HC 742 Electricity Market Reform

Greenpeace Submission to House of Commons Energy and Climate Change Committee inquiry on Energy Market Reform

Objectives

Greenpeace believes that there should be clear objectives about the outcome of EMR. Specifically there should be Government objectives to:

1. Play a leading role in the development of a sustainable and renewably-powered EU – set the direction of policy travel even if the final detail remains unclear

2. Provide support, markets and leadership for UK green energy development, as outlined by the Prime Minister on 6 January [1] .

3. Decarbonise the UK electricity grid

4. Commit to an ambitious target for renewable power in 2030

5. Reduce electricity demand for existing uses

Without clear objectives of this kind, the risk is that EMR becomes dominated by immediate (if important) short-term considerations such as finding new sources of UK infrastructure investment and keeping consumer bills low.

Adopting targets like those above would require that even if the detail of delivery were not clear, the direction of travel of policy is clear. Enabling infrastructure would include:

· Ensuing UK play an active role in development of a North Sea Supergrid (objective 1)

· Ensure that policy provides sufficient stability and certainty for new entrants, beyond the existing 6 major players, to enter the market on the generation side (objectives 2 and 4)

· Long-term certainties for renewable investors, especially in offshore wind, even before the detail of offshore transmission agreements and/or Supergrid and EU market arrangements can be clarified. (objectives 1, 3 and 4)

· The above 2 bullet point indicate that Government-backed long-term contracts for renewable generators should be provided

· the wholesale market being opened up to players who do not have well-developed retail arms i.e. that sales are not dominated by bilateral trade between companies (objectives 2-4)

· This also requires that new renewable suppliers are able to access the market for sales – with the end of the Renewable Obligation on suppliers there is no policy proposal which ensures that they are able to sell power generated without the reform of the market structure.

· Expanded innovation and early market support for new marine renewables like wave and tidal, where Britain is a world leader and which could play a much more significant role post 2020. (objectives 1-4)

· Ensure that we not only invest in new renewable technologies but stop investment in the old-fashioned fossil i.e. a tight EPS to prevent high carbon lock-in. (objective 3)

· Opening up of the retail market so that energy services companies who are able to work on reducing demand have scope to invest (objective 5)

· Incentivising electricity demand reduction as well as demand response (objective 5)

Supporting arguments in favour of objectives outlined above are:

1. The long-term vision for a sustainably powered EU. Analysis by McKinsey and Imperial College demonstrates that very substantial proportions i.e. up to 80% of energy supply can be delivered by renewables across EU (with system performance being maintained though interconnection and balancing) without any significant increase in costs compared to much lower proportions of renewable energy [2] . Given the risks of long-term storage of CO2 and nuclear waste - as well as the risk of accident in use - it seems to us that the most prudent course is to avoid those technologies wherever possible. Also PriceWaterhouse Cooper did a study of the full renewable energy system across EU and verified that there were no technical barriers to delivery. They did not undertake a costs study in association with this [3] , but it would be safe to assume that given the lack of discrimination between other scenarios the appropriate policy response now would be to set a course for a fully renewable system. In that respect the key policy is to ensure certainty for the renewable investor is long-term contracts for renewable power.

2. Leadership for UK green energy development We agree with the Prime Minister when he recently said:

"We’re about actively getting behind business. What does that mean? It means being clear about which are the high-growth industries and working strategically to strengthen them…..The global green energy market – everything from wind turbines to home insulation to solar panels – is going to be worth trillions of pounds in the years to come. I’m determined that the UK should have a big piece of that pie… supporting wave and tidal technology." [4]

The lesson from many globally-strong renewable energy companies is that a supportive home market is essential to stimulate early stage growth and foster world-beating industries [5] . Whilst EMR is not supposed to be an industrial strategy, it does appear to be operating in antagonism to a strong renewable industry post 2020. In particular, renewable energy growth slows sharply in the Redpoint analysis underpinning the EMR, growing approx 21% in the decade 2010-2020, but only 6% in the decade 2020-2030 (see box p.39 of consultation document). If enacted, either this would mean that the vast investment by Government and industry into offshore wind installation capacity remains little used post-2020 (with huge stranded assets), or that the Prime Minister’s statements last week with his hopes for wave and tidal are little more than pipe dreams. Or - most likely – both. Presumably this is to allow expansion of nuclear power; a technology where we have no global leadership at all.

3. Decarbonise UK grid – Climate change committee have (in our view correctly) identified the power system as a strategically significant sector in driving decarbonisation. Their most recent report suggested that a target for 2030 of 60g/kWh would be appropriate. We agree that an ambitious decarbonisation target for 2030 should be set. Decarbonisation is about more than generating investment in new low carbon generators. It is also about stopping investment in unabated fossil fuels. In that regard decarbonisation needs a strong Emissions Performance Standard which stops significantly unabated coal and only allows gas on the clear understanding that abatement in 2020s would be required.

4. 2030 target for renewables – There is enormous scope for growth in renewables post 2020. The Offshore Evaluation [6] , a collaboration of Governments utilities, renewable companies and others found in their middle scenario, using 29% of the available resource that marine energy (offshore wind, wave and tidal) could be providing around 400TWh by 2030. As outlined above, this is where much of the industrial opportunity for UK lies.

5. Reduce demand – There is a need for investment in efficiency or in demand reduction to be symmetrical in terms of risks and cost-effectiveness, and for business models that are different from straightforward supply of power and heat to be able to compete with the current supplier arrangements. The current retail market is liberalised but not at all diverse.

Specific weaknesses on EMR proposals

This is not a complete list of weaknesses just ones that have become evident early in our analysis.

1. The current EPS proposal is too weak to drive disinvestment from old fossil technologies and does not assure renewable investors about market ‘space’ for renewable energy

2. Nuclear Subsidy – Contracts for difference represents a subsidy for nuclear power because of the transfer of risk to the taxpayer of the market risks for nuclear. It must be emphasised that the situation for nuclear power and renewables are not the same. Specifically:

· Nuclear is a mature technology not a developing one, with construction having taken place over decades in many countries. There is no case for support in making it market ready, in comparison to offshore wind where UK is a world leader and very little has been built globally

· One of the key reasons for offering contracts to offshore wind and other marine renewables is that there are substantial uncertainties about timescale and nature of the offshore Supergrid, and on EU market integration for power. With these uncertainties, generating substantial new investment on the scale required would be far harder without contract arrangements. These uncertainties do not apply to new nuclear power, where current proposals would be to meet UK needs with a well establish set of sites which have grid access.

3. Further, the proposed carbon floor price should not allow windfall profits to existing nuclear power generators if the purpose is to secure new investment.

4. Contracting for renewable generation may also supply some level of certainty – depending on which institution offers the contracts and on what basis - about market access for the new renewable generation. However a better deal for the taxpayer would come from market access for new entrants on the generation side. Current market access is far from guaranteed without some breakup of the dominance of the bilateral market. The benefits of new entrants coming into the market will also require this.

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[1] http://www.number10.gov.u k /new s /speeches-and-transcripts/2011/01/prime-ministers-speech-on-economic-growth-58486

[2] See Roadmap 2050: A Practical Guide to a Prosperous, Low-Carbon Europe, European Climate Foundation, April 2010 http://www.roadmap2050.eu/index.html

[3] http://www.ukmediacentre.pwc.com/imagelibrary/detail.aspx?MediaDetailsID=1694&ClientID=1

[4] Ref 1 ibid

[5] See for example Prospects for creating jobs in offshore wind in UK , ippr, 2009. http://www.ippr.org.uk/publicationsandreports/publication.asp?id=658

[6] The Offshore Valuation Report: A valuation of the UK ’s offshore renewable energy resource, 2010, http://www.offshorevaluation.org/downloads/offshore_valuation_exec.pdf

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