APPENDIX 7: CORRESPONDENCE
Letter to Sub-Committee B from Mr Tim Abraham,
Director, EU Energy Policy, Department for Business, Enterprise
and Regulatory Reform dated 27 June 2008
Further to your letter of 11 June requesting more
detail relating to your Committee's inquiry into the EU's 20%
renewable energy target, I enclose answers to your questions.
I hope you will find this useful; if you require any further information
and assistance in your inquiry, please let me know.
I have also included a copy of the UK Renewable Energy
Strategy Consultation document that was published yesterday and
which contains details of many of the issues you raise. This can
also be found on the BERR website at: www.berr.gov.uk/renewableconsultation.
BERR's Energy Trends was published on 26 June although
the renewables data within it remain provisional until DUKES (the
Digest of UK Energy Statistics) is published on 31 July
1) In much of the evidence we have received it has
been estimated that, in order to meet the 15% target by 2020,
around 40% of electricity and 10% of heating and cooling will
need to be renewably generated. Is this an assumption BERR shares?
Our initial analysis suggests that, if 10% renewable
energy in transport is feasible and sustainable, then one possible
scenario to reach 15% renewable energy in the UK might be: 10%
renewable energy in transport; 14% in heat; and 32% in electricity.
If sustainability concerns meant that the transport sector could
not contribute 10%, then the contribution from the other sectors
would have to higher, or we would have to use other options such
as trading with other countries.
It will of course be for the market to determine
the actual levels of investment in each sector.
2) What does the Government estimate the cost to
the consumer will be of managing intermittency, developing the
grid and increasing the assistance given through support schemes?
National Grid has estimated that the cost of balancing the grid
with 40% renewable electricity will be between £6-£12
to an average household electricity bill of £390.
Policies to increase renewable energy development
will add to energy prices and bills. The contribution that renewables
components make to energy bills will depend on how the costs of
other components of energy prices change. Bills do not necessarily
need to rise as much as prices—using less energy, and installing
energy efficiency measures can help mitigate these effects. Table
1 below summarises the expected impact on energy bills with 32%
of electricity coming from renewable energy sources (as outlined
in question1).
Table 1: Impact on annual electricity prices and
bills resulting from measures to achieve 32% renewable electricity.
| 32% renewable electricity—central fossil fuel prices
| Domestic Prices (Annual bills)
| Industrial Prices
(Annual bills, £000s)
|
| 2010-2014 | -1 to 4 %
(£-3 to £13)
| -1 to 4%
(£-4 to £19)
|
| 2015-2019 | 1 to 5%
(£3 to £19)
| 1 to 6%
(£4 to £28)
|
| 2020-2024 | 9 to 15%
(£32 to £53)
| 10 to 16%
(£46 to £78)
|
| 2025-2029 | 10 to 14%
(£33 to £48)
| 11 to 16%
(£48 to £70)
|
| 2010 to 2030 | 6 to 9%
(£20 to £33)
| 6 to 11%
(£29 to £48)
|
Note: The range reflects the standard error of differences
of changes from the status quo. In some years the impact of high
penetration of renewables leads to lower short-run marginal costs
which reduce wholesale prices. This impact is greater under high
fossil fuel price assumptions.
The table shows that the biggest impact on prices
and bills will be in 2020 and beyond as the level of renewable
generation increases to 2020. These estimates are based on central
fossil fuel prices in line with BERR central projections with
an oil price of $70 per barrel. Under higher fossil fuel prices
(in line with $95 a barrel) the percentage increase in electricity
bills could fall by around a half, while under fossil fuel prices
consistent with $150 per barrel, the increase could fall by around
three-quarters of that shown above.
3) What estimates has the Government made about the
effect of increasing renewable energy generation on the UK's energy
import level?
Our initial estimates suggest that meeting the renewable
energy target in the UK could reduce gas imports by 12-16% in
2020. We also estimate that this could reduce our total use of
gas by 9-12% and fossil fuels use by 10%.
4) What was the renewable electricity generation
figure before the introduction of the Renewables Obligation?
The RO was introduced in April 2002. In 2001, 9,549
GWh of electricity was generated from renewables in the UK equal
to 2.62 per cent of generation. Excluding types of generation
that were ineligible for the RO (e.g. large scale hydro) gives
figures of 4,884 GWh and 1.52 per cent. Note that since the RO
is an obligation on suppliers, the second set of figures are expressed
in term of electricity sales.
5) What is the UK's current level of (a) renewable
electricity generation, and (b) renewable heat generation?
a) In 2007 19,664 GWh of electricity was generated
from renewables in the UK equal to 5.0 per cent of generation.
Including only those renewables that are eligible for the RO these
figures are 15,953 GWh and 4.9 per cent. Note that since the RO
is an obligation on suppliers, the second set of figures are expressed
in term of electricity sales.
b) In 2007 renewables amounting to 729 thousand tonnes
of oil equivalent were used to generate heat.
6) What is the UK's (a) total energy demand, and
(b) electricity demand?
a) Total primary energy demand in the UK in 2006
was 244.1 million tonnes of oil equivalent. Final energy consumption
in 2006 amounted to 157.8 million tonnes of oil equivalent. Provisional
figures for 2007 are 236.0 mtoe and 154.9 mtoe, respectively.
b) Total electricity demand in the UK in 2006 was
406,121 GWh. Provisionally demand in 2007 is put at 402,611 GWh
7) How is the current total demand split between
electricity, heating and cooling, and transport?
In 2006, in terms of final energy consumption, 22
per cent was for electricity, and 37 per cent for transport, and
the residual (41 per cent) was deemed to be for "heat".
Note that electricity used for transport is included under electricity
and not transport and electricity used for heat is included under
electricity and not heat.
Letter to Sub-Committee B from Mr Tim Abraham,
Director, EU Energy Policy, Department for Business, Enterprise
and Regulatory Reform dated 11 September 2008
Further to your request for information relating
to how much achieving the renewables target will cost the consumer,
for your Committee's inquiry into the EU's 20% renewable energy
target, I hope you will find the attached information useful.
If you require any further information and assistance in your
inquiry, please let me know.
We have estimates of the impact of different fuel
prices on electricity bills assuming 37% renewable electricity
at both the central and high fuel price levels, but do not have
the same estimates for 32% renewable electricity, which is the
scenario used in the table in question.
I attach a table from our impact assessment on renewable
electricity that shows the central case estimates and those under
the 'high high' fossil fuel price assumptions, which are consistent
with oil prices of $150bbl by 2020. More information on the electricity
impacts can be found in the IA published alongside the consultation
document—link below.
In terms of impact on gas bills, the Heat Impact
Assessment contained estimates of the impact of 11% and 14% renewable
heat under different fossil fuel price assumptions. The Heat IA
document can also be found at the link below.
http://renewableconsultation.berr.gov.uk/related_documents
I hope the information provided will be of use.
Table 2a: Impact on Domestic Electricity Bills
| % increase in Domestic Prices (Bills)
| 32% renewable electricity—central fuel prices
| 37% renewable electricity—central fuel prices
| 37% renewable electricity—high fuel prices
|
| RO
| FITs |
RO | FITs
| RO |
FITs |
| 2010-2014 | 1 to 4 %
(£4 to £13)
| -1 to 2%
(£-3 to £7)
| 1 to 4%
(£4 to £15)
| -1 to 2%
(£-4 to £7)
| 1 to 2%
(£6 to £11)
| -1 to 0%
(£-5 to £2)
|
| 2015-2019 | 3 to 5%
(£10 to £19)
| 1 to 4%
(£3 to £12)
| 3 to 6%
(£12 to £22)
| 2 to 5%
(£7 to £17)
| 0 to 1%
(£1 to £6)
| - 4to -3%
(£-22 to £-15)
|
| 2020-2024 | 12 to 15%
(£43 to £53)
| 9 to 11%
(£32 to £41)
| 9 to 12%
(£34 to £44)
| 9 to 12%
(£33 to £44)
| 5 to 6%
(£24 to £29)
| 3 to 4%
(£14 to £20)
|
| 2025-2029 | 10 to 12%
(£33 to £42)
| 11 to 14%
(£38 to £48)
| 17 to 20%
(£57 to £67)
| 16 to 19%
(£54 to £65)
| 2 to 3%
(£7 to £12)
| 3 to 4%
(£12 to £18)
|
| 2010 to 2030 | 7 to 9%
(£23 to £33)
| 6 to 9%
(£20 to £30)
| 8 to 11%
£29 to £39
| 7 to 10%
£24 to £35
| 2 to 3%
£9 to £14
| 0 to 2%
£0 to £7
|
Table 2b: Impact on Industrial Electricity Bills
| % increase in Industrial Prices (Bills 000s)
| 32% renewable electricity—central fuel prices
| 37% renewable electricity—central fuel prices
| 37% renewable electricity—high fuel prices
|
| RO
| FITs |
RO | FITs
| RO |
FITs |
| 2010-2014 | 1 to 4%
(£5 to £19)
| -1 to 2%
(£-4 to £9)
| 1 to 5%
(£6 to £22)
| -1 to 2%
(£-5 to £11)
| 1 to 3%
(£8 to 15)
| -1 to 0%
(£-6 to 3)
|
| 2015-2019 | 3 to 6%
(£14 to £28)
| 1 to 4%
(£4 to £18)
| 4 to 7%
(£17 to £32)
| 2 to 5%
(£10 to £26)
| 0 to 1%
(£1 to £9)
| -5 to -3%
(£-32 to £-23)
|
| 2020-2024 | 13 to 16%
(£64 to £78)
| 10 to 13%
(£46 to £61)
| 10 to 14%
(£49 to £65)
| 10 to 13%
(£48 to £64)
| 6 to 7%
(£34 to £41)
| 3 to 5%
(£20 to £29)
|
| 2025-2029 | 11 to 14%
(£48 to £62)
| 12 to 16%
(£56 to £70)
| 19 to 22%
(£83 to £99)
| 18 to 21%
(£79 to £95)
| 2 to 3%
(£9 to £16)
| 3 to 5%
(£16 to £25)
|
| 2010 to 2030 | 7 to 11%
(£34 to £48)
| 6 to 10%
(£29 to £44)
| 9 to 13%
(£42 to £57)
| 8 to 11%
(£35 to £51)
| 2 to 3%
(£13 to £20)
| 0 to 2%
(0 to £9)
|
Note: Price increases are estimated above the status
quo, using the same price assumptions. High fuel prices are consistent
with oil prices at $150bbl, central fuel prices are consistent
with oil prices at $70bbl. The range reflects the standard error
of differences of changes from the status quo. In some years the
impact of high penetration of renewables leads to lower short
run marginal costs which reduce wholesale prices. The effect is
greater under high fossil fuel price assumptions.
| 
