Memorandum by the Sussex Energy Group
ABOUT THE
SUSSEX ENERGY
GROUP
1. The Sussex Energy Group undertakes academically
rigorous, inter-disciplinary research that engages with policy-makers
and practitioners. The aim of our research is to identify ways
of achieving the transition to sustainable, low carbon energy
systems whilst addressing other important policy objectives such
as energy security. We a group of 15 social scientists, working
from a multidisciplinary perspective. Our core support is through
a five-year award from the Economic and Social Research Council
from April 2005, but also have funding from a diverse array of
other sources.
2. We welcome this inquiry into the EU 2020
renewables target. In our response to the Committee's questions,
we have spent most of the time on those questions in which we
have particular expertise. This expertise derives from our current
research by a number of Sussex Energy Group team members. These
include work on EU energy policy (particularly the interaction
of energy security and climate change), research on policies for
the deployment of low carbon technologies (including renewables),
and work on incentives for electricity network innovation to support
low carbon electricity systems. We would be happy to assist the
committee further—including making ourselves available to
give oral evidence.
GENERAL QUESTIONS
How achievable are both the EU's general 20% and
the UK's national 15% renewable energies target?
3. Both the EU 20% target and the suggested
15% target for the UK are ambitious. The latter is perhaps more
ambitious given that the UK only sources 2% of its energy from
renewables at present. To make substantial progress towards meeting
the UK target, policy will need to develop significantly from
current practice in a number of ways. There are three points we
wish to emphasise here. First, there is a need to consider all
renewable sources of energy in determining how to meet the UK
target—not just renewables that generate electricity. Second,
there is a need for more scrutiny of the consequences of the use
of renewable transport fuels. We expand on these two points in
the following two paragraphs. Third, there is a need to review
the UK mechanism for supporting renewable electricity—the
Renewables Obligation—and to develop a plan to switch to
a more effective approach such as a feed in tariff mechanism.
We discuss this point further in our answers to the Committee's
questions on mechanisms below.
4. Some organisations have provided a view
about how a UK target could be met. For example, the Renewable
Energy Association suggests that the full 20% of UK energy could
be sourced from renewables in the following way: 10% of transport
energy demand from biofuels; 26% of heat demand—mostly from
small scale technologies integrated into buildings; and 49% of
electricity demand sourced from an array of technologies at different
scales (Wolfe, 2007). Whilst we have not yet conducted such a
detailed analysis of the 15% UK target, views such as this offer
a useful counterpoint to the tendency to simply translate the
renewable energy target into an equivalent renewable electricity
target. Downplaying the potential for renewable heat—and
to a lesser extent renewable transport fuels—risks making
the target more difficult to meet and reduces the flexibility
of government, industry and citizens to act. Furthermore, any
target for the production of renewable energy should be part of
a strategy to reduce overall demand. The more successful the UK
is at reducing demand through efficiency measures, the less renewable
energy will be needed to meet the target.
5. The scope for renewable heat is substantial
in the UK, using solar hot water panels, biomass boilers and other
technologies. For example, solar hot water panels (which can also
supplement fossil fuels to meet heating demand) are commercially
available. They are amongst the cheapest "micro-generation"
technologies that can be installed in homes, and can supply around
50% of annual hot water demand. Despite potential such as this,
heat has not been treated seriously enough by policy makers in
the past. Unlike many Northern European countries, the UK does
not have a tradition of district heating in urban areas. Part
of this may be due to the availability of natural gas. It could
also be due to fact that the UK's energy system is highly centralised—and
policy debates are often dominated by discussions of electricity.
It is only very recently that the policy system has begun to systematically
think about the provision of heat (Department for Business Enterprise
and Regulatory Reform, 2008). If heat is to be taken more seriously
than in the past in the UK, new incentives will be required. These
should not only focus on renewable heat, but should also encourage
the more efficient use of fossil energy through combined heat
and power. There may be scope for incentive analogous to a feed
in tariff for electricity in addition to the current preference
for grant funding—something that is time limited and is
not suitable as a long term policy.
6. The contribution of renewable transport
fuels to the UK and EU targets needs particularly careful consideration.
With the Renewable Transport Fuel Obligation now in place, the
UK government faces the challenge of ensuring that this policy
contributes to a more sustainable energy system. Sufficient safeguards
should be in place to ensure both environmental and social sustainability
in the regions that produce these fuels. While the carbon and
sustainability reporting mechanism within the RTFO goes some way
towards this, it certainly does not replace the need for a robust,
transparent and independent certification system. It is commendable
that the government has commissioned reviews on the environmental
sustainability of international biofuels production and use, as
well as on evidence of the displacement effects of biofuels on
land-use and overall savings in emissions. Postponing the RTFO
until the release of these reviews might risk unnecessarily adding
to the uncertainty already faced by biofuels industry, yet the
UK government should be prepared to rapidly revise RTFO rules
in the light of the latest evidence and press for commensurate
changes in EU policy. With regard to biofuel imports, particular
attention should be given to potential social impacts in biofuel
producing countries. Within its reviews and discussions at EU
level, the UK government should carefully consider its current
policy which supports the use of "1st generation" biofuels
and the development "2nd generation" biofuels. The latter
are widely considered to be far moiré sustainable than
the former. While expert and stakeholder views on the topic diverge,
the small contribution of 1st generation biofuels to CO2
reduction and the other risks of using these fuels supports the
view that priority should be given to developing 2nd generation
technologies. In the short to medium term, this may mean that
the 2020 target should mainly be met through renewables for heating
and electricity.
How coherent are these proposals in the context
of the EU's energy policies in general and the Third Energy Package
in particular?
7. The 2020 renewables target is a coherent
continuation of previous EU policies in the field of renewable
energy. Experience has shown that the 2010 targets already in
place have resulted in positive developments in renewable electricity
and some progress in renewable transport fuels. These targets
need to reviewed and extended if the progress to date in these
sectors is to be sustained. As we note above, the need for review
is particularly acute for transport fuels so that the potential
negative impacts of biofuels targets are minimised. Progress in
the use of renewable heating and cooling has been slow—partly
due to a lack of specific targets and policies. This has meant
that significant potential for renewable heating and cooling has
remained untapped.
8. It is possible that the continuation
of the existing Directives—and the adoption of an additional
Directive for the renewable heating and cooling sector—would
have been better than a new Directive for all three sectors. The
European Commission concedes that it might be more difficult to
ensure that Member States fulfil their national targets on the
basis of an overall renewable energy target. The EC therefore
highlights correctly the need for legally binding targets (Commission
of the European Communities, 2008a). However, the current proposal
does not include any provision for penalties if Member States
fail in meeting their targets. The use of traditional infringement
procedures before the European Court of Justice is insufficient
given the lengthy procedures involved. A provision to ensure the
legally binding nature of the proposed Directive is crucial to
ensure that the incentives for growth in all renewable sectors
are maintained.
9. This leads on to another important issue
that will affect the successful continuation of EU renewable energy
policy and therefore EU energy policy as a whole. Any policy initiative
in this area needs to be assessed clearly against its intended
policy objectives. To ensure the achievement of all three objectives
of EU energy policy (energy security, environmental sustainability
and competitiveness), the Commission has proposed a package of
different proposals. While all of them taken together will address
these core objectives, individual proposals will vary in their
focus. If individual proposals do not adequately take account
of the overall objectives of policy, there is a risk that successful
progress will be hampered. Therefore, the renewables target needs
to be clearly distinguished from broader proposals for a low carbon
energy target.
10. The inclusion of other low carbon energy
technologies (eg nuclear or carbon capture and storage, CCS) within
the scope of the 2020 renewables target risks undermining its
purpose and effectiveness. During the policy debate on the climate-energy
legislative package in the European Council on 28th February 2008,
the UK government argued that an assessment should be made to
see how the renewables target could be used to promote CCS.[14]
Yet, other instruments are being developed for the promotion of
CCS at EU level. This includes a publicly funded demonstration
plant in the UK which is a contribution to the overall European
goal of 10-12 such plants by 2015 (Commission of the European
Communities, 2008b). The core objective of the renewable energy
target is the stimulation of growth in the deployment of renewable
energy sources in each Member State. In this context any flexibility
which allows Member States to use investments in other low carbon
technologies or trading to meet their targets should be minimised.
If flexibilities such as these are allowed, this would threaten
the EU's claim to be an international leader in international
climate change negotiations. It could also weaken the incentives
for both renewables deployment and the growth of a renewables
industry.
To what extent are these targets capable of improving
the EU's security of energy supplies?
11. An increased share of renewable energy
sources in the EU's energy supply could improve the EU's energy
security in several ways The attainment of this target would considerably
decrease the EU's energy import dependence and would therefore
reduce the exposure of European economies to fossil fuel price
volatility. Scenarios carried out for the Commission show that
if the target is met, fossil fuel imports would be reduced by
200 million tonnes of oil equivalent per year (European Commission,
2006).
12. However, it is important to note that
energy security is not just a matter of maximising indigenous
energy production and minimising energy imports. As we have argued
in our submission to the UK government's review of nuclear power
(Sussex Energy Group, 2007), energy security is a multi-dimensional
issue. The extent to which particular strategies such as renewables
expansion can tackle risks to energy security needs to be analysed
carefully. In addition to the potential impact of high fossil
fuel prices or fossil fuel scarcity, there are also important
risks to security due to a lack of investment in domestic infrastructure,
technology failures and even civil unrest. The UK's experience
of the last two decades has shown that some of these other risks
have presented a more material threat to energy security than
problems of import dependence.
13. In the electricity and heat sector,
a higher share of renewable energy sources is likely to increase
the share of distributed energy generation. It is possible that
this would, in turn, contribute to a more resilient energy infrastructure
with extensive redundancy. However, for this to happen, existing
electricity networks (and new heat networks) would need to be
developed and adapted to integrate more decentralised generation
while at the same time integrating new centralised generation
capacity (eg offshore wind). New regulations and cooperation procedures
as envisaged by the EC are therefore of central importance to
ensure energy security under such scenarios. An increased share
of renewable energy sources can also substantially increase diversity
in the energy system in terms of generation technology, fuel sources
etc. and thus increase energy security. As with energy security,
arguments for diversity have to be weighed up with care. Diversity
is also a multi-faceted concept (Stirling, 2004). However, the
advantage that renewable energy has is that it is a category that
includes a wide range of technologies which generate in different
ways, at different scales, using different resources and very
distinct technologies. The development of this potential in a
way that reflects this diversity would require support policies
that provide incentives for the development and deployment of
a range of options. These would include both new and less mature
generation technologies—and not just on those technologies
that are the cheapest to deploy at the present time.
GRID ACCESS
To what extent does grid access remain a significant
barrier to increased consumption of renewable energies? Is it
consistently a problem across all Member States?
14. Grid access for renewable electricity
sources remains a significant barrier in most Member States. This
is shown, for example, by EU-wide surveys like the one carried
out in the Commission funded DG-GRID project.[15]
However, the issue is more acute in some Member States than others.
In the UK, the problem has been particularly acute and has had
an impact on the rate of deployment of renewables. This is despite
evidence that the deployment of renewables in the UK is nowhere
near the level at which significant system constraints should
be expected (UKERC, 2006). In Denmark—by contrast—there
are now significant challenges for new renewable generators wishing
to connect. But this is a product of the past success of renewable
generation (particularly wind power). Constraints are now being
faced, and are being dealt with by innovative approaches to network
co-ordination and control.
15. In general, European electricity networks
have not been designed to integrate renewables. The geographical
distribution of networks is not often well matched with that of
renewable resources. Furthermore, operators of distribution networks
are not used to connecting large numbers of renewable generators
to their grid, some of which may have different levels of variability
than traditional sources. Within regulatory regimes, there is
often a tension between "incentive regulation" of electricity
networks and the need to connect renewables for environmental
and other reasons. Incentive regulation has proved effective in
making grid companies perform more efficiently in some countries—but
the focus of this efficiency is short term. Seen through this
lens, connecting generation which is of a different type and in
different locations to more "traditional" generation
can seem expensive. This is because there are additional costs
of system integration, grid extension and so on. However, if these
costs were assessed from the point of view of a future vision
for a more sustainable electricity system, they may be seen as
necessary investment to enable the transition from the current
situation. An important point to bear in mind is that whatever
the shape of future electricity systems, the grid infrastructure
in many EU countries will need to be substantially upgraded and
replaced in the coming decades.
How does Use of System charging affect grid access
for renewable energy generators? How far can the different levels
of renewable energies take-up in different Member States be attributed
to Use of System charging and cost sharing rules?
16. Use of System charging is not the main
factor influencing renewable energy take-up. The design of support
mechanisms for renewables is certainly more important. Nevertheless,
network charging does play a role. In Denmark, for example, with
its high share of new renewables, network access has not been
a major issue because there is a mechanism for network operators
to share connection costs between each other. In other countries,
where connection costs are attributed to individual networks and
are not reflected in the regulatory framework, this has been a
barrier. This has been the case historically in the UK, despite
some changes in regulatory rules to allow the costs of connection
to be shared between generators and consumers. Even in Germany,
uncertainty about grid connection in general and sharing of costs
between plant developer and network operator has in many cases
undermined the feed-in support mechanism.
SUPPORT SCHEMES
At what level should the EU be involved in harmonising
or regulating support schemes offered by Member States to encourage
renewable energy generation?
17. Our view is that any move to harmonize
support schemes should be considered very carefully. There are
many reasons why harmonization—which seems like a good idea
for economic efficiency reasons—may not be desirable. One
of these is that some types of support mechanism are more amenable
to harmonization than others. Tradable green certificate schemes
(such as the UK Renewables Obligation) work best for large companies
who are able to trade in volume. If this were the dominant mechanism
for renewables support within the EU, there could be a strong
role for the EC in harmonising support schemes to encourage cross-border
trading. Indeed, most proponents of EU-wide harmonisation of support
systems argue in favour of a certificate scheme to ensure compatibility
with internal market objectives and to increase competitiveness.
However, there are risks in placing too much emphasis on trading.
The use of extensive trading to meet either EU-wide or individual
Member State targets (such as the UK's) risks undermining claims
to leadership in the international negotiations to secure deep
cuts in emissions. Other countries could conclude that Member
States who intend to rely on trading are not—in fact—as
committed to this leadership as they claim to be
18. Another issue for trading is that most
Member States do not use certificate systems—and instead
use alternatives such as a feed-in tariff policy. Since feed-in
tariffs work by fixing the price paid to renewable generators,
they are less amenable to harmonisation and can be more readily
left to be implemented by Member States. In a recent policy document,
the Commission noted that "well-adapted [their emphasis]
feed in tariff regimes are generally the most efficient and effective
support schemes for promoting renewable electricity" (European
Commission, 2008). This emphasis on "well adapted" mechanisms
highlights another important issue that may make harmonisation
difficult: the success of individual support schemes depends on
how well they are embedded in the national or regional context.
In other words, it is difficult to see how the same policy could
be implemented in each Member State because of important differences
of approach and status—for example, different energy market
structures, different status of renewables deployment and so on.
Harmonisation at this early stage would affect investor's confidence
since most national support schemes in place are relatively new.
What impact have the various schemes in operation
across the Member States had on encouraging renewable energy?
How have these schemes affected take-up both by producers and
commercial and domestic consumers?
19. Studies comparing national support schemes
in EU Member States regularly show that feed-in tariff systems
are more cost efficient and effective than other mechanisms such
as the Renewables Obligation in deploying renewables. One reason
for this is that certificate systems are seen as more risky (because
of the uncertainty about the future level of certificate values)
than feed-in tariffs (eg Mitchell, Bauknecht et al, 2006).
The contrasting experience of the UK and Germany is important
here. In Germany, approximately 12% of electricity comes from
renewables, whereas in the UK country the equivalent figure is
around 5%. According to the German Environmental Ministry, the
average annual cost per customer of the German feed-in tariff
was about 26 Euros (£18) in 2006. In November 2006, Ofgem
stated that the ROC system was costing UK consumers about £7
per year at that time. This suggests that whilst German consumers
are paying more, the German system is funding more renewable generation
per pound spent.
20. As we noted earlier, tradable permits
can be attractive because—like emissions trading—they
are designed to meet a particular target. It can be argued that
feed in tariffs are at a disadvantage because no target is built
into this policy mechanism. Furthermore, feed-in tariffs has been
that they do not expose project developers to price competition.
As long as feed-in tariffs are high enough, experience shows that
they have been effective. The main question that needs to be addressed
is how to set the level of feed-in tariffs so that this effectiveness
continues in a transparent and sustainability-oriented way. The
level should also take into account economic, environmental and
social desirability of each technology into account (Madlener
and Stagl, 2005). Empirical evidence from Germany shows that prices
have come down due to competition between technology producers
and a built in annual reduction in the price offered to each technology.
21. Another feature of feed-in tariffs is
that they can make substantial contributions to a more competitive
energy market—through an increase in market participants.
Feed-in tariffs with its secure support framework attract new,
smaller actors as opposed to certificate systems where investments
are largely dominated by financially strong incumbents. Even though
the UK government has strongly defended its preference for the
Renewables Obligation, this issue has now led to the announcement
of a review of the arrangements for smaller generators. As the
former DTI admitted in May 2007, "the Obligation was designed
to support large scale deployment of renewables and we do not
feel that it is the best way to deliver the incentives that the
microgeneration industry require" (Department of Trade and
Industry, 2007: 21). The inclusion of new actors such as individuals
or cooperatives can at the same time increase public acceptance
of renewable energy projects which becomes increasingly important.
Will cross-border renewables markets be genuinely
affected by the existence of a variety of support schemes? Is
necessary investment hampered by lack of market harmonisation?
22. At this stage, the emphasis should not
be on how to enable cross-border renewables markets but on how
to establish strong national renewable markets. When there are
strong national markets in most Member States, cross-border approaches
may make sense. A focus on cross-border issues would distract
from the necessary removal of national barriers that constitute
the major impediment for meeting national targets. As we have
already noted, the need to maintain international leadership in
the discussion on future reductions in carbon emissions means
that Member states need first show national progress before resorting
to trading. Furthermore, the financing of renewable energy projects
abroad could also endanger public acceptance of renewable energy
sources and national support schemes. A major argument for national
support of renewable energy sources are local economic benefits
in terms of job creation and tax income.
21 April 2008
14 Remarks made by the UK delegation in the debate
on Council Document 7010/1/08, 28 February 2008. Back
15
http://www.ecn.nl/en/ps/research-programme/energy-markets/dg-grid/ Back
| 
