It should provide 100% guarantees on
renewable energy project finance and backing for leases and mortgage
for sustainable energy installations.
— It should ensure that a UK bank is prepared
to manage European Investment Bank funding for the proposed nationwide
Re-Charge scheme.
The sector could also benefit from new sustainable
financing approaches, such as those recently proposed by others.
In particular we support:
— Establishing a Green Infrastructure Bank
to catalyse private sector investment through the effective and
efficient use of public finance to implement low carbon infrastructure
investment.
— Raising new finance through "Green
Bonds" for both institutional and retail investors to fund
low carbon infrastructure and energy efficiency programmes.
Finally the fiscal system should be used to
support the sustainable energy infrastructure through such measures
as:
— Reinstating 100% capital allowances for
leased renewable energy infrastructure and generation assets.
— Application of Enhanced Capital Allowances
for all renewable energy equipment.
— Adjustments to the commercial rating
calculation methodology to ensure that energy users are not penalised
for installing renewable energy systems.
June 2009
71 An outline of the case for a "green"
stimulus; Alex Bowen, Nicholas Stern et al.; February 2009 Back
72
A Climate of Recovery? The Green Dimension to Economic Stimulus
Plans; HSBC; February 2009 Back
73
A recent survey of members by the REA shows that companies in
the decentralised renewables market employ on average 10 people
for every £1 million of turnover. They project incremental
employment of seven for every £1 million of new turnover.
Based on analysis elsewhere in the economy these figures can be
multiplied by between 2 and 3 to account for employment
up the supply chain. Back
74
Not included in the totals on page 1, as this is primarily an
energy efficiency measure. Back
75
The REA has always called for stability in the Renewables Obligation
and discouraged "tinkering". We support this BWEA proposal
now as an expressly defined interim measure in exceptional circumstances
(under the "emergency review" provisions). We would
not advocate future changes of this type as a matter of routine. Back
76
The REA has always called for stability in the Renewables Obligation
and discouraged "tinkering". We support this BWEA proposal
now as an expressly defined interim measure in exceptional circumstances
(under the "emergency review" provisions). We would
not advocate future changes of this type as a matter of routine. Back
77
At present there is a risk that London will reverse the trend
towards sustainability established by previous Olympic Games and
revert to fossil fuel powered transport Back
78
Of the package of €3.5 billion for energy projects proposed
in January 2009, €500 million is for offshore wind infrastructure,
of which just €150 million relates to the North Sea
grid. Back
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