Memorandum by the Institute of Physics
The Institute of Physics is a scientific membership
organisation devoted to increasing the understanding and application
of physics. It has an extensive worldwide membership and is a
leading communicator of physics with all audiences from specialists
through government to the general public. Its publishing company,
IOP Publishing, is a world leader in scientific publishing and
the electronic dissemination of physics.
The Institute welcomes the opportunity to respond
to the House of Lords Economic Affairs Select Committee's Inquiry
into "The Economics of Renewable Energy".
The attached annex highlights the key issues
of concern to the Institute which have been linked to the specific
issues raised in the call for evidence. This response was prepared
with input from the Institute's Energy Sub-group, which includes
a range of leading physicists working across the energy sector.
The Sub-group reports to the Science Board of the Council.
THE ECONOMICS OF RENEWABLE ENERGY
KEY POINTS
— The UK has the least renewable energy
supply proportion of all European countries, other than some small
countries, such as Malta. It is clear that countries implementing
a simple feed-in tariff system for electricity (Denmark, Germany,
Spain and Portugal with established systems, and now France, Italy
and others) have the both the greatest proportional renewables
generation and the greatest manufacture of renewables plant. The
UK's competitive energy markets and Renewables Obligation Certificate
method have not induced significant new renewables capacity, perhaps
because the UK's approach is extremely complicated and expensive
to administer.
— Given the likelihood that renewable
energy is the only resource capable of providing the amounts of
energy that will be demanded by the middle of the century without
excessive carbon emissions, it is imperative that the UK government
(i) removes remaining barriers to the realisation of the technology,
and (ii) establishes the best financial mechanisms for rapidly
increasing renewables markets.
— Therefore, the UK would greatly benefit
by adopting a straightforward feed-in tariff system for electricity,
which is clearly the most successful method in the EU for increasing
renewables generation and associated manufacture.
— The Institute stresses the importance
of harnessing solar energy via photovoltaics. Photovoltaic solar
electricity is already commercially viable, but far greater efficiency
at much less capital cost is likely from sustained and well-financed
research. These solid-state components have no moving parts and
no operational emissions, making the technology eminently sustainable.
1. How do and should renewables fit into Britain's
overall energy policy?
1.1 Renewable energy technologies are zero
to low-carbon energy sources for heat, fuels and electricity,
which reduce dependence on fossil fuels. In general, they enhance
diversity in energy markets, secure long-term sustainable energy
supplies, reduce dependency on imported energy, and reduce emissions
of air pollutants. A major use is for grid electricity, for which
in conjunction with load management and storage, they can also
contribute to stand-alone off-grid systems.
1.2 Renewables are therefore an essential
part of the future UK energy mix, but as with all expanding technologies,
there is a need for increased research and innovation in the relevant
RD&D sectors.
1.3 Because of the natural variability,
of the environmental sources of most renewable supplies (eg wind
power), strategies are needed for their significant integration
with present supplies. This particularly applies to electricity
supply, where all forms of generation require national "back
up" because of power station and grid failures. Presently,
the UK grid has sufficient overcapacity for large central fossil
and nuclear plant outages and this same overcapacity is sufficient
for UK renewables plant for the next five to 10 years. However,
when, for instance, wind power capacity exceeds about 20% of total
grid capacity, then national integration strategies are needed,
such as load management, centrally controlled wind farms, increased
interconnection with other countries, and generation from storage
(eg pumped storage, fuel cells).
1.4 UK energy is now totally dominated by
fossil fuels and nuclear power. Obviously, therefore, changes
and improvements are needed in fossil fuel and nuclear supplies,
and their integration with renewables, which will steadily increase
in capacity. In addition, most significant improvements are needed
in the efficient use of energy. All these factors are essential
to meet UK targets and the proposed EU 2020 renewables requirement[82].
1.5 The Institute notes the UK government's
commitment to see renewables grow as a proportion of the UK's
electricity supplies to 10% by 2010, with an aspiration for 20%
by 2020. According to the 2007 Energy White Paper, Meeting
the Energy Challenge[83],
only around 4% of the UK's electricity was generated from renewable
sources in 2006, with the percentage contribution gradually increasing.
These targets therefore represent significant challenges, especially
the 2010 target, which currently faces significant challenges
due to market conditions and planning consents; but upcoming changes
to the latter may improve the outlook for renewables.
1.6 In addition, there is the UK government's
stated ambition of achieving new homes being zero carbon by 2016
and non-domestic buildings from 2019 (with new public sector buildings
being zero carbon from 2018) as outlined in the Budget 2008[84]
and in a policy statement by the Department for Communities and
Local Government entitled, "Building a Greener Future"[85].
The "net zero" condition can only be met by buildings
having microgeneration, especially exportable electricity.
1.7 Therefore, these commitments are not
likely to be achievable without a significant increase in the
implementation of photovoltaic technologies. Photovoltaics and
solar thermal are the simplest renewable technologies to implement
in the urban environment. In addition, the constraints associated
with applying the EU 2020 renewables requirement to the overall
energy mix makes the practical implementation largely dependent
on electricity generation because sectors such as industry, transport
and the general building stock are unable to achieve the increases
necessary in renewable technologies. Within the electricity generation
sector, wind power will be an important factor.
1.8 At present there appears to be no coherent,
structured, plan of implementation of renewable technologies,
either for simple and sustained market incentives, or for nationally
supported RD&D.
2. What are the barriers to greater deployment
of renewable energy? Are there technical limits to the amount
of renewable energy that the UK can absorb?[86]
2.1 Realising the large potential of renewables
in a low carbon economy requires a number of technical, economic,
institutional and social constraints to be overcome; in particular,
the issue of variability (ie intermittency, but this term implies
faults).
2.2 Most renewable technologies, for example,
wind power, are variable in output, since they follow the variability
of their resource in the environment. An authoritative analysis
of over 200 publications made by the UK Energy Research Centre[87]
shows that renewables electricity could displace around 20% of
the power generated in the present electricity system, with two
important consequences:
— Increased balancing reserves: At
20% and with no other changes, the output of fossil fuel-plant
would need to be adjusted more frequently than at present to cope
with the fluctuations in output inherent in nearly all renewable
energy sources. Some fossil-fuelled power stations would have
to be operated below their maximum output to facilitate this,
and extra system balancing reserves will be needed. Central plant
efficiency may be reduced as a result. The analysis concludes
that the additional balancing cost at the 20% penetration level
would lie in the range 0.2-0.3 p/kWh.
— Increased "standby capacity"
or "system reserves": The "capacity credit"
of renewables capacity declines as the share of electricity supplied
by variable sources increases—falling to approximately 20-30%
of installed renewable capacity at 20% energy penetration. To
maintain the reliability of the whole system at its present level
at times of peak demand, the system margin, ie the excess of available
fossil generating capacity over peak demand, would need to be
increased if no other technical solutions are considered (eg load
management, demand side procedures). More renewable electricity
would not necessarily result in the permanent closure of fossil-fuelled
stations, but would result in less fossil-fuel consumption. The
analysis concludes that the cost of maintaining system reliability
at the 20% penetration level lies within the range 0.3-0.5 p/kWh.
2.3 Assuming that wind power, in particular,
is variable and that it is geographically widespread, the analysis
estimates that the total cost of variability of renewables on
the electricity system at the 20% energy penetration level would
lie in the range 0.5-0.8 p/kWh on top of the cost of the renewable
electricity produced.
2.4 However, to meet the proposed EU 2020
renewables requirement will require new large-scale renewable
electricity sources, mainly wind powered—with a capacity
in the range of 38-45% of total electricity capacity[88]—and
extensive new connections to the grid. At that level, the capacity
credit for variable renewables would fall below 20%, and with
no other changes, it would be necessary to maintain or replace
all the existing conventional generating plant to supply the necessary
system balancing and reserve capacity when required. The extent
of sub-optimal conventional operation will increase and at present
fossil-fuel costs, the overall cost of supply would increase.
However, other technological innovations can reduce such difficulties,
for example, by stronger integration with other renewable generation,
with modern loads management, and with the European grid.
2.5 Other barriers to the deployment of
renewables include:
— Maturity: The maturity of renewable
technologies varies considerably. While several are commercially
proven, others are still at a pre-commercial stage, and some still
require quite fundamental R&D.
— Cost: Please see the response to
question 4.
— Distributed nature: An individual
renewable electricity plant, often called embedded generation
or microgeneration, is usually small in scale compared with conventional
power stations (typically a gigawatt or so). Therefore, the present
network and control systems are able to absorb their power without
significant adjustment. Nevertheless, in certain regions, some
wind farms, particularly offshore, and tidal range plant can be
expected to have aggregated renewable power output comparable
with that from conventional power stations. Central control of
such renewables plant can be expected, for example, offshore wind
farms providing spinning reserve. Here, there will need to be
some reconfiguring of the grid or distribution systems. Where
major renewable sources are remote from areas of major consumption
(eg in remote parts of Scotland), new or increased grid infrastructure
will be necessary to transport the power to the load centres.
— Skills base: Several UK studies which
examined the renewables supply chain have reported that technology
and project developers have found a lack of suitably qualified
personnel at all levels in the implementation chain—both
general technical skills and also more specialist skills[89],[90].
Hence, encouraging physicists, and indeed other scientists and
engineers, to consider a career in renewables, could help to plug
the skills gap. Currently, there are relatively few university
departments with the relevant expertise and few courses or UK
students applying for posts. For those who have undertaken postgraduate
training the career path in the UK is limited by the lack of companies
and research posts and financial rewards.
— Social and institutional constraints:
Issues which may hamper implementation include public acceptability,
planning constraints and institutional barriers. For example,
lack of clarity over planning consents, permitting of plants,
and investment regimes. While most renewables are environmentally
benign in terms of carbon dioxide and other air pollutants (even
allowing for their manufacture), they do have a number of other
local environmental impacts.
The Severn barrage plan is a good example of
the real social, environmental and political problems encountered
in adopting many renewable technologies. The plan to build a tidal
barrage across the Severn estuary to produce electricity is, according
to the National Assembly for Wales, potentially the largest single
renewable source in the UK, which could generate at least 5% of
the UK's electricity. However, the plan is receiving much opposition
from some environmental pressure groups that claim the barrage
could cause irreversible damage to wildlife[91].
3. Are there likely to be technological advances
that would make renewable energy cheaper and viable without Government
support in the future? Should, and how could, policy be designed
to promote such technological advances?
3.1 The technical challenge is to provide
new technology for both load management and storing electrical
energy, or the product of electrical energy. Since the scope for
large-scale central storage by such methods as pumped water or
tidal barrages is limited, there is a need to devise local methods
of small-scale storage at the domestic, commercial, industrial
and community level, distributed throughout the system. Solar
water heating with hot water storage could make a useful contribution
on diurnal timescales as would a much enlarged fleet of electric
vehicles as a possible early evening supply of electricity if
discharged at that time (and recharged overnight).
3.2 However, it seems likely that a much
greater use will need to be made of demand-side management, disconnectable
tariffs and load-switching. All of this will require extensive
changes to the distribution system and its control, and to consumer
behaviour.
3.3 An important area where physicists are
contributing to RD&D is in photovoltaics, where they are carrying
out much of the fundamental research required to develop novel
types of cell that may result in step changes in the cost of photovoltaic
generation. Photovoltaics can readily be adapted to suit the diffuse
light conditions as evidenced by their widespread use in Germany.
There is a strong research effort in the UK but to benefit fully
from this vitally important technology, investment in the underpinning
science needs to improve considerably.
3.4 The UK appears to be attempting to be
selective in developing a few chosen technologies such as "dye-sensitised
photochemical" and "molecular organic" solar cells.
The EU approach for RD&D in order to maintain and build on
the lead that Europe already has is provided in a publication
entitled, A Strategic Research Agenda for Photovoltaic Solar
Energy Technology[92].
The publication represents valuable guidance to the UK's RD&D
efforts domestically and in engaging with other EU partners in
forthcoming European research programmes. It provides a research
framework which is aimed at reducing the cost of turnkey photovoltaic
systems to €1/Wp by 2030 and goals of electricity that is
cost competitive with retail and wholesale electricity.
3.5 The short- to medium-term is likely
to see thin-film materials (eg gallium arsenide) bring photovoltaic
electricity costs down, towards levels competitive with conventional
electricity generation. This is likely to be happen sooner than
previously expected due to the increasing cost of fossil fuels.
4. Has Government support been effective in
leading to more renewable energy? What have been the most cost-effective
forms of support in the UK and other countries and what should
the balance be between subsidies, guaranteed prices, quotas, carbon
taxes and other forms of support? Should such support favour any
particular form of renewable energy over the others? For instance,
what are the relative merits of feed-in tariffs versus the UK's
present Renewables Obligation Certificate (ROC) regime?
Support for RD&D
4.1 A significant problem facing renewable
and other low-carbon generating technologies is that, following
the liberalisation of the UK energy market, the current price
of electricity was so low that it is not economically attractive
to develop and introduce new generating technologies to the market,
unless they can be developed at a low cost and can provide electricity
predictably at competitive wholesale prices.
4.2 The solution to date has been to have
UK government incentives for RD&D, but with relatively small
amounts of financial commitment. Renewables have benefited from
these and support must continue to stimulate investment at increased
amounts for pilot and full-scale demonstrations of technologies
that are sufficiently mature for near-term deployment.
4.3 Investment is also required in the development
of whole-lifecycle financial models, including full acquisition,
operating, distribution, disposal/recycling and environmental
costs for all renewable technologies. Models are also required
to predict how significant power levels generated from renewables
might change the characteristics of the transmission network planning
and operation.
4.4 The Institute's report, The role
of physics in renewable energy RD&D[93],
revealed that renewables RD&D is funded in the UK through
a number of routes, the main ones supported by the government
and the public sector (such as the much lauded EPSRC SUPERGEN
initiative[94]),
together with EU funding. In addition, there is industry funded
RD&D, and the commercial deployment of renewables supported
by the Renewables Obligation[95].
The House of Lords Science and Technology Committee suggested
in its report, The practicalities of developing renewable energy[96],
that the level of funding for RD&D is not sufficient if the
UK is to meet its renewables targets. While UK expenditure has
increased in recent years (from $37 million in 2004 to $68 million
in 2005), it is still lower than in some other leading European
countries, such as Germany ($115 million in 2005), according to
data from the International Energy Agency[97];
US expenditure on renewables RD&D was $255 million in 2005.
The photovoltaics budget for the US National Renewable Energy
Laboratory was over $140 million in 2006-07. Japan, China, Spain,
Italy, and India are increasing funding in photovoltaics research.
4.5 A DTI/Carbon Trust review[98]
found that there appears to be a funding gap in moving renewables
to the pre-commercial stage, and from the pre-commercial to the
supported commercial stage. The review also considered that the
current landscape for renewables funding is complex, which suggests
that a clearer overall strategy for UK RD&D in both renewable
and other new technologies, together with a clearer map of RD&D
funding and clearer demarcation of the roles of different funding
bodies could be useful. This could be a key activity for the UK
Energy Research Centre to undertake.
4.6 The UK's RD&D policies for new renewables
compare very unfavourably with those of the leading countries
as evidenced by the slow progress and insignificant total renewables
contribution that the UK has achieved so far. For instance, when
considering wind power, lessons from Denmark, Germany, Spain and
Portugal have not been learned. In Denmark, implementation gave
incentives to small communities to install wind turbines, from
which a major manufacturing industry has emerged. The total share
of new renewable energy in Denmark in 2005 was 17% and it has
a target of 30% renewables by 2020. Germany had 5.8% new renewables
share of its energy in the final consumption of energy in 2005
compared to a UK value of 1.3%. Only a few small countries, such
as Malta, had a smaller share of renewable energy in 2005.
4.7 With regards to photovoltaics, Germany
is the largest single market with 40% of the world's total photovoltaics
sales in 2007. This is largely achieved by a bottom-up approach
and a long-term coherent strategy. It has a number of joint funded
(ie government, industry) research centres in addition to universities.
These include the ZSW, the Fraunhofer ISE and the HMI, each receiving
annual budgets of well over €10 million. These centres provide
a reservoir of expertise and continuity that helps coordinate
the long-term research necessary to develop the technologies.
Recently there have been some encouraging signs that the NaREC[99]
in the North East of England has begun to take on some of these
roles. But this needs to be built on and receive long-term core
funding.
Feed-in tariffs
4.8 The UK would greatly benefit by adopting
a straightforward feed-in tariff system, which is an EU recommended
method of growing distributed generation through photovoltaics.
The feed-in tariff system has allowed a number of European countries,
such as Germany, Denmark, Spain and Portugal, to install significantly
more renewables capacity than the UK at lower cost; these countries
also manufacture photovoltaics at a significant level. The feed-in
tariff system guarantees a price for renewable electricity fed
back into the grid. In fact, in Germany there has been a dramatic
rise in photovoltaic installations as the feed-in tariff system
reduces and the market takes over.
4.9 The feed-in tariff system used in Germany
is recognised internationally as the most effective support mechanism
for photovoltaics. It has encouraged microgeneration and is not
based on government subsidy. The UK has approximately 80% of the
irradiance levels of Germany and would therefore be able to produce
significant renewable contribution from photovoltaic electricity.
4.10 Previously, the UK government was opposed
to a feed-in tariff system. The 2007 Energy White Paper1 briefly
mentions that other European countries have introduced such schemes
but dismisses them by stating that it was, "|hard to draw
firm conclusions as to the effectiveness of these mechanisms|".
This ignores the evidence of Germany's lead in the installation
of wind and photovoltaics. In the UK, the Renewables Obligation
Certificates (ROC) method has clearly failed for inducing significant
new capacity in comparison with the feed-in tariff system[100].
Therefore, it is vital that the effectiveness of the ROC system
is critically reviewed, the reasons for its relatively poor performance
established and a new and better system put in its place as soon
as possible.
4.11 Encouragingly, in the Budget 20083,
the UK government states that it will consult in the summer on
the most appropriate support mechanism at the individual and community
level to develop microgeneration as part of its aim to triple
renewable electricity generation by 2015. The Budget report (section
6.43) specifically mentions feed-in-tariffs as an option. This
should be encouraged and if an appropriate tariff was introduced
it would bring the UK's policy in line with its closest EU partners.
5. On top of the costs of building and running
the different types of electricity generators, how much investment
in Britain's transmission and distribution networks will different
renewable energy sources require compared to other forms of generation?
Are the current transmission and distribution systems capable
of managing a large share of intermittent renewable electricity
generation and, if not, how should they be changed? Are the rules
about how we connect capacity to the grid supportive of renewables?
5.1 The present system will not be able
to support the 35-45% of variable renewable generation that is
generally considered necessary to meet the EU 2020 renewables
requirement. The location of the most productive projects—wind,
tidal and wave—will require extensive new transmission lines
or undersea cables. Because the connection has to be capable of
taking the full output, but the load factor of the best wind farms
is only around 35%, it follows that the cost of connection to
them per unit of electricity produced is about 2.5 times that
of a conventional generator of the same maximum output and a typical
load factor of 90% or more. Undersea cables will be more expensive
than overhead lines of the same capacity.
5.2 A detailed study is required to assess
the impact of potential additional renewables capacity in the
2020 time frame. The study will need to address cost alternative
scenarios for the mix of technologies providing the additional
capacity and, in particular, the issues associated with distributed
resources and the potential "grid connected market".
This concept requires a radically different approach to manage
the transmission network and current trading arrangements. Such
information, together with any additional network associated maintenance
and security costs is a prerequisite for calculating the cost
of energy produced.
5.3 Microgeneration needs no changes to
electrical supply lines, unless of almost universal use. The national
potential for microgeneration could be at least 10% of total supply,
so having such a resource with no significant changes in the grid
is important.
7. How do the costs of generating electricity
from renewables compare to fossil fuel and nuclear generation?
7.1 Present costs are not a good guide to
future costs. Discussions at a recent meeting[101]
revealed that the projected growth in demand for renewable energy
projects is creating upward price pressures throughout the world.
Several factors were leading major utilities to acquire existing
operating projects—shortage of new good sites, shortage
of turbines (approximate two-year waiting time), long development
times and opposition to wind farms. A survey by KPMG[102]
of global mergers and acquisition activity in the renewables sector
revealed that the prices being paid for renewable energy companies
were rising rapidly, averaging $4.9m/MW in recent large acquisitions—well
above their original cost. There was increasing competition for
investment funds from less uncertain renewable investment opportunities
in other countries. This would all be reflected in increased costs
for new renewables developments in the UK.
13 June 2008
82 http://ec.europa.eu/energy/climate_actions/doc/2008_res_directive_en.pdf Back
83
www.dti.gov.uk/energy/whitepaper/page39534.html Back
84
www.hm-treasury.gov.uk/budget/budget_08/bud_bud08_index.cfm Back
85
www.communities.gov.uk/documents/planningandbuilding/pdf/building-greener.pdf Back
86
The question refers to "energy", not just electricity.
Thus renewables do indeed relate to the full spectrum of energy
supplies, including heat, fuels and electricity. Nevertheless,
electricity, which amounts to about 15% of end-use energy, tends
to dominate policy. Back
87
The Costs and Impacts of Intermittency: "An assessment of
the evidence on the costs and impacts on intermittent generation
on the British electricity network", UK Energy Research Centre. Back
88
In practice, the capacity factor of wind power in the UK averages
about 25-30%, whereas the capacity factor of central thermal plant
is about 70%. Therefore, much more capacity of wind power is needed
than the thermal capacity it replaces. Back
89
Mott MacDonald 2004 "Renewable energy supply chain analysis",
DTI Back
90
ICCEPT & E4Tech Consulting 2004 "The UK innovation systems
for new and renewable energy technologies". A report for
the DTI Back
91
http://www.guardian.co.uk/environment/2008/jun/12/conservation.wildlife1 Back
92
http://cordis.europa.eu/technology-platforms/pdf/photovoltaics.pdf Back
93
www.iop.org/activity/policy/Publications/file_4145.pdf Back
94
www.epsrc.ac.uk/ResearchFunding/Programmes/Energy/Funding/SUPERGEN/default.htm Back
95
www.berr.gov.uk/energy/sources/renewables/policy/renewables-obligation/what-is-renewables-obligation/page15633.html Back
96
www.publications.parliament.uk/pa/ld200304/ldselect/ldsctech/126/12602.htm Back
97
www.iea.org Back
98
Renewables Innovation Review, DTI/Carbon Trust, 2004 Back
99
www.narec.co.uk Back
100
Essentially, conventional fuels do not charge for their full life-cycle
external costs, so credit should be given to renewables when they
abate conventional fuels. Therefore, ROCs, etc, are not a "subsidy",
but a payment or credit for the abatement of the external costs
of conventional energy. Back
101
"Renewable Energy: UK & EU Investment Issues and Deliverables",
The Westminster Energy Forum, 15 May 2008. Back
102
www.kpmg.co.uk Back
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