Memorandum by The Royal Society of Edinburgh
1. The Royal Society of Edinburgh (RSE)
is pleased to respond to the House of Lords Economic Affairs Committee
Inquiry into "The Economics of Renewable Energy". These
comments have been prepared by a number of expert Fellows of the
RSE.
2. It is hoped that the Inquiry will view
renewable technologies in the light of an overall energy strategy.
Partitioning of thinking with regard to technology options and
choices should be avoided as there are interesting opportunities
for making progress towards a much higher degree of sustainability.
To prepare for the longer term, investment in the development
of alternative sources and cleaner technologies is essential.
3. Displacing or supplementing fossil derived
energy with renewable derived energy is a truly formidable challenge
because of the scale of the problem, the incompatibility of infrastructures
required and the complex interactions between technical, policy
and economic aspects. The myriad supply and demand-side options
require an integrated approach. Solutions need to be pursued at
all scales.
4. Research, development and demonstration
of projects are paramount and these aspects should be built-in
to a programme and not treated in isolation to one another. The
real benefit of full scale demonstrators is their potential to
provide confidence in a technology.
1. 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?
5. The majority of the UK's natural resources
in wind, hydro, marine and biomass energy are found in the north
of the UK. In fact 50% of the UK renewable energy production is
sourced from Scotland[153].
The Scottish Government has recently increased its challenging
target for the proportion of Scotland's electricity to be generated
from renewables from 40% to 50% by 2020. However, it is important
to note that abundance of resource does not necessarily result
in its utilisation as that resource must be harnessed effectively
and economically.
6. The importance of renewable energy is
that it reduces "whole life" CO2 emissions from overall
electricity production and it increases the diversity of fuel
resources and hence security of supply. It has a disadvantage
in terms of its increased cost—which electricity consumers
bear. The only mature renewable, apart from hydro-electricity,
is onshore wind which now compares broadly in cost with conventional
forms of generation.
7. The support for renewables internationally
is typically given by one of two means:
(i) a Renewable Obligation and renewable certificates
as in the UK, and certain states in the US, which obliges electricity
supply companies to derive from renewables a prescribed proportion
of the electricity that they sell;
(ii) a "feed-in tariff", as adopted
in many EU states, which runs contrary in important respects to
the concept of a free market in electricity. Germany, Spain and
Denmark have the highest penetration of renewables in the world
and have feed-in tariffs.
8. The size of a country, its political
ambitions, meteorological climate and existing electricity system
will influence the way in which renewable policy is adopted.
9. The exploitation of renewable energy
offers significant opportunities for manufacture and export, as
well as providing employment in site development, management and
maintenance. At present there is a realistic prospect for the
UK to develop a world-leading marine renewables industry, but
this will only flourish if the right environment, including maximising
bureaucratic efficiency, is provided: a substantial domestic market,
with stable trading conditions to encourage steady growth. Initial
costs will be high and technical risk significant. Both will reduce
over time as the industry mature; the experiences of wind power
exploitation are relevant here. A sizeable public investment is
required in the early stages, with financial returns beginning
to emerge after perhaps 10 years.
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?
10. Planning, public consultation and the
democratic process generally, specifically in relation to onshore
wind farms, form the greatest barriers to increased deployment
of renewables. Grid connections and infrastructure, and the technical
difficulties in maintaining quality of supply in remote areas,
are other prominent factors. We understand that Ofgem and DBERR
are conducting a Transmission Access Review to improve the transmission
access regime. Bottlenecks due to delays, lack of technically-skilled
human capital and competition for the supply of components are
hindering deployment of renewable energy in the UK.
11. A consequence of the GB electricity
transmission charging regime is that generators in Scotland face
higher connection charges compared to generators elsewhere in
GB because of their distance from centres of demand. This could
act as a disincentive to renewable energy generation in Scotland.
Although we understand there are plans to review the system of
charges.
12. Renewables are typically small in scale
and specific per-unit capital costs (£/kW of capacity) are
thus higher than for conventional generation which may be 100-200
times larger in generator size. The economics are thus less attractive
to developers when compared with conventional power sources, eg
CCGT, unless there is significant support from third parties.
13. With regard to the deployment of offshore
wind, wave and tidal technology, ultimately, the gap between capital
costs, expected operational costs and revenue still remains too
large for substantial industrial commitment, without improvements
in the ROC system. Basic research, eg into wave behaviour, needs
to be enlarged, while development and implementation costs are
mostly prohibitive. Uncertainty about real future costs, particularly
the installation, operating and maintenance costs is a major problem.
Turbine prices are increasing as global demand expands, reliability
is uncertain and raw material prices are high. It is important
that work take place to establish whether some of the above risks
can be mitigated, by a regime of capital grants and adjustments
to economic instruments.
14. At about 20% penetration, intermittent
renewable generation eg wind may well increase system operating
costs significantly from the running of flexible and part-loaded
plant. Deployment of storage capacity would help to balance the
grid, which would be operating with an increased proportion of
variable, intermittent renewable generation. Although this also
carries cost implications.
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?
15. Please also see above.
16. We will need significant technical advance
in all technologies (except perhaps onshore wind) before we could
say that renewable energy is both reliable and economic. The scale
of most technologies would have to increase enormously if costs
are to be reduced.
17. In respect of policy to promote technological
advance, UK R&D expenditure in the electricity supply industry
has been at an all-time low in the years since privatisation and
has not always been concentrated in the right areas. More publicly
funded R&D could improve matters if carefully expended. Ironically,
the rising price of oil and other commodities could alleviate
the uncompetitiveness of renewables.
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?
18. The UK Government's levers to shape
the market to the national interest consist of taxation (frequently
passed on to the consumer), subsidies (ultimately paid for by
the consumer) or regulation. The various forms of support for
renewable energy were discussed in 1 above. The ROC regime is
designed to be technology neutral and encourage diversity of electricity
generation. However, undifferentiated ROCs will always lead to
industry employing the lowest cost option. As a result, onshore
wind turbines have become commercially viable, but this mechanism
has not stimulated development of other renewable sources other
than for local use. We note that the ROCs are set to continue
to 2027. The RO scheme is forecast to cost UK business and domestic
customers over £30 billion [154].
19. In order to bring forward emerging renewable
technologies, "banding" of support levels for different
technologies has been proposed. This effectively distorts the
market still further, which, some would argue, is contrary to
Government competition policy, and tends to encourage the "picking
of winners" by those not competent to do so. This form of
subsidy could also lead to the implementation of immature and
inefficient technology if providers decide to off-set the costs
of research and technical development by the subsidy received.
Additionally, in Scotland a Marine Supply Obligation (MSO) was
introduced in 2007 to provide additional encouragement for the
development of wave and tidal sources located in Scotland. However,
the MSO is currently set at zero because there is not eligible
capacity availability which would enable suppliers to meet it.
20. In the case of wave technology, devices
that have been developed and demonstrated are highly subsidised.
The Pelamis project in Portugal is subject to a guaranteed price
for its electricity for 15 years.
21. We have profound doubts about the rationale
and validity of the ROCs system. As noted above, it is designed
to be technically neutral at the point of production of renewables,
but is not designed directly to stimulate the reduction of carbon
emissions. It seems, in practice, that the mechanism provides
technology-led outcomes rather than emissions reduction outcomes.
We propose, therefore, that ROCs are replaced with a scheme targeted
on the reduction of carbon emissions. Incentives and disincentives
applied at the point of production, in direct support of objectives,
leave the market to decide how best to meet the national requirements,
are truly technology blind, and may encourage investment in research
to find new and more efficient means of meeting the objectives.
There are various mechanisms which could be implemented to achieve
this, such as trading schemes or levies.
22. We referred to R&D expenditure in
3 above, but specifically in terms of the average annual per capita
R&D spending on renewables 1990-2005, it was a little over
0.3 Euros in the UK while in Spain it was about 0.5 Euros, Japan
about 0.9 Euros and Germany almost 1 Euro.[155]
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?
23. Wherever and by whatever means electricity
is generated it must be delivered to the market. The transmission
and distribution networks of the UK are essentially 1960s and
70s infrastructure and were originally built to take energy from
source eg coalfield to load. The greater the diversity and distribution
of generating plant the greater the need for investment in grid
development and increased in-grid management costs. The significant
sources of renewable energy tend to be remote from major demand
centres and grid access points, thus requiring heavy investment
in EHV grid extensions and consequential delays to connection.
New technology and adaptation will be required for multi-directional
flows of power in HV distribution systems where renewables are
closer to load centres.
24. The network challenges for renewables
are set out below. Each renewable generation technology will bring
with if different network configurations and challenges.
Immediate term (1-3 years)
Significant onshore wind connection with other
technologies providing limited immediate challenge.
Offshore wind and increasingly distributed technologies
Longer term (over 10 years)
Wave/tidal, photovoltaics, micro-GTs, fuel cells
and energy storage
25. It is crucial that decisions for investment
in the grid infrastructure are made timeously to lead the connection
of renewable generation technologies and ensure coordination of
construction activities to avoid stranded assets.
26. As an illustration of transmission line
upgrade costs, the proposed route for the 400kV overhead electricity
transmission line to replace the existing 132kV transmission line
between Beauly and Denny in Scotland has a projected investment
of circa £340 million.
27. Active management of the network will
be required and Ofgem has been quite far-sighted by creating a
range of incentives for further development and application, such
as the Innovation Funding Incentive (IFI) and Registered Power
Zones (RPZ) programmes. Short term difficulties in the areas of
integration and network management are being solved through this
route. There is on-going R&D activity in the electrical network
technology field, including power electronics and active network
management systems. University departments working in these fields
are probably the principal repositories of expertise since the
dismantling of the research base of the power utilities in the
previous decades. The main concerns in this area surround the
distribution system, particularly in light of increasing levels
of distributed generation, which is generation connected directly
to the distribution network. It is likely that small scale and
distributed generation will become significant components of generating
capacity. Under these circumstances, a "smart" or "intelligent"
network able to accept distributed generation with multi-directional
power flows, and with the flexibility to incorporate new technologies,
is a priority.
28. Major research, development and demonstration
in energy storage technologies is needed to meet the needs of
increasing intermittent renewables in the system and to balance
supply and demand. Pumped storage hydroelectricity is the only
proven large scale energy storage mechanism and has been operating
for decades using a relatively simple principle. Pumped storage
offers a crucial back-up facility at periods of high demand due
to its flexibility and could be used to store power from intermittent
generators at periods of low demand. There are a range of alternative
energy storage technologies being considered such as flywheels,
compressed gas, heat storage and electrochemical technologies.
29. With regard to the "rules of connection",
there may be scope for more flexible arrangements for the connection
and operation of intermittent sources eg wind generation and allow
the system operator to accept their output at more appropriate
times in relation to the load on the network.
6. 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?
30. As we mention above, renewable energy
by its nature tends to be produced in relatively smaller quantities
and from a much larger number of geographically dispersed sites
compared with conventional GW-scale power stations. Also, the
significant sources of renewable energy tend to be distant from
centres of demand and gird access points, therefore requiring
extensive gird extensions. These aspects have implications for
the external costs such as the impact on landscape, environment
and areas of natural beauty. The RSE's Full Energy Report[156]
sets out the environmental issues pertaining to the various forms
of energy generation technologies and we recommend that the Committee
takes this into account.
31. With the need for large-scale replacement
of electricity generating plant in Scotland and the UK within
ten years, decisions on the viable options are urgently needed.
The choice between the sources has to be on grounds not only of
economic costs but also of public acceptability, of security of
supply of the raw fuel, the relative lifetime costs and the overall
risk of individual technologies to society and to the environment.
In terms of such developments impinging on communities, natural
heritage and the environment, perhaps some form of compensation
or reparation payment could be developed to ensure that the impact
is kept to a minimum and those directly affected can derive direct
benefit. As an example, the Shetland Islands receive income from
the North Sea oil revenues that has contributed to an improved
economic state and infrastructure.
32. We referred to the Beauly—Denny
overhead link in 5 above and this is understandably meeting fierce
opposition. High capacity sub-sea cables down the west (and possibly
east) coasts of the UK have been suggested as being more acceptable
and more effective. These would require massive investment but
without major changes to the grid system renewable energy will
be unable to make the contribution necessary to meet the UK's
long-term aspirations.
33. Whilst we recognise the importance of
upholding the democratic process and enabling public engagement
on issues of national importance we also realise that it is crucial
that decisions can be taken. We suggest that once adopted, national
policy should not be a subject for debate in local public enquiries,
which should concentrate on local impacts rather than national
need.
7. 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?
34. In 2006 PB Power published a report
entitled "Powering the Nation—A review of the costs
of generating electricity"[157]
which sets out the costs of electricity generated by the different
technologies which are commonly available. We recommend that the
Committee consider this report. The report showed that in relation
to UK market prices current at that time, there were only a small
number of commercially viable technologies:
35. Although the wholesale price of electricity
has increased since the publication of the report we are of the
opinion that the above findings are still accurate.
36. Onshore wind is now considered to be
a mature technology and many commentators believe that it can
be economically viable without ROCs.
8. How do the costs and benefits of renewable
electricity generation compare to renewables in the other key
forms of energy consumption—transport and heating?
37. Much has been made of the potential
of renewable supplies of energy for Scotland and the UK, but this
has been unduly focussed on electricity with inadequate consideration
of other higher energy-use sectors, particularly transport and
heating. In Scotland, the Forum for Renewable Energy Development
(FREDS) Renewable Heat Group has recently reported[158]
and identified recommendations for the key components of a Scottish
renewable heat strategy, including the structure of the market,
technologies review and mechanisms for supporting renewable heat.
We recommend that the Committee consider the findings of the Report.
9. 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?
38. To meet the EU 15% renewable energy
target will be a significant challenge. It is important to understand
that reductions in the UK's total energy demand, both in terms
of demand reduction and improved efficiency, will produce proportional
reductions in the renewable contribution required.
39. Industry estimates of the proportion
of electricity from renewables, if the UK is to meet the 15% of
all energy target set by the EU, vary between 40% and 60%. The
focus falls to electricity because fuel substitution for transport
is seen as being more difficult to realise within the timeframe.
Given that renewables accounted for 4.6% of electricity generated
in the UK in 2006[159],
the implications of the target are enormous. These implications
include the human resources required and manufacturing capacity
available, let alone the costs that the electricity consumer will
have to bear. With respect to the question concerning support
for overseas projects, there seems to be no reason why the UK
should not support renewable projects elsewhere, particularly
in the EU, and receive credit for that additional renewable capacity.
10. 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?
40. The cost of carbon is to a large extent
fixed under ETS II. In 2013, an "auction" system is
likely to be introduced which may allow a more efficient market
in carbon to develop; this could result in carbon prices increasing
which, if loaded onto carbon intensive generation, could make
renewables and cleaner fossil fuel technologies more financially
attractive. Essentially, a higher price for carbon (or for that
matter, a higher oil price) would make renewables more competitive.
11. 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?
41. The current status of knowledge means
that cost estimates can be highly variable. Current biofuel (biodiesel,
bioethanol) production is proven technology and therefore provides
a basis for production of non-fossil transport fuels. The Renewable
Transport Fuel Obligation places a requirement on transport fuel
suppliers to ensure that 5% of their overall fuel sales is from
a renewable source by 2010. The Royal Society of London recently
published a comprehensive report[160]
on the science and technology prospects of delivering efficient
biofuels for transport in the broader context of environmental
protection and sustainability. This report shows that biofuels
are potentially an important part of the future although the existing
policy frameworks and targets may not result in greenhouse gas
reductions and wider environmental and social benefits. It is
a very complex picture as different biofuels have widely different
environmental, social and economic impacts. Whole cycle analysis
is required for the different biofuels to assist in determining
these impacts. This is also a domain where decision-making is
crucial and the (unintended) consequences have to be recognised
eg clearing tropical rainforests to grow crops negates the intended
future climate benefits. Future biofuels are likely to be produced
from a much broader range of feedstocks, including agricultural
by-products and domestic vegetable waste. Advances in the conversion
process will improve the efficiency of producing biofuels. We
urge the Committee to consider the Royal Society of London's Report.
ADDITIONAL INFORMATION
AND REFERENCES
In responding to this consultation the Society
would like to draw attention to the following Royal Society of
Edinburgh responses which are of relevance to this subject:
— The Royal Society of Edinburgh's
Inquiry into Energy Issues for Scotland (June 2006).
— The Royal Society of Edinburgh's
submission to the Select Committee on Science and Technology Inquiry
into Renewable Energy-Generation Technologies (July 2007).
Any enquiries about this submission and others
should be addressed to the RSE's Consultations Officer, Mr William
Hardie.
Responses are published on the RSE website (www.royalsoced.org.uk).
June 2008
153 The Energy Technologies Partnership, Expression
of Interest in Support of the UK Energy Technologies Institute
(February 2007) Back
154
http://www.ofgem.gov.uk/Sustainability/Environmnt/Policy/Documents1/16669-ROrespJan.pdf Back
155
IEA energy R&D database (Euros based on 2005 prices) Back
156
Inquiry into Energy Issues for Scotland (June 2006) Back
157
http://www.pbworld.co.uk/index.php?doc=528 Back
158
Renewable Heat Group Report 2008: "Scotland's Renewable Heat
Strategy: Recommendations to Scottish Ministers" Back
159
UK Energy in Brief July 2007; DBERR Back
160
Sustainable Biofuels: Prospects and Challenges; January 2008 Back
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