Memorandum by The Royal Academy of Engineering
SUMMARY
The Royal Academy of Engineering is pleased
to respond to the House of Lords Select Committee on Economic
Affairs consultation on The Economics of Renewable Energy.
This is an important topic within the wider field of climate change
and energy. Fellows of the Academy with experience and expertise
in the area have contributed to this response and a summary of
the main points are listed below. The Academy would be happy to
provide any additional information, either orally or in writing,
that would assist the Committee as they move forward with this
inquiry.
— Tackling climate change while maintaining
a secure and affordable energy supply requires an integrated and
co-ordinated energy policy.
— The EU target of 15% of all energy
consumption to be sourced from renewable energy by 2020 is extremely
challenging given that the current level is less than 2%.
— Renewable energy cannot be treated
in isolation. It must be part of a clear and integrated UK energy
policy along with other low-carbon technologies and demand reduction
strategies.
— The current expansion of renewable
generation will impose strains on the electricity transmission
and distribution systems, both in terms of the geographical location
of the renewable generators and their likely intermittency.
— Forecasts of the increase of renewable
electricity should be treated with caution as predictions do not
always translate into reality. The engineering practicalities
of delivering such a large increase in renewable power must not
be underestimated.
— There must be sufficient investment
in education and training to ensure an adequate number of skilled
engineers and technicians.
— The UK is lagging behind other EU
states on deployment of renewable energy despite its rich resources
of wind and marine energy.
— The main barriers to greater deployment
of renewable energy are capital costs, the planning system, grid
connection and the global procurement chain.
— Feed-in tariffs could make development
of renewable energy more attractive by reducing the financial
risk that developers are exposed to, giving fledgling renewables
industries the confidence to invest, develop and grow.
How do and should renewables fit into Britain's
overall energy policy? How does the UK's policy compare with the
United States, Australia, Canada, and other EU countries?
1. Since the Government's 2006 energy review
there has been a number of important developments in energy policy
for the UK. In terms of renewable energy, the most pertinent of
these was the May 2007 Energy White Paper that led to the Energy
and Climate Change Bills, both currently progressing through Parliament.
In addition, the Planning White Paper is also relevant as it relates
to planning permissions for new energy installations and their
grid connections. The European Union (EU) has also agreed in principle
binding targets which will impinge on UK policy.
2. Within these various documents there
are a number of targets, some of which will be legally binding
and some merely aspirational. The Energy White Paper repeated
the Government's commitment to the target of 10% of electricity
from renewables by 2010 along with an aspiration to double this
by 2020. It remains to be seen if the Climate Change Bill, which
will enshrine in law a variety of targets associated with climate
change, will include targets relating directly to renewable energy.
3. The EU currently has a Proposal for a
Directive which aims to establish a binding target of 20% of all
energy consumption to be sourced from renewable energy by 2020.
Within this directive are targets for each member state to achieve
10% of biofuels in transport and individual targets for renewable
energy—the UK's proposed target is 15% by 2020.
4. Both the White Paper and EU targets represent
enormous challenges when the current situation is taken into account.
In 2006, just over 4% of the UK's electricity came from renewables
and overall less than 2% of its energy came from renewables—lower
than all other EU states bar Malta and Luxembourg. This is in
part owing to the UK having, until recently, an indigenous supply
of cheap oil and gas. But given that it also has one of the best
natural resources of wind and marine energy it could be argued
than progress on renewable energy has not been as rapid as might
have been hoped, especially taking into account the current Government's
claim to be leading the way in tackling climate change.
5. The main policy mechanism for incentivising
growth in renewable energy is the Renewables Obligation (RO).
Introduced in 2002, it requires the electricity utilities to source
a certain amount of their supply from certified renewable generators.
The proportion of supply increases year on year, thus providing
a continued form of subsidy for renewable technologies which are
still being developed. This scheme has, in general, succeeded
in achieving its goals and the Government still expects to reach
its target of 10% renewable electricity by 2010. It does, however,
tend to favour technologies that are more developed and thus less
mature technologies do not benefit as much as hoped—a situation
which becomes increasingly acute. As a result, for example, much
of the recent increase in renewable electricity has come from
on-shore wind while marine technologies have not advanced as quickly
despite the UK's abundant supply of wave and tidal energy. Consequently,
the RO system is in the process of being amended in order to take
into account the relative levels of maturity of different renewable
technologies. A banding approach has been proposed and is likely
to be adopted that will favour less mature technologies such as
wave, tidal and solar photovoltaics. Regardless of any amendments,
the Government remains committed to its existing target of RO
levels rising to 15.4% by 2015-16, with the possibility of that
increasing to 20% given sufficiently rapid growth.
6. In addition to the RO mechanism, the
Government has also introduced the Renewable Transport Fuel Obligation
(RTFO) which will require that 5% of all vehicle fuel to be supplied
from sustainable renewable sources by 2010. This comes into force
in April of this year and represents one of the first mechanisms
to reduce emissions from the transport sector—where carbon
emissions have continued to rise in recent years. There are however,
concerns over the sustainability and carbon life cycle of biofuels
and their effect on world food prices.
7. Overall, renewable energy in the UK is
making progress but is lagging a long way behind our European
neighbours. Countries such as Germany, Denmark, Spain and Portugal
have all attained a considerably higher proportion of energy from
renewable sources. This has been achieved through a variety of
economic and regulatory measures. Feed-in tariffs have been particularly
successful in Germany, giving the fledgling renewables industry
the confidence to invest, develop and grow.
8. Over the coming years, a number of major
projects will be needed alongside the more gradual expansion of
the renewables sector. The wind and marine resource in the UK
would make this possible, but recent developments suggest that
progress may in reality be more difficult. The rejection of the
Lewis wind farm and the withdrawal of Shell from the London Array
project demonstrate that large wind farms, both on- and off-shore,
still face an uphill struggle both in terms of planning approval
and finance. In addition, the Severn Estuary could potentially
provide a significant amount of predictable renewable energy through
a tidal barrage scheme—but despite over a century of feasibility
studies and proposals, the barrage is no nearer being built.
9. There is much work to be done in the
UK if we are to fulfil our promises to lead the world in tackling
climate change. The targets that have been set are extremely challenging
but meeting them will ultimately provide us with secure, low-carbon
energy. This must be strongly encouraged by the Government in
as clear and coordinated a way as possible.
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?
10. One of the main barriers facing most
forms of renewable energy is the capital cost of installation.
Unlike the traditional thermal forms of generation where fuel
costs represent a significant proportion of costs, renewables
such as wind, marine or solar require no fuel but are more expensive
to install initially. The exception to this is biomass and energy
from waste, in which case renewable fuels often compete directly
with hydrocarbons.
11. The high capital costs affect both large
and small installations. At national grid level, a large renewable
scheme such as the Severn Tidal Barrage requires capital expenditure
far in excess of a typical gas fired power plant. Once installed,
it would provide low-carbon, secure and predictable electricity
but the level of investment needed is one of the main reasons
the scheme has never gone ahead.
12. This problem is often mirrored at the
small scale. Even renewable technologies at the domestic scale
such as solar water heating, which would eventually pay back any
initial capital outlay through fuel savings, can be prohibitively
expensive to install.
13. At the national scale, another serious
barrier for renewable power is connection to the grid system.
With much of the best renewable energy resource occurring a long
way from where the power is needed, expensive new grid connections
are necessary. For example, the west coast of Scotland has one
of Europe's best wind energy resources but is a long way from
the south east of England where the highest electricity demand
is located.
14. Gaining planning permission for renewable
energy projects is also a major barrier. The recent failure of
the proposed Lewis wind farm is a case in point and demonstrates
that the Government's assumptions on the future growth of renewables
may not always be well founded if proposed projects fail to be
built through lack of planning permission. It is hoped that the
Planning Bill currently proceeding through Parliament will help
alleviate some of the current difficulties and give both industry
and Government greater certainty going forward.
15. Another barrier results from the global
demand for commercially viable technology to combat climate change.
This results in strains on the procurement chains which can slow
the rate at which a technology can be installed. This is currently
felt most acutely with wind turbines where world shortages have
led to higher prices for the turbines coupled with long lead times.
This situation is liable to be duplicated for other forms of renewable
technologies as they mature. It demonstrates that even when a
technology is commercially viable, the engineering practicalities
of large scale deployment can still present barriers.
16. Thus, global procurement chains can
limit the rate at which renewable energy can be integrated into
the UK electricity system. For intermittent sources such as wind,
wave and solar there is also a limit as to how much can ultimately
be absorbed into the national power system. While it is untrue
that every MW of intermittent source needs to be backed up with
an equal level of thermal generation, a certain level of back
up is necessary to cope with variations in supply and demand.
The level of back up increases as the proportion of intermittent
electricity goes up. This results in external costs and negates
some of the carbon savings, however, international experience
and research suggests that these effects are manageable for up
to 20% of intermittent supply[151].
The more diverse and dispersed the renewables the better as this
can provide contingencies for particularly uncommon weather events,
although, it should be noted that levelling and reducing demand
is also important and as the proportion of renewables increases
a method of storing the energy may become crucial.
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?
17. Technological advances will make renewables
cheaper. This will be as a result of experience gained through
R&D, new materials (particularly in solar PV) and economies
of scale—as has been seen in on-shore wind over the last
five years. However, owing to the barriers detailed in the answer
to the previous question, renewables will still require Government
support throughout the whole innovation chain from early research
to full commercial implementation if they are to help decarbonise
UK society.
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?
18. The Government already has a number
of mechanisms for encouraging investment in renewable technologies,
particularly renewable electricity generation, such as the Renewables
Obligation and the Road Transport Fuel Obligation. In addition
to these supply obligations, Research, Development and Deployment
(RD&D) is being encouraged through the Energy Technology Institute
and the Carbon Trust.
19. The Renewables Obligation and Renewable
Obligation Certificate (ROC) system was originally designed to
be technology blind and offered the same level of financial incentive
per kWh of renewable electricity generated, regardless of the
technology. It is now recognised that the system favoured above
all others the most mature and lowest cost technology, on-shore
wind. Proposals are now in place to band the financial incentives
offered by the ROC system according to the maturity of the technology
involved and this should help to bring wave and tidal stream generating
technologies on line.
20. While the RD&D support through the
Energy Technology Institute and Carbon Trust, and the support
to the generator through the Renewables Obligation do cover both
the technology development and its deployment, there is still
a real likelihood that the UK will fail to meet its current targets
for renewable electricity generation and this is for a number
of reasons, some of which are beyond the Governments control.
21. The Renewables Obligation has provided
stability over time for the renewable electricity generator market
and the industry understands the need to introduce banding for
technologies of different market maturity. However, because the
ROCs are tradable and generators rely on the wholesale price of
electricity as well as the ROCs, developers are still exposed
to a high level of price risk. Gas powered electricity generation
is usually the price fixer within the electricity market (occasionally
coal when fuel prices dictate) because of its dominant position.
Consequently gas powered generators can generally pass any short
term fluctuations in fuel prices through to the consumer, meaning
that renewable generators are directly exposed to an element of
gas price risk even though they do not use the fuel. In a number
of Continental electricity markets, feed-in tariffs, giving a
fixed and guaranteed price for every kWh generated, reduce or
transfer this price risk element.
22. The majority of the UK's renewable electricity
targets are likely to be met through on-shore and off-shore wind
developments by virtue of their market maturity compared to other
technologies. However, serious supply chain constraints exist
in the wind turbine manufacturing sector. It must be recognised
that all energy generator manufacturers now operate in a highly
international market and when demand for products such as wind
turbines is high, the price will correspondingly rise.
23. Further down the wind turbine supply
chain there are issues surrounding competition with other industries
for the supply of large, high quality, castings and gearboxes,
manufacturers of which can sell into other cyclical industries
such as ship building, possibly at higher profit margins.
24. A complication of the wind turbine manufacturers
having already full order books is a reluctance among some to
invest in the high performance engineering required to ensure
the levels of operability required for off-shore deployment. Extremely
high levels of operability are required because operators cannot
guarantee access to off-shore turbines to carry out maintenance.
They are unwilling to lose the use of a turbine for a trivial
mechanical or electronic failure if denied access to fix it for
long periods of time due to weather conditions. However, if the
manufacturer can maintain a full order book without meeting this
standard there is no incentive to do so.
25. These industry based barriers to faster
deployment of renewables cannot be overcome simply by use of economic
instruments based on rewarding the generator exclusively.
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?
26. Investment in the GB electricity transmission
system has been cyclical in the past with the last major tranche
of investment occurring in the 1970s. The current system has been
designed with centralised generation assets in mind, but this
is not to say that the system cannot cope with a degree of decentralised
generation in its current configuration.
27. The current expansion of renewable generation
will, however, impose strains on the electricity transmission
and distribution systems, both in terms of the geographical location
of the renewable generators and their likely intermittency.
28. There is already a flow of power from
Scotland and the North to the South of the UK. Because of geography
and historical decisions, the Scottish and English grids are substantially
separate with two interconnectors handling a North-South flow
of power. Conditions in Scotland are favourable for development
of substantial amounts of on-shore wind power, so, planning processes
not withstanding, the flow of power from North to South is likely
to increase. The North-South flow of power from Scotland to England
will be moderated by the planned closure of Hunterston B and Torness
nuclear power plants in 2011 and 2023 respectively. Current Scottish
planning policy suggests that these stations are unlikely to be
replaced with new nuclear build, but ambitious Scottish targets
for additional renewables, particularly wind, will mean that the
interconnectors role will be of added importance to maintain grid
stability in Scotland as well as for large scale power transfer.
Investment in further interconnector capacity between Scotland
and England is therefore of high strategic importance.
29. The Government expects the majority
of its renewable energy targets to be met by off-shore wind. Providing
grid connection for off-shore wind projects is expensive and even
when factored into the planning of a project is still fraught
with planning uncertainties. An example of this was the denial
of planning permission for a sub-station at Cleve Hill for the
London Array by Swale Borough Council in June 2006, overturned
on appeal in August 2007.
30. Although planning processes are being
streamlined courtesy of the Planning White Paper of May 2007,
there will remain a "chicken and egg" situation with
regard to provision of grid access for new projects. The cost
of providing grid access to remote locations and the low rate
at which planning consents are converted to active wind farms
means that grid connection cannot be provided to sites speculatively.
The high number of proposed sites also imposes logistical problems
for the grid operator in providing connections as quickly as many
developers would like.
How do the external costs of renewable generation
of electricity—such as concerns in many affected rural areas
that wind farms and extra pylons spoil areas of natural beauty—compare
with those of fossil fuels and nuclear power? How should these
be measured and compared? Is the planning system striking the
right balance between all the different considerations?
31. Each form of renewable energy will have
its own associated external costs, although there may be a certain
amount of overlap. Below is a summary of these costs for each
of the main types of renewable energy.
32. Wind: The impact of on-shore wind farms
on the environment is still being assessed. Clearly, their manufacture
and installation will result in the expenditure of energy and
hence carbon emissions. This can be particularly acute if the
turbines displace peat bogs which are very effective carbon sinks.
Overall, it would appear that, in most cases, the carbon emitted
by wind farms is recouped relatively quickly. In the case of off-shore
wind farms there are fewer examples from which to gather data.
The increased complexity of installation will necessarily result
in greater carbon emissions, but the expected increase in efficiency
should counteract this. As more off-shore turbines are installed
a more informed picture will emerge, although it must be remembered
that variations in the geography will mean that each installation
will have its own unique characteristics.
33. On-shore wind has encountered difficulties
in gaining planning permission because of local objections on
the grounds that they can destroy areas of natural beauty and
endanger bird populations. Balancing local concerns against national
or global needs is difficult but proposals in the Planning Bill
to draw up national policy statements should help clarify this
issue.
34. Solar: In the UK, solar photovoltaics
(PV) rarely perform efficiently enough to repay the financial
investment over the course of their lifetime, particularly in
the case of micro domestic installations. As technological advances
are made, this situation should improve, but it is unlikely that
PV will ever contribute significantly to the UK's renewable energy
targets. Solar water heating systems, however, generally perform
much better as the technology is relatively simple and there are
few external costs.
35. Marine: Given that marine power technologies
are still very much in their infancy, the full environmental effects
of their operation are still to be fully assessed. Clearly there
will be a correlation between the size of the installation and
the degree of impact. Thus large, one-off projects such as a Severn
tidal barrage will have a considerable effect on the ecology and
biodiversity of the Severn estuary. This would also be true for
large tidal lagoons which would disrupt the currents flowing around
them. However, the extent of the impacts are difficult to assess
and in some cases may even have associated benefits in terms of
flood defences.
36. Wave power is likely to have fewer environmental
effects as these devices tend to be less intrusive in terms of
disrupting local ecosystems, although due to their low efficiency
they are currently unable to provide significant amounts of electricity.
With only a handful of pilot schemes operating, the full external
costs of wave power are still very much an unknown quantity.
37. Biomass: Much has been written recently
concerning the sustainability and carbon life cycle of biomass
and liquid biofuels in particular. For example, the Royal Society's
report Sustainable biofuels: prospects and challenges gives a
comprehensive review of these issues. In theory, any energy crop
will absorb as much CO2 while it grows as is released when it
is consumed. In practice, the energy used to process and transport
the biomass can result in carbon emissions which render the biofuel
almost pointless in terms of carbon savings. In addition, replacing
indigenous species with single energy crops, such as oil palms
replacing rain forest, can lead to soil degradation which is ultimately
unsustainable and results in the loss of crucial carbon sinks.
38. Besides sustainability and life cycle
concerns, the recent expanse in the biofuels market has also led
to financial and social concerns. Global free market regulations
mean that it is difficult to restrict any specific biofuel even
if it is known to be unsustainable. This has resulted in large
agricultural businesses moving into the biofuels market at the
expense of smaller, local farmers to the detriment of local economies.
39. In general, all forms of energy generation,
be they renewable, nuclear or fossil fuel, will incur external
costs to society and the environment. Accurately assessing the
full life cycle in terms of greenhouse gases as well as their
overall sustainability and social impact is notoriously difficult.
The Government must continue to support research in this field
and take account of international best practice when developing
its energy strategy.
How do the costs of generating electricity from
renewables compare to fossil fuel and nuclear generation? What
are the current estimates for the costs of "greener"
fossil fuel generation with carbon capture and storage and how
do these costs compare to renewable generation? What impact do
these various forms of electricity generation have on carbon emissions?
40. The cost of generating electricity is
notoriously difficult to estimate as many aspects are covered
by commercial sensitivities. A simple comparative approach allowing
the calculation of indicative costs was developed by the Royal
Academy of Engineering in 2003 and updated by PB Power in 2006,
taking into account fluctuations in fuel prices and introducing
other sensitivities such as discount rates, carbon prices and
utilisation rates.
41. It should be remembered that the costs
of generating electricity from particular technologies are only
one influence on the price of electricity that consumers pay and
do not dictate it. In general, one technology at any particular
time, through dominant market position, will be the price maker
in the market. In recent years in the UK electricity market this
has been gas powered generation and has led to a situation where
gas powered generators can, in effect, pass on their fuel price
risks directly to the consumer, meaning that even a wind powered
generator, who has no exposure to gas prices in their operating
costs, is exposed to gas price risk because it directly affects
the price the wind generator can get for the units of electricity
generated.
42. The costs presented in the figure below
are based on PB Power's updated calculation of June 2006[152]
and as such do not reflect the recent increases in the price of
oil and gas. While they allow a broad brush comparison of cost
of generating electricity from differing technologies, the actual
costs vary on a project by project basis.
Figure 1
COSTS OF ELECTRICITY GENERATION CALCULATED
IN MARCH 2006
How do the costs and benefits of renewable electricity
generation compare to renewables in the other key forms of energy
consumption—transport and heating?
43. The main aim of energy policy in the
UK is to maintain a secure and affordable energy supply while
simultaneously reducing emissions of greenhouse gases. Domestic
heating and transport play just as significant a role in this
as electricity generation and as such cannot be ignored. Renewable
energy can contribute to the goals across all sectors but it must
not be forgotten that demand reduction and other forms of low-carbon
energy are equally as important.
44. In domestic heating, renewable energy
in the form of biomass boilers and solar water heating can be
cost-effective and provide significant benefits in terms of carbon
savings and sustainability. Geothermal energy may also make a
contribution in the future if given support. However, it is often
the case that demand reduction measures such as better insulation
and passive solar heating from south facing windows is equally
cost-effective. Other technologies such as heat pumps and district
heating systems can also help reduce carbon emissions but these
will not contribute to the UK's renewable energy targets, thus
highlighting potential conflicts within the UK's overall energy
strategy.
45. Transport has proved to be a particularly
difficult sector to deal with as there are few alternatives to
the liquid fossil fuels on which it currently relies. Renewable
biofuels can make a contribution but there are increasing concerns
surrounding these which are discussed elsewhere in this response.
Plug-in electric vehicles are becoming a more viable alternative,
especially as advances are made in battery technology. However,
if they are to make a contribution to lowering transport's carbon
emissions they will require the electricity to be supplied by
low-carbon forms of generation. The same would be true for hydrogen
vehicles as the hydrogen would need to be produced by low-carbon
energy, otherwise the emissions would simply be transferred to
a different sector. Thus, it may be possible to utilise renewable
electricity generation in the transport sector but the relative
merits of doing so in terms of cost are difficult to assess. In
addition, it should again be noted that other measures such as
increasing fuel efficiency and changing personal behaviour can
also be effective at reducing carbon emissions from transport.
46. What this does emphasise is the importance
of developing an integrated energy policy across all sectors of
the economy. Renewable energy cannot be treated in isolation and
in the long-term should not be artificially favoured over other
emissions reducing technologies or strategies simply to meet targets.
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?
46. It is forecast that most of the growth
in renewables over the next decade and beyond will come from wind
power, both on- and off-shore. The main reason for this is that
on-shore wind is the most mature of the various renewable technologies
and the experience gained from on-shore wind, coupled with increased
load factors expected off-shore, should encourage the growth of
off-shore wind farms. This growth would seem sensible in the light
of the UK's natural abundance of wind energy.
47. It is also possible that tidal energy
could provide a significant amount of renewable electricity if
large projects in the Severn estuary or the Mersey are undertaken,
although these may not come on line in time for the 2020 targets.
48. Biomass will continue to provide a large
proportion of our renewable energy in heat, transport and electricity.
Co-firing of biomass will be particularly valuable if fossil fuel
prices continue to rise and emissions from power stations are
increasingly restricted. It may ultimately be especially beneficial
if coupled with carbon capture and storage systems in the future.
49. A note of caution is needed regarding
forecasts of the increase of renewable electricity as predictions
do not always translate into reality. The engineering practicalities
of delivering such a large increase in renewable power must not
be underestimated. Not only are there barriers in terms of the
planning system, grid connections and the global procurement chain,
there will also be a shortage of skilled engineers without adequate
levels of investment in education and training.
50. The question of whether UK support for
overseas projects should contribute to meeting targets is difficult.
On one hand, climate change is a global problem and the most effective
and economic solutions should be sought regardless of their geographic
location. On the other hand, it is essential that the UK leads
the way in decarbonising its own society while maintaining economic
stability; this will not happen if all its efforts are carried
out abroad. It would therefore seem sensible that the UK is permitted
a limited amount of overseas credits but that the bulk of the
target is met by UK based renewables. Concerns over the accountability
and additionality of overseas projects must also be addressed
by Government along with international partners.
How would changes in the cost of carbon—under
the European emissions trading scheme—affect the relative
costs of renewables and other sources of energy? Would a more
effective carbon emissions trading scheme remove the need for
special support of renewable energy?
51. A strong carbon market would help renewables
compete in the market with other forms of energy generation. What
is needed is not just a relatively high price of carbon but a
robust market which would allow industry to feel confident enough
to make long term investments in low-carbon energy.
52. All markets are susceptible to fluctuations
(as has been seen recently in the oil and gas markets) but the
EU Emissions Trading Scheme in its first two phases has not performed
as well as it was hoped. This was in part due to the fact that
it was the first mandatory scheme of its type and teething problems
were to be expected. As it moves into its third phase it should
perform better and with a number of other trading schemes starting
up around the world it is likely that the price of carbon will
become more stable.
53. Ultimately this will help renewables
but it must be remembered that trading schemes will make all low-carbon
energy cheaper in relation to traditional fossil fuels. Given
that the aim of trading schemes is to cap emissions of carbon
this is as it should be but renewables will then be competing
with other technologies such as nuclear power and carbon capture
and storage which will also become relatively cheaper.
54. Additional subsidies may still be required
for technologies in the early stage of development but in the
long run any technology should be able to compete in the market
on level terms with all the alternatives.
What are the costs and benefits of the present
generation of biofuels? Will there be a second generation of biofuels
and, if so, what are the estimated costs? What are, or are likely
to be, the carbon emission impacts of first and second generation
biofuels, and what are the other relevant environmental effects?
55. The basic advantage of liquid biofuels
over their fossil fuel counterparts is that, while both emit carbon
dioxide when burnt in an engine, the biofuel absorbs an equivalent
amount of CO2 as the plants used in its production are grown.
In theory, this means that over their life cycle biofuels are
carbon neutral. In practice however, once agricultural methods,
processing and transportation are taken into account, (ie a more
detailed life cycle analysis), the carbon mitigation benefits
of various biofuels can differ greatly with some proving to be
little better than fossil fuels.
56. Another perceived benefit of biofuels
is with regard to security of supply. Rather than using up irreplaceable
fossil fuels which are often sourced from politically unstable
regions, biofuels can be grown in any agricultural area and the
crops are sustainable. Again, the reality of the situation is
somewhat more complicated. Biofuels can indeed replace fossil
fuels as a source of energy, but in doing so affect agriculture
and land-use. If land currently used to grow food crops is replaced
with energy crops the price of food can increase—as occurred
with world corn prices following US subsidies for bioethanol.
If, on the other hand, non-agricultural land is converted to energy
crops important carbon sinks can be adversely affected—as
can be seen in the case of Indonesian rain forest being cut down
to make way for palm oil plantations. This can result in any carbon
savings being totally nullified along with other serious negative
effects, such as decreased biodiversity.
57. One aspect where biofuels do have an
advantage, on the face of it, is in replacing liquid fossil fuels
in transport. Attempts to decarbonise the transport sector have
always proved particularly problematic. Any advances in terms
of fuel efficiency have been largely offset by weight increases
due to higher vehicle specifications as well as societies becoming
ever more mobile. There are possible fuel alternatives such as
hydrogen and electric hybrids, but these would require a radical
overhaul of both road vehicles and the associated infrastructure
and are a long way off being in any way viable for sea or air
transport. Biofuels, on the other hand, can simply be added to
existing liquid fossil fuels and at low percentages require little
or no changes to either the vehicles or the fuel infrastructure.
58. It is likely that the ease of adding
biofuels to road transport fuel is one of the main reasons that
governments here, in Europe and further a field have introduced
targets for their introduction. However, as noted above, a more
detailed analysis of their carbon life cycle, issues of land-use
and negative social and environmental effects can reveal that,
in reality, the situation is often less than favourable. The main
problem with the first generation of liquid biofuels is the amount
of energy needed to process the raw material and the relatively
low yield per hectare of land. Whether producing bioethanol or
biodiesel, very little of the plant is actually converted into
the fuel. Most of the plant is unable to be broken down and is
therefore discarded. A second generation of biofuels is expected
which will be able to utilise the tougher lingnocellulosic part
of the plant and hence increase yields. While this would be an
improvement, the question does need to be asked if processing
biomass into liquid biofuels is the best approach when the whole
plant can easily be broken down by burning either at large scale
as co-firing in power plants or small scale in domestic boilers
or CHP plants. Indeed, if carbon mitigation is the main driver
it has also been shown that alternative approaches such as reforestation
can be even more effective.
59. What the above points do highlight is
the fact that even though a certain technology can seem to offer
a number of advantages, governments should be wary of introducing
sweeping regulations and subsidies before the full picture is
understood. Biofuels can certainly offer clear benefits in certain
circumstances. In particular, local projects and ones using waste
products can be very effective. As is often the case, care needs
to be taken when dealing with such a complex issue as climate
change and energy.
June 2008
151 UKERC (2006) The Costs and Impacts of Intermittency,
UK Energy Research Centre. Back
152
Powering the Nation, A review of the costs of generating electricity,
PB Power, June 2006 Back
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