Memorandum by The Institution of Engineering
and Technology (IET)
INTRODUCTION
1. The Institution of Engineering and Technology
(IET) is pleased to make this contribution to the House of Lords
Economic Affairs Committee's enquiry into the economics of renewable
energy.
2. There are many shades of opinion, and
many parties seeking to advance arguments supporting their own
perspectives. We expect you to receive a diversity of responses
reflecting many shades of opinion. The inherent complexity of
energy technology and economics makes this very difficult to disentangle.
3. The IET's role is to provide an independent
perspective on engineering issues. We attempt in this response,
and in particular in Annex A, to explore the factors which affect
the economics of renewable energy, to help the Committee understand
and interpret the responses received from others.
KEY MESSAGES
4. The points the IET particularly wishes
to emphasise are:
— In developing renewable energy policy,
understanding the "timescales" is as important as understanding
"cost". This aspect is particularly lacking from public
debate.
— The cost data for renewable energy
contain huge variable elements, particularly as we compete for
manufacturing capability and expertise in a global marketplace.
They can also change substantially over time due to factors that
are not entirely rational or predictable.
— Recent increases in oil price, if
sustained, have the potential to be transformational to the economics
of renewable energy, and also energy efficiency. Sustained high
oil prices will impact consumer and business behaviour, and also
perhaps make it easier to build a stronger public consensus over
the need for renewable energy and its associated infrastructure.
RESPONSES TO
QUESTIONS
Q1. How do and should renewables fit into
Britain's overall energy policy?
5. Renewables currently meet a very small
fraction of our total energy needs and it will take decades of
sustained support before they begin have an appreciable impact.
This is an enormous long term challenge that will require strong
and sustained Government commitment, as a part of a long term
multi-stranded energy policy.
6. A holistic energy policy is required,
balancing costs, benefits and deliverability of a full range of
options including demand reduction.
7. Many low carbon initiatives, particularly
demand reduction strategies, have vast potential and are of little
or even negative cost. However these tend to require behavioural
change and can be politically and socially difficult to deliver
on a large scale. A challenging but realistic view therefore needs
to be formed of their potential, both now, but also in the future
as social attitudes change. The change in social attitudes can
be accelerated by appropriate marketing, a route that should be
explored further by government.
8. Within this framework there will be a
substantial role for renewable energy, and every opportunity should
be taken to develop and deliver projects using today's technology,
and to support the evolution of new technologies best suited to
the UK's resources (eg deep water offshore wind, wave and tidal).
9. One issue of great importance is time
to market. Large scale deployment of renewables and also other
carbon saving measures requiring mass behavioural change will
take many years—perhaps 20-30 years to become a core part
of the market. In the meantime existing energy assets will require
replacement. Whilst this should in no way slow down efforts to
maximise renewables, it is necessary to take a realistic view
of the ongoing needs for secure energy supplies in the short to
medium term. New gas and coal fired generation will have to be
an important part of this picture. Carbon capture and storage
represents a possible route to decarbonise this at a later date,
but the economics of this remain to be proved. Nuclear provides
a low carbon option for the medium to longer term, ie after 2020.
How does the UK's policy compare with the United
States, Australia, Canada, and other EU countries?
10. The size of a country, its political
ambitions, meteorological climate and existing electricity system
will influence the way in which renewable policy is adopted.
11. Many European states have used generous
support schemes to deliver multi GW scale deployments. A "feed-in
tariff", as adopted in many EU states, runs contrary to the
concept of a free market in electricity. However, the clarity
of these schemes has made it easier to get projects done. Germany,
Spain and Denmark have the highest penetration of renewables in
the world and have feed-in tariffs.
12. Tax credits in the USA have played a
role in encouraging mass deployment there.
13. In countries such as China the political
decision making process has facilitated rapid deployment. However
all countries are different, and the UK's high population density
and democratic tradition have acted as barriers here. Offshore
wind offers a solution in the UK by placing the technology out
of sight, but it is a high cost option.
Q2. What are the barriers to greater deployment
of renewable energy?
14. A generalised answer could be misleading.
In Table 1 we suggest the barriers for each technology together
with actions that would be required to address them.
Are there technical limits to the amount of renewable
energy that the UK can absorb?
15. There are no fundamental limits to the
amount of renewable energy the UK could absorb in the long term.
Technical challenges increase with increased levels of renewable
generation but these are soluble given the will to do so.
16. However in the short term intermittent
renewables are probably limited to around 20% of total capacity.
The large scale deployment of intermittent renewables has the
potential to challenge grid stability. However if we gradually
re-engineer our networks, loads and systems to deal with higher
levels of renewables, the penetration level can increase. This
process would take several decades of concerted effort.
17. The technologies of demand management,
for example by smart metering and smart networks, have the potential
to make this more manageable. The problem will also emerge only
slowly as the deployment of intermittent renewables will take
time, and it will be possible to adjust the approach as the evolution
of technology and social behaviours takes place over time.
18. The issues that will set an upper limit
to the level of renewables that are eventually deployed are economic
rather than technical. The cost of electricity in a 100% renewables
system would most likely be very high. However given the outlook
for fuel prices, equipment capital costs and the value of carbon
it is hard to see any scenario where energy costs do not increase
substantially from today in real terms. It may be argued that
this would then incentivise energy saving properly.
Q3. Are there likely to be Technological Advances
that would make renewable energy cheaper and viable without Government
support in the future?
19. Research into the currently unproven
renewable technologies such as carbon sequestration, ocean thermal
gradients, wave energy and nuclear fusion requires sustained effort
and is very costly. At the current rate of progress these technologies
will not be available to contribute to any significant scale to
meeting the carbon reduction targets for 2020, and their ability
to contribute materially to the 2050 target must be regarded as
uncertain at the moment, though it is very much hoped that this
will become more certain over the next few years.
20. Good news about research breakthroughs
is beneficial in that it could encourage young people to consider
a career in engineering research. However, policy makers may gain
the impression that all the hurdles are close to being overcome,
which is far from the case. Policy makers need to be aware of
an inherent optimism bias in the academic community which results
from the nature of the research grant awarding process, and also
in the very different challenges of cost-effective engineering
deployment at scale, once technologies have been demonstrated
to work under ideal conditions.
21. Government policy should adopt a better
integrated strategy covering the whole innovation chain,
to maximise the chances that successful R&D will deliver successful
products. Piecemeal policies have delivered mixed results, mainly
limited to the deployment of mature lower-cost technologies at
the expense of larger-scale and emerging technologies.
22. We recommend that Government policy
should:
— Be more selective in setting priorities
and allocating funding for early stage research.
— Be more successful at leveraging
support for costly demonstration and commercialisation.
— Take advantage of the potential for
international partnerships.
— Pre-emptively identify and address
barriers to deployment, including the supply of technical skills,
cost, robustness and maintainability.
Q4. Arguments for and against "feed in
tariffs"
23. Funding support for renewables exists
to:
— provide a proxy for carbon pricing
where this does not yet exist; and
— to encourage development of technologies
and deployment capacity.
24. The market mechanism used in the UK
(the Renewable Obligation) provides a relatively sophisticated
means to provide incentives to develop utility scale renewable
energy sources; however it is too complex to send appropriate
messages to those considering small scale renewables. These also
have a part to play in meeting climate change targets and improving
security of energy supply, but householders and small businesses
are not equipped to handle cumbersome incentive mechanisms, which
are therefore a barrier to deployment. Simple incentive mechanisms,
for example feed-in tariffs or capital grants, are more likely
to lead to wider deployment.
25. However, care needs to be taken to avoid
perverse incentives in this area. Whilst certain small scale renewables
can be cost and carbon-efficient, other small-scale renewables
are of considerably less benefit. Public or consumer funding support
would better be directed towards demand reduction, energy efficiency
or larger scale low carbon projects rather than funding what can,
in effect, be totemic installations rather than real benefits.
26. There are arguments to say that some
of these totemic technologies will become more cost effective
over time and should therefore be supported. Solar PV is an example
of this.
27. On a global level there are other considerations:
the effect of generous feed in tariffs in Germany and Denmark
has led to the situation where there is a high level of solar
photovoltaic deployment in countries with relatively low solar
radiation, compared with low levels of adoption in southern European
countries with the most sun. In technologies where resources are
in short supply this may not be the most efficient global policy.
Q5. 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?
28. The existing transmission network connects
demand centres and coal fields (coal being the fuel of choice
when the existing transmission network was constructed in the
1960s) The significant sources of renewable energy tend to be
remote from load centres and grid access points, thus requiring
heavy investment in network extensions and consequential delays
to connection. Note that the long lead times for installing major
transmission lines result from the need to consult affected land
owners and residents through the planning process.
29. Where renewables are closer to load
centres, new technology and adaptation will be required for multi-directional
flows of power in electrical distribution systems to make effective
use of microgeneration, although there is currently adequate capacity
in the existing networks to mean this will not be a major barrier
for several years.
30. Generally the costs of new overhead
transmission lines and substations are not a major barrier to
new projects—this is much more driven by planning consents.
However, this position will change if planning consent requires
the use of buried or sub-sea cables. At major transmission voltages,
underground cables cost around 10-20 times overhead lines, though
this gap narrows substantially at lower voltages. The cost of
major transmission lines in the UK is quite uncertain as there
is little recent experience of building them in any substantial
way. An estimate of £1 million per km is a reasonable all-in
figure to use for major overhead transmission lines for approximate
calculations. Additional costs are incurred for substations; these
are often included within a power station budget for new generation.
For example, the cost of a new substation for a recent 1,000 MW
class generator was around £25-£30 million. These costs
have all increased substantially in the last few years, mainly
as a function of global commodity and equipment prices.
31. However even though overhead lines are
usually of modest cost in comparison to power stations, it is
important that the regulated environment in which the transmission
and distribution companies operate provides adequately for strategic
investment in new lines when needed.
32. The UK also needs to consider the impact
of expected climate change on the power infrastructure and adaptation
strategies that will be necessary. This is likely to affect the
design and location of substations and lines, and to require modifications
to existing infrastructure. It may also affect the design, location
and economics of generating plant.
Q6. External costs—environmental impacts
Not addressed in the interests of brevity.
Q7. How do the costs of generating electricity
from renewables compare to fossil fuel and nuclear generation?
33. This is likely to be a key question
for the Committee. However, the inherent complexity of the subject
makes this very difficult to disentangle. This is because:
— Cost estimates change substantially
over time owing to volatility in world equipment and services
markets.
— Actual costs of existing renewables
cannot be compared on a like for like basis with projected costs
of unproven technologies. While hydro-power, on-shore wind and
other established technologies have been critically appraised
by commercial concerns in order to make significant investment
decisions, the energy technologies that are still in the R&D
phase have not been appraised in this way. It is not possible
to give reliable estimates of unproven technology costs because
the timescales for their deployment are some way in the future.
— Forecasts of economies of scale and
can easily be over- or under-estimated and require detailed engineering
input.
— The factors affecting cost changes
are not entirely rational or predictable.
34. Data affecting costs contain huge variable
elements that require sophisticated analysis. It is impossible
to assess the validity of any cost estimate or comparative cost
estimate without knowing the many assumptions that have been fed
into the calculations.
35. We address this issue in more detail
in Annex A.
Q9. If the UK is to meet the EU target that
by 2020 15% of energy consumed will come from renewables, will
most of this come from greater use of renewable sources in electricity
generation? If so, why? Should British support for renewables
in other countries be allowed to contribute towards meeting the
target for the UK?
36. IET members and their employers are
working worldwide on energy projects. It is often true that energy
is used much more carbon-intensively in other countries, particularly
in the developing world. Also there is a high rate of build of
carbon intensive infrastructure such as coal fired power stations,
which will have lives of 30-50 years and potentially lock in emissions
for this time. Measures to reduce these emissions can yield carbon
reduction benefits many times those that the same investment could
yield in the UK. These measures include renewable energy projects
but equally improvements in end use of energy. However there are
challenges in auditing these benefits that are only partially
addressed in the current Kyoto mechanisms.
37. There is also a question of whether
"follower" countries in this area would give less regard
to the UK as a leader if it was seen to be not putting its own
house in order.
38. These are perhaps more political than
engineering questions and as such the IET does not comment further.
Table 1
CURRENT STATUS, FUTURE PROSPECTS AND ACTIONS
ON RENEWABLE TECHNOLOGIES IN THE UK
|
| Where are we? | What can be achieved?
| What is holding it back?
| What needs to be done?
|
|
ON-SHORE WIND POWER
Technology is mature and economical with current policies in utility scale application.
Not really effective in small scale application.
Very large projects will have significant visual impact in UK landscape.
| Gradual expansion of capacity (over 15GW of potential wind capacity has been applied for in Scotland alone).
| Objections under planning regime.
Transmission grid capacity.
Increasing costs due to global competition for raw materials and equipment.
Concerns about managing variability for increased wind capacity.
| R, D&D into active grid management. |
| | |
|
OFF-SHORE WIND POWER
Fundamental technology is mature but uneconomic under current policies.
Deployment offshore will continue to bring technological and operational challenges.
| Potential for large scale development. |
High capital cost—increasing due to global competition for raw materials and equipment.
Transmission grid capacity.
Transmission/distribution grid expansion.
Concerns about managing variability for increased wind capacity.
| May be favoured under reformed (banded) Renewables Obligation.
R, D&D into active grid management.
|
| | |
| |
HYDROELECTRIC POWER
Mature technology.
| Around 1,000 MW of future potential in UK, vast remaining potential worldwide.
| | |
| | |
|
TIDAL POWER
Several technologies exist in prototype, in need of full-scale demonstration and commercialisation.
About 10-15 years from full commercialisation, and uncertainties over cost competitiveness.
| Sizeable natural resource to be exploited in UK.
Potential for technology export.
| Risk/cost of demonstration.
High initial costs and extended operating lifetimes.
| Demonstration support.
Development of standards.
|
WAVE POWER
Several technologies exist in prototype—all inevitably large with high embedded energy and uncertain maintenance and operating costs.
At least 15 years from large scale commercialisation.
| Sizeable natural resource to be exploited in UK.
Potential for technology export.
| Risk/Cost of demonstration. No large companies pushing the technology.
Size of devices (typically 100m per MW) and impact on shipping. Requires hundreds of machines, each the size of a tube train, packed with hydraulics, generators, etc.
Energy transmission from large numbers of floating structures.
Limited supply chain.
| Demonstration support.
Development of standards.
Deployment requires the commitment of large shipbuilders and power engineering companies—commitment that will take time to build.
|
| | |
| |
TIDAL BARRAGE
Technology is proven, but capital costs tend to be very high.
| Multi GW scale possibilities in UK (eg Severn Barrage), but power limited to certain (changing) times of day.
| Cost, environmental issues, investment risk, grid connections.
| Studies in progress.
Substantial structural change to electricity market and/or government subsidies probably needed for large schemes.
|
| | |
| |
SOLAR PHOTOVOLTAICS
Mature but costly technology, currently used mainly in niche and "showcase" applications.
| Limited potential for improvement of current (first and second generation) technology but some scope to improve production costs through improved manufacturing processes.
Higher efficiency and more flexible materials currently in development could result in lower-cost, higher-efficiency applications.
Mass deployment has been achieved where government support has been substantial (eg Germany, Japan).
| High capital cost.
Competition for raw materials (silicon) resulting in high cost.
Lack of skilled installers.
Lack of information and accreditation schemes.
| R&D into manufacturing.
R&D into "second generation" thin film silicon PV, organic PV and high-efficiency "third generation" PV (eg quantum dots).
Skills development.
Technology and installation accreditation.
|
SOLAR THERMAL ENERGY
Technology is mature and relatively cost-effective.
| Large potential for domestic use, both retrofit and new build.
| Lack of skilled installers.
Lack of information and accreditation schemes.
Integration with building stock.
| Skills development.
Technology and installation accreditation.
Introduction of "microgeneration-ready" standards for new homes.
|
| | |
| |
CONCENTRATED SOLAR ELECTRICITY
Mature but quite expensive.
| Very suitable for desert regions—requires plenty of sunshine and large land areas.
| Not suitable for UK; long term potential for mass application in North Africa and export to Europe.
| Support studies. |
| | |
| |
ENERGY FROM WASTE
A variety of mature or near-market technologies exist for recovering energy from waste.
Electricity generation from landfill gas is the most widely used.
| Significant potential, depending on local circumstances.
| Potential for landfill gas limited by restrictions on landfill.
Planning consent for thermal waste to energy plants.
| Interaction with waste management policies.
|
| | |
|
BIOMASS
Technologies using "first generation biomass resources for heat, power generation and transport are fairly mature but relatively costly.
Higher-yield "second generation biofuels are being researched but are at least 10-15 years from commercialisation.
| Biomass for heat and power generation could be more widely used in parts of the country.
Potential limited by other demands for land use, especially food crops. Currently biomass is imported from Europe, this is likely to reduce as EU states all turn to biomass to achieve their renewable energy targets.
| Lack of supply chain coordination.
Lack of skilled installers.
Lack of information and accreditation schemes.
| Establishment of sustainable supply chains.
Skills development.
Resource, technology and installation accreditation.
R&D into "second generation biofuels.
|
| | |
|
GEOTHERMAL
Mature but costly technology for UK.
Applied on a large scale at lower costs in countries with good resource (eg Iceland, Philippines).
| | High cost of installation.
Lack of skilled installers.
Lack of information and accreditation schemes.
Integration with building stock.
| Skills development.
Technology and installation accreditation.
Introduction of "microgeneration-ready standards for new homes.
|
GROUND SOURCE HEAT PUMPS
Mature technology that can be cost effective.
| Significant opportunities in space heating, easiest to apply in new buildings or major refurbishments.
| Getting people to apply the technology. |
Changes to building regulations. |
| | |
|
GREEN BUILDING DESIGN (USING NATURAL HEAT, LIGHT AND COOLING)
Exemplar projects abound but not deployed universally.
| Huge opportunities for new construction and retrofit, more examples of best practice needed for retrofit.
| Lack of interest/knowledge amongst people commissioning buildings or retrofits; weak building regulations and enforcement.
| Aggressive approach to building regulations and their enforcement; better marketing of the benefits, higher energy prices.
|
| | |
| |
HYDROGEN AND FUEL CELLS
Hydrogen is not inherently renewable; in the near term, the most likely sources are fossil fuels, resulting in CO2 emissions unless accompanied by abatement technology. This is an immature technology.
| Trials in USA using fuel cells power by off peak electricity to provide hydrogen for motorcycles.
Portable power sources (eg phones, laptops) in advanced development.
| Finding cost effective applications and developing hydrogen production infrastructure.
Also ensuring that power to make the hydrogen does not come from high carbon sources.
| Basic R&D on hydrogen generation.
R&D on hydrogen transport infrastructure requirements.
|
| | |
| |
| STORAGE TECHNOLOGIES |
| |
| | |
| |
PUMPED STORAGE HYDRO
Mature technology, often quite expensive.
| Allows storage of energy to balance intermittent renewables and/or demand peaks and troughs. Large scale possibilities exist in UK and have been studied in the past.
| Not an attractive investment, also potential environmental issues.
| Flagging of opportunities, and impact on market price of intermittency. Will not be commercially attractive until value of intermittency or gap between peak and base prices becomes high.
|
| | |
|
DEMAND CONTROL
Technically possible but massive deployment challenge.
| Potentially allows non essential demand to be removed at times of peak demand or low outputs from intermittent generation.
| Market not yet ready to deploy it; attention needed to regulatory and legislative frameworks.
| Deployment of smart meters is a first step and government is active through Energy Bill enabling provisions, changes to domestic appliance standards and wiring regulations may be needed. Deployment of ESCOs would help (as in Energy White Paper).
|
SMART WHITE GOODS
Manufacturers are engaged with innovators; selective trials taking place.
| Potentially allows interruptible demand to be "intelligently disconnected" at times of power system stress. The value of this is could be significant because it may be a cost effective way of replacing expensive fast-response standby generation on the grid.
| Constructing the "value chain" so that those who bear the costs can receive the rewards. Also needs mass roll out. Needs consumer acceptance.
| Proving the technology (in hand with some big white goods manufacturers); demonstrating it effectiveness and commercial value; constructing a route to market and the value chain for rewards.
|
| | |
| |
ELECTROCHEMICAL STORAGE
Significant R, D and D done in UK a few years ago but subsequently abandoned.
| Short term energy storage to manage demand peaks or low intermittent generation.
| Market not yet interested. | More development work. Will not be commercially attractive until value of intermittency or gap between peak and base prices becomes high.
|
|
For further details on renewable technologies, see the IET
Factfiles: http://www.theiet.org/factfiles/index.cfm
| 
