The Economics of Renewable Energy - Economic Affairs Committee - Contents

Memorandum by Scottish and Southern Energy plc


  Scottish and Southern Energy (SSE) is grateful to have this opportunity to submit evidence to the Committee's inquiry into the cost of renewable energy. SSE is determined to play its part in meeting the EU renewable energy targets and, already the largest renewable generator, SSE has an internal company renewable energy objective of 4,000MW set for 2013 in the UK and Ireland, as well as our wider aim to reduce the carbon intensity of our generation portfolio by 50% by 2019/20. Going forward, SSE will invest over £3 billion capital investment in renewable energy in UK and Ireland up to 2013. It is also involved in the generation, supply, transmission and distribution of electricity and in the supply, storage and distribution of gas.

  The Committee's inquiry aims to set out the costs and benefits of renewable energy and establish how they compare with other sources of energy, while examining the Government's policy towards renewable energy.

  It is important to recognise that the role that renewables play in electricity production is to provide zero-carbon, zero-fuel energy. The benefits therefore extend beyond reducing carbon to displacing fossil fuels and delivering independence from imports, price rises and price volatility. Renewables do not generally provide a good source of capacity which is a role that still has to be played by alternative generation or storage technologies. If the industry is allowed to develop there will be expanded business opportunities in the UK right the way along the renewable energy supply chain.

  That said, renewables are not the only solution to tackling Climate Change sustainably. Politicians, policymakers and others should not underestimate the role that non renewable low carbon generation can play in reducing global emissions, whether through more efficient use of fossil fuels, nuclear new build, or carbon capture and storage. If the world is to tackle Climate Change, all low carbon generation will have to be considered as part of the energy mix.

  It is also vital to stress that overall energy demand management and reduction will be crucial in tackling Climate Change and meeting European energy targets. Successful demand reduction reduces the overall scope of the challenge.

  For simplicity, this response is structured in relation to each question posed in the call for evidence.

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?

  Put simply, renewables have become increasingly important to the UK due to:

    —  Climate change pressures.

    —  Fuel price increases.

    —  Fuel availability (imports are often from politically instable regions).

  This is reflected in the European Renewable Energy targets which were also stimulated by the European goal of securing safe and reliable energy across the continent.

  If the Green Package goes through as we expect, to meet its allocated share of the EU renewable energy target, the UK will need to deliver 15% of its energy from renewable sources by 2020. Since this is a legally binding target with sanctions, it is important for the Committee to realise that Britain's overall energy policy must be seen in the context of these targets.

  An initial high-level assessment, conducted by SSE in partnership with the United Kingdom Business Council for Sustainable Energy (UKBCSE) supports the developing view that the European targets are most likely to translate into:

    —  10% heat (an increase of almost 70 TWh from current levels);

    —  10% land transport (an increase of over 45 TWh from current levels); and

    —  up to 40% of electricity from renewable sources (an increase of over 125 TWh from current levels).

  These figures reveal that it will require a step change in the development the UK's renewables industries and for illustrative purposes, SSE has modelled a scenario looking at the impact of the draft Renewables Directive while assuming that energy demand across heat, electricity and transport remains at 2006 levels. While this does not reflect current and future energy demand projections, it provides an insight into the scale of the increase in renewable energy needed to meet the target, and the implications for the supporting infrastructure.

  However, before analysing this information, it is important to understand that the electricity sector may have to deliver more than 40% renewable energy if there is a significant increase in electricity demand; and/or the heat and transport sectors do not realise their renewable energy potential. In addition, as technologies develop, there is likely to be an increased pressure on electricity demand created by the emergence of mains powered electric cars, which would need to be charged up from buildings overnight. In addition, given the lack of any Government policy on incentivising renewable heat, assuming a constant electricity demand and a significant contribution from renewable heat or transport is far from certain.

  Anyway, while assuming a demand level based on 2006 for 2020, the below table shows the breakdown of expected heat, electricity and transport energy consumption by 2020:

Consumption (TWh)
(based on 2006 levels)

Electricity (conventional)
Electricity (renewable)
Total Electricity
Heat (conventional)
Heat (renewable)
Total Heat
Land Transport (conventional)
Other Transport (conventional)
Land transport (renewable)
(% of all land transport)
Total Transport
Total Energy (conventional)
Total Energy (renewable)
Total Energy

  This information is displayed below graphically

  To deliver the target, it is expected that the UK will need to generate a total of around 145 TWh of electricity from renewable sources by 2020, from less than 20 TWh generated in 2006.

  SSE has made a preliminary estimate of the expected technology mix that could make up the renewable electricity component if is delivered entirely in the UK. SSE expects that the bulk of the new renewable electricity generation (around 75%) is likely to come from onshore and offshore wind. This information is displayed graphically below:

  These models and the section above essentially outline what the Government will have to facilitate through policy and regulation to reach its targets, and how important renewables are in Britain's overall energy policy.

  The Government has a range of initiatives already in place that are making progress in encouraging the uptake of renewable energy. For example, the Renewables Obligation (RO) has successfully underpinned renewable electricity development in the UK, and will continue to be the key support mechanism for onshore and offshore wind energy and biomass projects, and possibly marine projects in due course. SSE is also confident that the RO, with a higher target, and extended time period, will be an effective mechanism to stimulate investment in renewable electricity to 2020 and beyond. However, the key is for Government to refrain from excessive tinkering with the RO, in terms of banding and other parts of its operation. Investor confidence is paramount for this mechanism to work long term.

  That said, the RO needs to be backed up with policies addressing planning, networks, and grid access (addressed below in response to Question 2) or it will not be able to deliver what it is capable of achieving.

  In general, we believe in the use of market based mechanisms like the Renewables Obligation. Comparisons between Britain and other countries are difficult due to the fact that our energy market is significantly more liberalised than others.

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?

  There are a number of barriers to greater deployment of renewable energy, and SSE would argue that if these barriers are not overcome, the UK will not achieve its European renewables targets. Here SSE focuses on planning issues, as we focus on network and grid issues in response to question 5 but we would also recommend that the Committee look into the renewables supply chain and skills base.

  The current planning system takes too long and is applied inconsistently and unpredictably, undermining the UK's ability to address the challenges of security of supply and climate change. While we clearly do not expect a positive decision on all planning projects, we feel it is essential that planning decisions are made in a timely, transparent and accountable manner. With the sheer amount of infrastructure needed to meet our future energy needs in all areas, the current planning regime is, quite simply, not fit for purpose.

  For example, under the current regime, analysis we have undertaken indicates that a new onshore wind farm could require around two to three years of preparatory work, and currently the planning process can take up to five years, which will be followed by a further one to two years of construction. This does not take into account the time associated with building new transmission infrastructure, which could in parallel take three to four years preparation, plus two to four years to construct, and again up to five years in planning.

  As these indicative timescales show, new renewable projects, and the associated infrastructure, must be initiated in the next year or two in order to make a significant contribution to the 2020 targets. We should not revisit those matters that are already in train through a lengthy consultation process, but ensure that the critical decisions can be made expeditiously.

  It is for the reasons outlined above that SSE has supported the Government's Planning Reform Bill and believes that the Bill's proposed approach is a potentially significant step in the right direction, appropriately balancing concerns over environment, the economy and local communities, while providing the required level of expertise needed for ruling on these complex inquiries through the vehicle of the Infrastructure Planning Commission (IPC).

  The reform package comprises enhanced community engagement; the establishment of an independent Infrastructure Planning Commission to determine all nationally significant infrastructure projects; National Policy Statements setting out the policy framework against which decisions should be made; and simplification of the energy consents and the Town and Country Planning regimes.

  Overall, the proposed system offers a better way of dealing with applications to build key national infrastructure, at a time when we need it most. There are still issues to be ironed out in the Bill, such as the need for end to end timescales for applications, and how the National Policy Statements will be applied in devolved administrations (where much of the renewables projects will likely be located), but one thing is for certain: if the planning system is not reformed adequately, energy projects will be held up and the UK will not reach its targets.

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?

  It is impossible to predict the future, and predictions are often proved wrong over time, but Government must ensure that it does everything it can to promote R&D, particularly in helping new technologies to become commercially viable. The current Energy Bill is not helpful in this regard.

  As it stands, clause 37, subclauses 32D-32E of the Energy Bill contain sections which mean that any energy project that is in receipt of a grant will not be able to qualify for "upbanded ROCs". Basically, a developer of a project will have to choose to repay a grant in full, before they can receive the upbanded ROCs that other renewable energy generators will receive.

  We are concerned that these clauses, although important for preventing near-commercially ready projects from achieving inappropriate profits, will have significant side effects on renewable Research & Development projects, disincentivising them significantly. The current grant schemes already have substantial clawback provisions to ensure that government gets a share of current and future revenue streams. These are all modelled so that, in the event that the scheme becomes a success, the Government will receive its grant back in full. It is therefore in Government's interest for projects to work, so excluding R&D projects from receiving the upbanded ROCs means grants are even less likely to get paid back, and thus will take longer to be re-issued to other R&D projects, all of which we will need to tackle Climate Change.

  The objective of the clause in the Energy Bill is to prevent projects in receipt of grants obtaining double profits; however, the drafting catches R&D grants as well as other capital grants, and does nothing to help renewable energy to become cheaper or more efficient.

  More generally, it is important that support measures are tailored to the appropriate phases of development. R&D programmes need significant support to get off the ground, which is why they receive grants in the first place. At some advanced stage when technologies near commercial viability, a revenue support mechanism creates sufficient incentive until full viability has been achieved. However, it is in the stages between these that we currently see a funding gap—often driven by State Aid limitations, or our over-cautious interpretation of them. To avoid these, revenue support is offered where continuing grant support would still be the appropriate measure. This is particularly true of Demonstration and Deployment projects that are very expensive but where insufficient viability has been shown to make revenue support attractive to investors. This is an issue for all technologies, for example CCS, not just 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?

  In response to Question 1 SSE expressed its confidence that the RO, with a higher target, and extended time period, will be an effective mechanism to stimulate investment in renewable electricity to 2020 and beyond.

  The question we ask is: "Why do Feed in Tariffs (FiTs) appear so popular?" In continental markets where FiTs operate with success, two factors have been responsible for this: the much higher level of subsidy offered (eg 40p per KWh in Germany versus 4p in the UK for solar PV under the RO); and the determination of the appropriate governments (national and local) to ensure that planning and grid access do not prevent project deployment.

  In the UK there is no shortage of large scale projects, stimulated by the RO—they just cannot get planning permission or, even when they do, get connected to the grid. At the smaller end of the market however, the administrative costs of applying for support and selling in to the market (including metering, data collection, and incremental billing costs) are a critical issue, regardless of the delivery mechanism. FiTs transfer all the transaction costs (metering, data collection, and incremental billing costs) away from the microgenerator and are spread across all consumers. This increases the overall reward paid to a microgenerator. In the RO these costs are borne by the microgenerator and/or supplier.

  One way to reduce the transaction costs and remove the price risk for the microgenerator would be by deeming the contribution from microgeneration and capitalising this up front. This may well be appropriate for Feed in Tariffs but is, however, equally applicable to an RO approach, as has been shown in Australia.

  The need to end the current discrimination against the use of (micro-)generation for heat solutions suggests that any support mechanism should be capable of dealing with heat. A deemed approach can also help here in cases where metering the heat output is disproportionately difficult or costly.

  In general, obligations, where a fixed return is paid regardless of the technology solution create a strong incentive for cost reduction. FiTs like grants, are more likely to be factored into the technology suppliers' pricing and do not put the same downward pressure on costs and, by their nature, do not lead to the market picking the best solution—that is why they are most popular with those selling the more expensive technologies. That is not to say that this is an outcome that should not be sought for emerging technologies that need to be shielded and require a particular support level, only that it is not a good long term or universal approach.

  In conclusion, SSE believes that more analysis is needed into FiTs before a decision is made over whether they should be brought in to assist microgeneration, but we are firmly opposed to any form of replacement of the RO, for larger scale generation, as it is planning and grid issues not the RO which are stopping the projects.

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?

  There is no technical limit to the percentage contribution that renewables can make—the limits are purely economic. Even here, if all that is needed to facilitate greater renewable electricity penetration is more transmission, a doubling of the Transmission cost would lead to an increase of 3% to the domestic electricity price, compared with the 95% average household bill price increase seen between 2004 and 2007 due to the 170% rise in the wholesale gas price over that period.

  Electricity transmission infrastructure will be key to enabling increased levels of renewable generation. Working with the UKBCSE, and the other two GB electricity transmission licensees, SSE has examined the capacity of the existing GB transmission system to accommodate new renewable generation without the construction of new overhead line routes, with a particular focus on the 2020 targets. This is an initial view with just the broadest of assumptions and without undertaking detailed system studies.

  The diagram below is intended to give a general indication of the levels of renewable generation that could be accommodated on the GB transmission system by 2020. It assumes completion of transmission upgrades already in train (eg the Beauly-Denny rebuild and south west Scotland works) as well as completion of those works expected to be achieved without protracted planning issues, eg relatively uncontentious re-conductoring and re-insulation work on existing tower routes, and substation extensions.


Levels of renewable energy generation that could be accommodated in 2020

10,000 MW[1]
England and Wales
8,300 MW[2]

  There may be scope for this to be higher subject to further examination of generation scenario assumptions in England and Wales. Rounding the indicative figure up to 20 GW for the amount of renewable generation that could be accommodated in 2020 still however highlights a significant shortfall against the likely requirement for some 60 GW of renewable generation derived to meet the 15% overall target.

High level assumptions used in analysis

1.  DemandSevern Year Statement user demand data extrapolated out to 2020.
2.  GenerationScotland: No contribution from Hunterston or Cockenzie power stations. All other Scottish generation contributory.
England and Wales: All contracted generation proceeds and no closures (apart from Magnox nuclear and LCPD opted-out plant)
3.  Planning Standard Apply current GB Security and Quality of Supply Standards

  The intention is to give an indication of the potential for the existing GB transmission system in 2020 (ie including upgrades that do not carry a high consenting risk) to accommodate additional renewable generation, and for that number (approximately 20GW) to be set against our estimate of the total volume of renewable generation (some 60GW) that we anticipate will be needed to contribute to meeting the 40% overall target for renewable electricity.

  While there is considerable capability in the potentially achievable 2020 transmission system there is still nevertheless a substantial shortfall compared with what would be consistent with the 40% renewable electricity target. Detailed and coordinated study work by the three transmission licensees is therefore required to identify appropriate reinforcements to deliver a transmission system capable of accommodating some 60 GW of renewable generation in 2020. In particular this work would quantify the trade-off between more costly offshore transmission capacity versus more onerous barriers to associated with new onshore transmission routes (see indicative unit costs below).

  However, SSE must stress that the consenting and completion of the Beauly-Denny transmission re-build is absolutely key to releasing the upgrade potential of the existing Scottish transmission system. By rebuilding the weakest leg of a north of Scotland transmission ring it allows the other elements of that ring to be re-conductored and re-insulated (ie no new overhead line routes) to increase the capability for renewable generation in the north to some 6.4GW (cf 2.2GW already connected). The reinforced ring facilitates collection of the output from onshore developments and the subsea island links are planned for connection onto the reinforced transmission ring.

  In addition, at the moment grid access is hindering new entrants, who may receive a connection date in around ten years time. Clearly this does not encourage investment in renewables. However, it is not just connection dates that prove a problem, but part of it is the current perverse mechanism of regional charges that the current regulations provide. Ofgem must remove these unnecessary barriers and incentivise speedy connections of renewable and non renewable generation.

  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?

  It is essential that the right balance is struck between the longer term (inter-)national climate change impacts and the shorter term local conservation impacts of developments. This is true not only of renewable generation projects, but of all generation and supporting infrastructure. This is why we are so supportive of the Planning Reform Bill which includes the need for Government to lay out how this balance should be struck in the national Policy Statements (NPS) to then allow faster decisions to be made on individual projects. A fundamental concept of the Bill is that full consultation will be carried out on the NPS as well as on the individual projects but that this will be done within fixed timescales— a decision that can be made in months does not become better if it takes years. The outcome should be a series of consents AND refusals. Industry supports such an approach since clear, objective decisions whatever the outcome, help deliver clarity about what is and isn't acceptable for future projects.

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?

  When comparing and contrasting the costs associated with different types of generation, it is important to compare like with like or to understand what the differences are. Different technologies contribute variously to political, economic and social goals. For example, renewables help to deliver long term energy supply security as well as climate change mitigation and can also deliver local environmental benefit, although this may be perceived differently. Nuclear energy delivers medium term energy supply security, as well as climate change mitigation, along with a mixed local environment impact and a long term liability. CCS delivers some short term energy diversity but may reduce energy security due to the efficiency penalty of the technology, as well as climate change mitigation, along with a mixed local environment benefit and a long term liability.

  Without incorporating the above, or improvements in technology development, the bare fact is that the current cost of renewables is over and above the cost of conventional thermal energy (including the current carbon price of ca £8/MWh/€20/tonne). The following graph illustrates how the marginal value of wind generation varies with oil price. The point at which a typical onshore and offshore wind project would become competitive with oil, is represented by where the investment cost lines cross the value line (for onshore wind this is at approximately $165 per barrel, and approximately $210 for offshore).

  The cost of renewable energy is also dependent on the price of oil since this feeds through into the costs of material, transport and operations. The increases shown above are illustrative to show the effect—actual impact may be lower. It must also be noted that we have omitted nuclear from the comparison since our estimates for nuclear cover a huge range. This is, quite simply, because nobody has built a nuclear power station in the UK for a long time and the technology has developed in the meantime.

  It becomes even more difficult when attempting to expand this analysis to include additional types of generation. For CCS, as there are no commercial scale plants in operation, economic estimates vary so much and the analysis becomes unreliable as it is reliant on too many variables. However, it is also worth noting that CCS does not give fossil fuel independence because as the cost of fossil fuel escalates, the cost of power from CCS-enabled generation escalates in line.

  In terms of biomass, SSE has not modelled its cost because we believe that issues regarding its sustainability and availability need to be addressed before any policy decision is considered. However, it is clear that the cost of bio fuel and biomass are very variable and linked to commodities, not least oil.

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?

  SSE supports a non-discriminatory whole economy approach to delivering carbon and renewable targets, and does not believe it appropriate or cost effective to rely on electricity alone to take the full burden of decarbonising the UK economy. There is no silver bullet that will achieve the level of emissions reductions necessary to meet our long term targets and we may be surprised by what ultimately delivers our goals. It is therefore essential that a comprehensive economy wide framework is put in place that allows and encourages innovation across every aspect of the energy sector.

  Making sure that effort is equally distributed across all sectors of the economy is critical to ensuring the most cost efficient solutions are uncovered and to avoid creating market distortions. In the future, the three main energy markets for electricity, heat and transport should become increasingly inter-related. A harmonised approach will be essential to allow loads to shift between these markets. For example if electricity is to play a part in decarbonising the heat and transport sectors it must not be unequally burdened with the cost of carbon mitigation since this will distort this market and potentially prevent this solution from being developed.

  We calculate that in the UK prices for gas and electricity customers are distorted by up to £100 per customer as a result of the unequal application of climate policy[3]. Electricity sales prices incorporate an element that covers the cost of carbon emissions under EU ETS and the cost of meeting the Renewables Obligation (RO), while gas sales do not have equivalent carbon or renewable policy cost supplements, hence the variation. A customer using electrical heating to heat their homes will therefore potentially pay up to £100 more than a potential customer using gas heating.

  If, in 2020, 40% of electricity to come from Renewables, and there remains no renewable signal on gas customers in 2020, customers with electrical heating will end up potentially paying £230 per year (in real 2008 prices) for renewable and carbon abatement whilst gas customers will potentially pay nothing[4].

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?

  SSE has been campaigning on a related issue concerning the Climate Change Bill, and has contributed towards attempting to ensure that the bulk of emissions reductions are achieved in the UK. Whilst we recognise climate change is an international issue, if the Climate Change Bill is actually intended to display genuine international leadership on climate change, it is vital that within the Bill there is a clear intention to actually reduce emissions within the UK.

  When the Climate Change Bill entered the House of Lords, the Bill set emissions targets for the UK, which could be met entirely by the UK purchasing carbon credits from abroad, without taking any action at home. This displayed no responsibility for tackling our own domestic emissions output. We therefore supported an amendment to the Bill which led to the inclusion of Clause 25.

  This clause enshrines the intention that in meeting emissions targets at least 70% of the effort to meet the target should be achieved through policies to uncover savings in the UK, leaving the remaining 30% (hopefully less) to be met via buying in emissions reductions made in other countries. This clause does not, however, set in stone any actual cap on trading to meet our final emissions targets but instead influences the nature and ambition of the UK's energy and climate policy framework to meet those targets.

  We are an active participant in the EU's emissions trading scheme and support its continuation and extension therefore could not support a clause that was incompatible with emissions trading policy instruments. However, our view is that being able to trade is different from deciding we will trade. Emissions trading is a cost effective way of reducing emissions for countries that have difficulties in delivering their own emissions reductions, but the UK is blessed with the greatest potential resource of renewable energy in Europe, has considerable scope for improving the energy efficiency of our buildings and the building blocks to develop carbon capture and storage. In short, we have the potential to meet our targets at home, so let's match it with ambition.

  It has been suggested that this is an issue that should be decided by the Committee on Climate Change before including it in legislation. This argument, however, ducks political leadership as this is a political rather than a technical or scientific decision. Government should not seek to delegate it. As a significant investor in UK infrastructure we need this clarity to help us to assess the level of investment that will need to be made to decarbonise the UK's energy supply in sufficient time.

  We believe it is economically rational to take this approach since investment in low carbon solutions here in the UK will deliver on-going emissions reductions, increased efficiency, jobs and economic growth. Every constituency in the country will have the opportunity to play its part. In contrast the purchasing of credits through trading leads to financial flows out of our economy and credits have to be repeat purchased in each new trading period.

  We believe it is right therefore that the UK should commit to genuinely displaying international leadership on this issue and to demonstrating how a low carbon economy can be achieved. We take exactly the same line on renewables and would like the bulk of the meeting of the EU Renewables target to occur in the UK. This will provide us with the clarity we need to invest in renewable solutions and will ensure that the UK does not constantly have to play catch up as the rest of Europe moves to a low carbon economy.

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?

  The price of carbon can feed through to the wholesale power price, not only through fuel costs, but also through operational and capital costs for any form of power generation. As the carbon price changes, the wholesale price changes. The rate of change of wholesale price is less for renewable energy since this is not dependent on the fuel element.

  The potential revenues available to a renewable generator will increase with an increasing carbon price. Running counter to this there is a likelihood that the cost of constructing and operating renewable power plant will increase as the carbon price increases. This is likely to arise due to actual increases in manufacturing and construction costs as well as opportunity price escalation by equipment suppliers and construction firms who may exploit increasing demand for their services as the carbon price increases by increasing their prices.

  We do not think that a more effective emissions trading scheme would help in the short to mid-term.

11.  What are the costs and benefits of the present generation of bio fuels? Will there be a second generation of bio fuels and, if so, what are the estimated costs? What are, or are likely to be, the carbon emission impacts of first and second generation bio fuels, and what are the other relevant environmental effects?

  SSE believes that clear policies are needed regarding the availability, cost and sustainability of bio fuels.

June 2008

1   11,500 MW less 1,500 MW pre-1990 hydro Back

2   Includes some 2,000MW of existing installed renewable generation capacity connected since 1990 Back

3   Our calculation is based on the following assumptions. A typical Electricity customer with electric heating uses 9.6 MWh per year. RO level is 9.1%. Each unit of ROCable power costs £35.76/MWh more than "brown" power. The carbon content of power is 0.43 tonne per MWh. The carbon price is €22 per tonne. The exchange rate is €1.27 per £. Renewable Cost = 0.091 * 9.6 * 35.76 = £31.24
Carbon Cost = 9.6 * 0.43 * 22 /1.27 = £71.50 

4   renewables cost is as above but based on 40% = £134.4
ETS cost as above but based on £30 Euros = £97.50 

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