The Economics of Renewable Energy - Economic Affairs Committee Contents


Memorandum by Barbara Frey

  1.  My name is Barbara Frey. I am a retired medical librarian and library director, after spending a career in university academic medical centres and teaching hospitals. My interest in energy issues evolved from initial concern about adverse health impacts on people when developers build wind turbines too close to homes. Though official and corporate documentation often states that wind turbine noise is inconsequential, this is in direct contrast to the reports of those living nearby. Indeed, there is a substantial body of research on the adverse effects of noise on health, with an increasing body of evidence that wind turbine noise also has an adverse effect on health. This particular interest led to my broader concern about energy policies, with their long-term economic and environmental implications, and how politics often shapes these policies, rather than scientific evidence.

  2.  The confluence of volatile economic and energy markets have combined to create an atmosphere of unease and uncertainty among governments and people worldwide. In the UK, the stability, predictability, and security of energy supplies and costs have emerged as vital issues that need urgent attention for the national security and economic viability of the nation. Businesses and households are dependent not only on a secure and steady energy supply, but also on the stability and predictability of costs. It seems to ordinary people that the BERR (Dti) Energy Department have, during the past decade, relied on the benefits of North Sea oil and gas, yet failed to plan a future, though fully aware of the declining North Sea resources.

  3.  This paper will not dwell on statistics, as these would reiterate the details included in many submissions for this Call to Evidence, not to mention numerous Government papers and consultations and news reports.

  Instead, this paper concentrates on the viability and logic of available options, rather than unfounded fears, political expediency, or agency, corporate, or organisation agendas. The discussion revolves around a balance among energy resources and markets, policy, and the public.

  4.  In a volatile energy market, such as now exists, it is tempting to succumb to quick-fix solutions, especially when current effects resonate to the broader economy, weakened by threats of deepening recession and inflation. No matter which direction people look, there are news reports highlighting problems: underperforming schools, health care predicaments, declining house values, contracting mortgage opportunities and rising interest rates, rising unemployment, international strife, and skyrocketing utility costs, just to name a few that are often publicised.

  5.  Moreover, the Government seeks to make people more accountable for individual "carbon footprints" even as local services are under threat. Particularly in rural or remote communities, public transport is severely limited or unavailable, forcing people to travel more often and greater distances in their cars; just as they can least afford this option, they are being penalised by the Government. Moreover, the UK has assumed responsibility for reducing its carbon footprint as well. Public and personal purses have only finite funds, so getting the energy mix "right" the first time is critical.

  6.  A failure to strike the right balance will without doubt lead to economic deprivation as the financial centre in London decamps to other more thriving zones, eg Zurich or Singapore. BERR (Dti) seem totally oblivious to the fact that there is a commodity and economic realignment taking place in the world; while a decade earlier, the UK held a position of strength, this has slowly eroded by pursuit of a blinkered and untenable energy and food supply policy, and instead pursued an economic policy that failed to build these resources.

  7.  The issues of "carbon emissions" and "carbon footprints" result from concern about "climate change" and/or "global warming". The latter are indeed quite different, yet often the terms are merged for commercial benefit, without appropriate definition, so that people—including officials responsible for decision-making—are unclear about what precisely is involved, so that the foundations for discussion shift constantly, sometimes within the same conversation, but without attention to the definition of each.

  8.  Whatever one's views of "global warming"—whether it constitutes an apocalyptic threat, whether the UK can make a difference in a world of expanding economies, indeed, whether it exists, the UK must make swift decisions about its energy supply simply because of shifting world politics and economic pressures. However, decisions about energy provision and security must be devised and implemented by Government in a calm, rational, scientific manner, without succumbing to lobbying by organisations, trade associations, special interest groups, or those who benefit by fear-mongering. Without doubt, failure by Government to provide a reliable and secure supply of energy (and food) will destine this country to a breakdown of life style and a diminished standard of living, in contrast to the broader prosperity enjoyed by the UK in the 20th century.

  9.  The current uneven economic climate is partly due to the UK's reliance on imported energy supplies, such as natural gas and oil, from countries as diverse as Russia, Nigeria, France, Norway, and the OPEC nations. These supplies depend upon the political environment and the national needs for each of those supplier countries, with prices considerably affected by increased competition globally for these same resources. China and India are often cited as the more obvious growth economies competing vigorously in world markets, but equally Russia has leapt forward as a strident commercial competitor, understandably intent upon achieving the best price on world markets for its products.

  The UK cannot afford to sustain this arrangement. If it continues to import most of its energy requirements from world markets, not only will the UK's standard of living remain under threat, its ability to withstand unwelcome influences on its policies and governmental decision-making will also be in jeopardy.

  10.  As an example, during the past few years, GAZPROM of Russia has negotiated independent agreements with Germany, Italy, and Austria regarding energy supplies. By negotiating arrangements separately with these countries, GAZPROM has effectively—and cleverly—split their interests, and thereby weakened any EU advantage as a bargaining bloc, as each country will naturally want to protect its own access to critical resources, should there occur a crisis regarding energy supply and distribution of resources. GAZPROM has pursued a policy of buying strategic stakes in energy supply companies, including Norwegian gas fields that supply the UK, and is now pursuing opportunities in the USA.

  11.  Because natural gas, coal, and oil are finite resources, and because coal and oil are fossil fuels associated with "global warming", renewable resources are in demand, eg solar, wind, wave, tidal, and hydropower.

  Renewable energy resources are often proclaimed as a panacea to the nation's energy problems, but in actuality, this is wishful thinking, and a "sticky plaster" response to cover past neglect of designing a viable secure energy policy for the UK, whereas the reality is far more complex.

  12.  This is not to deny that renewable energy has a part to play in the energy mix for the UK. However, the role of renewable energy needs more critical analysis, so that it contributes effectively, benefitting the public and meeting business requirements, without bending to other market, special interest, and political influences, which lie outside an analysis of and plan for energy requirements for the future.

  If efforts to incorporate renewable energy into the UK energy mix are tainted by self-serving motives, the public will quickly lose faith in measures sought by Government, and the economic pain endured by the public will translate to its response at the ballet box.

  13.  Although there are now thousands of wind turbines in Denmark and Germany, not one "conventional" power station has closed; indeed, more are planned and underway. However, as the law requires utility companies to provide a percentage of output from renewable resources, wind turbines have become the "quick fix" because they are "off the shelf". The embrace of industrial onshore wind turbines by BERR has a major negative impact on "the market" and on renewable energy entrepreneurs. A level playing field would have encouraged UK engineers and scientists to design and develop renewable technologies, but the shortsighted "quick fix" solution by BERR has produced an unreliable and insecure electricity supply devoid of a realistic long-term plan.

  14.  One must step back and with objectivity examine why wind turbines remain an attractive renewable energy option for utility companies since:

    —  it is impossible to predict wind turbine energy production (the wind has not enrolled in this scheme);

    —  wind turbines operate well below "installed capacity" (circa 25%, and the wind energy companies do not willingly share their data);

    —  the electricity generated by wind turbines fluctuates constantly, thereby creating difficulties for the national grid to accommodate these erratic fluctuations (not to mention the high cost of changes to the grid to accept the power generated by wind turbines); and

    —  "conventional" power stations must remain operational to provide backup for wind turbines because the wind does not always perform when electricity is required.

  15.  The requirement for utilities to provide a percentage of energy from renewables dovetailed with the sense of urgency surrounding global warming. This requirement, as underscored by the Kyoto Treaty and the United Nation's IPCC recent report, resulted in policy changes, leading to subsidies for wind turbines and ROCs.

  Utility companies and their wind energy divisions and independent wind energy companies, receive "renewable" allowances for wind turbines, which on land are relatively inexpensive to construct, compared to developing other renewable options, such as solar, tidal, or wave. The subsidies are paid on the "installed capacity" for each turbine, not on their significantly lower actual electricity production, and these subsidies are paid year-on-year. Wind turbines have grown in height from under 23m to over 125m, with "installed" capacities of 2MW to 3MW; the increase in the installed capacity means greater subsidy per turbine. Moreover, these companies also receive ROCs for providing the required percentage of renewables, again based on the installation, not on actual production.

  Because wind turbines have provided a windfall for utility companies, the subsidies and ROCs have distorted the renewable energy market in favour of wind turbines, to the detriment of other renewables, eg, solar, which receives minimal acknowledgement or subsidy. The British Wind Energy Association (BWEA), the wind industry's trade and lobbying organisation, has been effective in garnering media attention and working effectively with environmental agencies, as well as with some government agencies, benefitting from public concerns about global warming.

  16.  This misapplication of subsidies combined with the ROCs has also stifled innovation and markets for other renewables. For example, solar energy (photovoltaic and other solar energy innovations) offers great potential for existing homes and buildings and could easily be incorporated into new buildings as well. The energy savings—and reduction in CO2 emissions—would be significant.

  Yet the financial incentives weigh heavily in favour of wind turbines. If those same subsidies now going to utility companies—which would have to source a percentage of production from renewables regardless—went instead to home-owners, landlords, and builders for energy efficient improvements and installations, the breadth and depth of CO2 and energy savings throughout the country would provide greater benefit to the environment, and also benefit people directly. This type of subsidy scheme would at least reflect real CO2 and methane emission reductions, and might extend to more public transport schemes, work toward redesigning the fuel requirements for cars and other vehicles, encouragement of alternate heating and cooling systems for homes and offices, and the use of industrial waste and by-products for energy sources.

  17.  The UK not only has finite energy resources, it also has a finite land mass, with a dense and growing population. Food is yet another commodity "growing" in value because of increased global competition for food and fuel, increased cost of delivering product to consumer, among other factors—the UK will need all its resources to provide a secure and stable food chain if food imports are threatened by crop failures, or spiralling fuel costs. UK food production and agriculture, after years of decline and "cheap" imports, may indeed become a "growth" industry.

  Wind turbine arrays, often sited in rural, agricultural areas, require a significant land area and footprint. Each array requires roads, concrete and steel foundations, ancillary buildings, and either above ground pylons or below ground cables. These installations break up ecological habitats and permanently alter environments, industrialising agricultural and rural areas that are part of a dwindling resource: arable land.

  Wind turbine arrays also create a large footprint to production ratio when compared to a conventional power station, which has a smaller footprint and much greater energy production.

  18.  Environmental organisations have gone quiet about biofuels. After applauding changes to allow and promote crop production for fuels, these organisations neglected to foresee the negative impact that these changes would have on food production and costs. As crops were channelled from food to fuel, and as costs escalated because of competition for these crops, food prices—for people and for livestock—have risen sharply. The cost of these food staples—corn, wheat, rice—has had a dire impact on the most impoverished nations, straining their resources and causing hardship and hunger among those who often have no resources or hope of help.

  Thus, another reason for careful consideration of renewable energy options, because one must analyse the possibility of unintended consequences. The cost—to ordinary people—is too high.

  19.  Professor James Lovelock CH, internationally acclaimed scientist, environmentalist, and author (Gaia hypothesis) has suggested that nuclear power offers the most rational solution to UK (indeed, world) energy needs, currently and well into the future. There is genuine urgency to reduce CO2 emissions while at the same time to guarantee a supply of energy to growing populations, and this must be done quickly in order to avert a national or global disaster. Professor Lovelock has said that even if one covered the length and breadth of the UK with wind turbines, this would do nothing to slow global warming, yet six new nuclear power stations in the UK would contribute to an actual slowing of this process.

  Moreover, as Prof Lovelock notes, most recently in his book, The Revenge of Gaia, methane, a far more destructive emission than CO2, is released with the use of natural gas, including any natural gas that escapes during its transit via the pipelines or shipment. The rate of loss in transit is about 4%. According to an article in the Financial Times, "Each methane molecule is 30 times more potent as a greenhouse gas than carbon dioxide, though methane has caused less global warming so far because it is much less abundant in the atmosphere than carbon dioxide." [Cookson C, Science briefing: Ice Age "trigger", Financial Times May 30 2008]

  20.  Certainly, France exemplifies the benefits of a nuclear energy program to its people, as it is electrical energy independent, and therefore not as subject to the vagaries and vacillations of the market or to external political influence.

  Yet the UK public, and that includes many of its politicians, have a visceral unease about nuclear power stations: eg, presuming an equivalency of nuclear power with nuclear weapons (untrue), and concern about nuclear waste and radioactive leaks. Well-designed and properly maintained nuclear power stations produce energy throughout the world, without incident, and newer nuclear power stations have a smaller footprint than older reactors, as well as running more efficiently with less radioactive waste.

  21.  Significantly, nuclear power stations produce energy without carbon dioxide or methane emissions, and produce at a capacity that serves a large population with a predictable, stable, secure energy supply. With a network of nuclear power stations, the UK would prosper from energy independence, leading to security for its public, creating a more stable economic environment even when world markets go through volatile cycles. This secure, predictable stable, affordable energy supply is essential in order to maintain the UK's stature as an enterprising and productive country, and to provide its people with a future of opportunities and prosperity.

  Certainly, this is a critical objective, upon which so many national and personal aspirations rely, and without which these aspirations have little hope. The job of government is to see these aspirations realised.

16 June 2008



 
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