Memorandum by Scottish and Southern Energy
plc
INTRODUCTION AND
OVERVIEW
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 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) | 2006
| 2020
(based on 2006 levels)
|
|
| Electricity (conventional) | 375
| 248 |
| Electricity (renewable) | 18.78
(4.8%)
| 145
(36.9%) |
| Total Electricity | 393
| 393 |
| Heat (conventional) | 730
| 661 |
| Heat (renewable) | 4.52
(0.6%)
| 73.5
(10.0%) |
| Total Heat | 735
| 735 |
| Land Transport (conventional) | 478
| 432 |
| Other Transport (conventional) | 173
| 173 |
Land transport (renewable)
(% of all land transport)
| 2.09
(0.4%) | 48
(10.0%)
|
| Total Transport | 653
| 653 |
| Total Energy (conventional) | 1,755
| 1,514 |
| Total Energy (renewable) | 25
(1.4%)
| 267
(15.0%) |
| Total Energy | 1,781
| 1,781 |
|
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.
CAPACITY OF THE TRANSMISSION SYSTEM TO ACCOMMODATE RENEWABLES
Levels of renewable energy generation that could be
accommodated in 2020
|
| Scotland | 10,000 MW[1]
|
| England and Wales | 8,300 MW[2]
|
| TOTAL | 18,300
|
|
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. Demand | Severn Year Statement user demand data extrapolated out to 2020.
|
| 2. Generation | Scotland: 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 Back
4
renewables cost is as above but based on 40% = £134.4
ETS cost as above but based on £30 Euros = £97.50 Back
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