Memorandum submitted by the Renewable
Energy Association (REA)
SUMMARY
The renewables industry welcomes this inquiry
and urges the Committee to underline the distinct benefits of
investment in renewable energy in terms of energy security and
climate change mitigation, in addition to employment and direct
economic opportunities. The exceptionally productive benefits
of renewables investment at this time were recognised by Lord
Stern in recommendations to the G20 (and by a WWF report).
The net economic benefits of investment in renewable energy growth
(ignoring climate and security of supply benefits) have recently
been set out by EC DG Energy &Transport. Broadly the REA is
satisfied with the direction of the UK policy framework, although
details need to be set out and, key support mechanisms urgently
expedited (as well as access to project finance). Concerns remain
however, on the strategic direction for enabling infrastructure
which requires substantial investment. There is no doubt, drawing
on solid continental experience, that renewables offer a high-value
industry that the UK jobs market—at all skill levels—
could benefit from significantly in future. REA welcomes the Low
Carbon Industrial Strategy and the new spirit of industrial activism.
However, the strategy needs to be expedited and to properly recognise
the exceptional benefits (and sometimes the great complexity)
of successful renewables investment and commercialisation. The
UK's serious engineering skills shortages must be addressed. Above
all, policy needs to be clear, consistent and long-term and recognise
the role of all forms of renewable energy.
1. The Renewable Energy Association (REA) warmly
welcomes this important inquiry. Investment in renewable energy
has an important role to play in tackling the recession. In this
context we set out our Green New Deal asks for the Low Carbon
Summit earlier in the year. We believe the role of renewable energy
in particular needs to be given specific emphasis, given the role
of renewable energy not only in offering immediate employment
and high-value training opportunities, as well as increasing economic
benefits, but because of its vital role in safeguarding national
energy security and tackling climate change.
2. Investment in renewable energy is an
active investment that works to displace future import costs and
increase energy security. The REA commissioned a study from Delta
EE that showed that the UK's proposed push for energy efficiency
and renewables could result in a trade balance benefit for the
UK economy of up to £12.6 billion per annum by 2020 (assuming
modest increases in fossil fuel prices). The report's findings
add to the jobs and export benefits already identified by eg Stern,
UN, Green New Deal group etc. and contributed to the burgeoning
economic case for investing in renewables and energy efficiency
in the UK budget.
3. The report copied (more modestly) a comprehensive
cost/benefit study carried out by the German Government on their
green energy programme in 2007, showing net savings for industry
and households of 5 billion Euros by 2020, as fossil fuel
imports drop. No such study has been carried out by the UK government
prompting the Renewable Energy Association to commission the energy
balance of trade report from Delta EE. The analysis of the German
sustainable energy measures showed that by 2020 the avoided
imports saved €36 billion, against an implementation
cost of €31 billion leading to savings for German industry
and consumers. The German analysis assumed very conservative oil
and gas prices of just $65 per barrel. The German programme
aims to cut CO2 by 40% and increase renewable energy to 20%
of total energy by 2020. The findings were published by the Federal
Ministry for the Environment, Nature Conservation and Nuclear
safety. It was calculated therefore that each tonne of CO2 emissions
avoided represented a €26 saving to their economy. Renewable
energy made the biggest saving to CO2 cuts. See "Climate
protection programme will lead to savings of five billion euro"
published at: http://www.bmu.de/english/current_press_releases/pm/40276.php
4. The UK is anticipated to be reliant on
imports for 80% of its gas requirements by 2020 at a time
when Europe will be dependent on imports for 70% of its gas needs.
IEA are increasingly warning of coming fossil fuel "energy
crunches", which have serious implications for the future
cost of energy and UK competitiveness—they do not consider
the impact of the global recession to be sufficient to revise
these warnings. Fossil fuel instability over the past year has
caused concerns to business and consumers—this instability
is likely to increase as the UK becomes increasingly dependent
on imports with potentially serious implications for future UK
security and prosperity. These considerations need to be weighed
alongside the study set out in 5) and 6) below.
5. The net economic benefit of investment
in renewable energy across Europe has recently been set out by
the EC DG Energy & Transport; http://ec.europa.eu/energy/renewables/studies/renewables_en.htm.
Please note that this study on the macroeconomic effects of investment
in renewable energy excludes the economic benefits associated
with climate change mitigation and increased security of supply.
Purely on direct economy benefits alone the study demonstrates
that investment in renewable energy leads to a net increase in
employment and GDP. In 2005 1.4 million people were
employed across Europe in renewable energy. If the EU meets its
20% RE target by 2020 the study estimates the sector will
employ 2.8 million people and raise GDP by 0.24%. The net
effect on jobs—taking on board how investment in RE affects
the economy as a whole—is 410,000 additional jobs
and added value to the economy. The study says that if climate
change mitigation and security of supply benefits had been included,
"the economic benefits of RES would probably be even higher."
6. This EC study says that stronger policies
are needed to reap the maximum economic benefit from RE. Biomass
and onshore wind are expected to generate the most near-term employment
and economic growth. However, investment in pv, offshore wind,
solar thermal and 2nd generation biofuels are also needed to achieve
the 2020 RES target and increase employment and GDP benefits
in the mid-term. The report says; "policies promoting technological
innovation in RES are therefore essential to strengthen the first
mover advantage of Europe's RES industries."
7. REA was particularly impressed with Lord
Stern's "7-point plan" for the G20. Stern recognised
that renewables are the ultimate economic and social multi-taskers,
delivering jobs, employment, growth, innovation while locking-in
future energy and climate security. That is why renewables were
given the maximum investment ratings by Stern and also in the
Ecofys report on green stimulus for WWF. Stern's comments in his
report for the G20 Summit included: "Green recovery
measures promise to be superior to deficit-financed spending on
consumption from a public finance perspective, because tax-payers
implicitly receive compensation for higher future taxes in the
form of decreased expenses on energy and lower costs of abating
GHG emissions." He also warned; "If firms supplying
[sustainable] technologies were to collapse in the current crisis,
society would not only lose employment and growth opportunities,
but also stocks of technology, human capital and organisations
that are difficult and time-consuming to rebuild".
8. Governments around the world have been
injecting $100 million into their renewables sectors in response
to the "triple crunch" (recession, climate and energy
security). The UK industry must receive sufficiently similar levels
of investment in order to be able to continue to compete internationally
and ensure the UK economy and jobs market can take a stake in
the growing international sector.
9. Like many OECD countries, major investments
are urgently needed in the UK's ageing generation and network
infrastructure and the UK cannot afford to "lock-in"
to outdated long-life assets. Thus the UK actually faces a "quadruple
crunch", considering that in addition to economic, climate
and energy security woes, the UK also faces the pressure of infrastructure
replacement. Given this expenditure must be incurred in any event,
it presents an opportunity to move towards a low-carbon system
in an economically efficient manner. It is therefore vital that
infrastructure redevelopment is guided by an explicitly low-carbon
strategy—see our concerns under 21) below.
10. Improving the UK's infrastructure will
broadly improve UK competitiveness by increasing efficiency, as
advocated by Dieter Helm.
11. The REA was satisfied with the main
provisions in the budget, in the circumstances. However, in terms
of public money, there was a continuation broadly of existing
levels of spending for practical renewables programmes, rather
than any increase in response to offering green stimulus. We also
require further detail on several promised measures.
12. The availability of project finance
is now a major issue for the industry for all types of technology
and for projects at all scales. We are still awaiting a meeting
with the Treasury to discuss the £4 billion apparently
secured for loan finance for renewables projects from the European
Investment Bank. The situation is urgent for many of our members.
We do not understand, particularly given the huge leverage the
UK government now has over major banks, why the access to loan
finance problem cannot be dealt with quickly and effectively in
the UK.
13. We are unclear what proportion of the
£405 million allocated from the Strategic Investment
Funds and Environmental Transformation Funds will be made available
for renewable technologies in particular. Lumping renewables together
with "low carbon industries", important as they all
are, fails to identify the exceptional benefit of investments
in renewable energy and the urgent need to tackle climate change
and energy security. When money is scarce it is vital that what
money is available is spent to optimise public benefit.
14. Our members were particularly dissatisfied
with the delay on a comprehensive support framework for renewable
heat which we had hoped would be addressed in the Budget. REA
had advocated for the Heat and Gas Tariff to be expedited to be
brought in alongside Power Tariffs in 2010.
15. If policy is to be effective it must
be clear, consistent and long-term. This is vital, both to encourage
UK-based companies to invest in renewables and to attract and
retain international investment.
16. Transport biofuels have been particularly
badly hit by the Government's policy changes in 2008. The Renewable
Transport Fuel Obligation came into force in April 2008 and
less than three months later, with the publication of the Gallagher
Review, the Government announced that the original 2010-11 target
of biofuel 5% use will not now be hit until 2013-14. This was
followed in the Autumn by the discovery of a drafting error in
the RTFO Order which effectively halved the first year's targets.
The effect for investment in the UK, big and small, has been severe.
Some plants have closed or been mothballed, plans have been abandoned
and there are no new large-scale projects coming forward. It is
ironic that the failures of UK policy have most undermined UK
production, since the figures from the Renewable Fuels Agency
show that biofuels made from UK-produced feedstock out-perform
the average by a wide margin, on both sustainability and carbon
savings. According to the most recent figures, UK fuels offer
66% GHG savings relative to fossil fuels (average 46%) and 99%
meet stretching environmental standards (average 19%).[65]
17. Despite signing up to the binding target
in the Renewable Energy Directive that 10% of energy used in transport
(roughly 13% by volume) must be renewable by 2020, the Government
seems unwilling even to consider revising the targets. On the
present course, the most likely outcome of this is that UK consumers
will still be obliged to pay for the biofuel needed to meet the
targets, but that very few of the jobs created (or fuel security
benefits) will come to the UK.
18. We fear the current enthusiasm for electric
vehicles could follow a similar path. We believe that they are
likely to have a key role to play in reducing GHG emissions in
the transport sector but much of the comment about them neglects
the fact that they are only as green as the electricity they use.
There are other sustainability concerns that will need to be addressed,
such as the disposal of the batteries and whether there are enough
raw materials available to make them. It is a mistake to see this
as an either/or choice—we need to use the full range of
options available, including energy efficiency, demand management
and behavioural changes. In particular, electric vehicles are
unlikely to be available in large quantities before 2020, making
it particularly important that the UK secures a supply of sustainable
biofuels.
19. In other sectors, the REA is broadly
happy with the Government's long-term policy framework although
key parts of its still need to be defined and delivered, particularly
for renewable heat, renewable gas and local renewable power (which
together could supply half the UK's EU 2020 targets). Assuming
Tariffs for these measures are implemented successfully, the REA
would be pleased because the Tariff framework offers a clear long-term
stable framework for investment. This is a huge improvement on
stop-start grant schemes which have clearly failed to build sufficient
capacity in the UK onsite industry. The merchant power industry
is satisfied with the RO as a support mechanism, particularly
now the banding provisions have come into effect and can be adjusted
as required.
20. Evidence from Germany is clear that
the long-term framework provided by a long-term scheme like Tariffs
does indeed help the industry expand and invest substantially,
with huge employment benefits. They estimate 249,000 people
are employed in their renewables sector. Germany last year achieved
the levels of deployment that the UK needs to match to meet its
2020 targets.
21. Where there is more uncertainty is over
the regulatory framework for the industry going forward, which
results in complications around eg network access and network
charging for our members. This has caused delay, frustration and
increased costs for many of our members. It is frustrating that
eg networks for offshore wind, have not already been planned ahead
of need. REA sought to align the remit of the regulator Ofgem
to the Government's stated energy policy objectives under the
Energy Act 2008, but achieved only limited success on this complex
and highly political area. On the positive side, there does seem
to be greater political awareness (namely from Miliband at DECC)
that greater intervention is needed in "the market"
to ensure sector investors receive the right signals to invest
in low-carbon technology and infrastructure. Business as usual
will simply not deliver the strategic redevelopment necessary
for a low carbon system, and the lack of a clear strategic framework
is a real concern given the vast and pressing infrastructure and
generation investment needs.
22. There is no doubt that the renewable
energy sector offers substantial potential economic benefits.
A study by IPPR/Greenpeace estimates the offshore wind sector
alone could deliver 70,000 jobs. We anticipate meeting the
2020 renewables targets could deliver over 200,000 jobs.
We anticipate these jobs would range from the highly skilled for
major engineering projects and network development work, right
through to the manual trades, particularly in the bio-energy sector
for fuel-stock, where increased rates of waste sorting and recycling,
forestry management and farm and commercial waste collection are
needed. Many of the trades in difficulty given the collapse of
the construction sector, for example, plumbers, electricians and
heating engineers can be further trained in onsite renewables
installations. However, the very highly skilled jobs in particular
are likely to attract international candidates, particularly given
the serious shortage of engineering skills in the UK.
23. One well known innovative member of
the REA based in Scotland has provided us with a breakdown of
the manufacturing components sourced by the company. It may be
possible to provide this to the Committee, but we would need to
check. The long list clearly illustrates the direct manufacturing
benefits UK renewables offer to diverse manufacturing companies
across the UK.
24. A survey carried out with our members,
to which over 100 responded, indicated that for each £1 million
of turnover the on-site sector employs 10 people. We roughly
anticipate that each direct job leads to around two more in associated
manufacturing, installation and other related jobs.
25. REA welcomes the new spirit of industrial
activism. We are keen to see the Low Carbon Industrial Strategy
expedited. Much more could be done to ensure the UK can better
translate its academic and engineering expertise into commercial
successes. REA is particularly concerned that the UK does not
lose out in the marine renewables area, where we still retain
a global lead, having lost the lead on wind and solar in the past.
Unfortunately accessing the Marine Renewables Deployment Fund
meant meeting insurmountable criteria meaning firms could not
access the funds. Now that Scotland have completed their Strategic
Environmental Assessment, the Crown Estate bidding round for projects
in the Pentland Firth have provided an exciting insight into the
growing vitality of tidal technologies with 38 applications
for projects up to 300MW in size. REA is urging the UK government
to act with a greater sense of urgency and undertake not the preliminary
study proposed, but a full Strategic Environmental Assessment
for England so similar activity south of the border can start
as soon as possible. The industry is also concerned about the
impact of the Marine Bill on the industry, both broadly in terms
of the uncertainty introduced, but also in detail, for example
in relation to environmental monitoring costs which are significant
for an emergent industry.
26. The Marine example shows how the Low
Carbon Industrial Strategy will need to carefully understand the
development status of the renewable technologies it seeks to assist
and the often specific and complex types of barriers that each
may face.
27. We also hope that the Low Carbon Industrial
Strategy will take a proactive approach to encouraging manufacturing
opportunities.
The Renewable Energy Association (REA) is the
largest industrial body representing the UK's renewables industry.
Its 600 members cover all renewable energy types and all
scales from the energy majors to emerging companies in new energy
technologies. The REA has proposed budget measures for centralised
and decentralised renewables and for infrastructure and training,
estimated at a total of £695 million. See: http://www.r-e-a.net/policy/REA-policy/EnergyDeal
26 May 2009
65 RFA running totals April 2008-February 2009. Data
are provisional and may be revised. http://www.renewablefuelsagency.org/reportsandpublications/rtforeports.cfm Back
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