environment magazine

Renewables Inheritence

By Gaynor Hartnell, CEO, Renewable Energy Association

The Coalition Government must really swing in to delivery mode and instil confidence in the renewables sector to get over the investment hiatus that has set in. At third in the league table for renewables and with a challenging and legally binding target, the stakes are high.

The ratcheting back of the Feed-in Tariffs and uncertainty over future ROC revenues beyond 2018 when the post EMR world takes over, has led to a significant reduction in investment in the last 12 months, compared to this time last year. Either factor on its own would be bad enough.
In this article Gaynor Hartnell, Chief Executive of the Renewable Energy Association looks at the situation inherited by the new Government, comments on how it is fairing and sets out what she believes the Government needs to do in order to rectify the position.

Starting situation
Taking the helm in choppy, post credit-crunch waters and steering into the path of major decarbonisation of the country’s energy sector was never going to be easy. The bill for power alone is estimated at £200bn. But with “the greenest Government ever” in command one should take comfort.

For renewables the task is to take the UK from around a 3% renewable energy contribution to 15%; the steepest deployment curve faced by any European Member state. The background is the larger picture of an 80% reduction in Carbon emissions relative to 1990 levels. The Committee on Climate Change, has the task of recommending periodic carbon budgets under the Climate Change Act. The next stage is for Government to legislate for the fourth carbon budget, covering the years 2023 – 27. After a brief period of deep and public soul searching, the Committee’s recommendation was accepted. The wrong decision would have been very bad news.

One year into the new administration and some good news is definitely needed. Investment has slowed, and having achieved fifth-place in a ranking for clean energy investments in 2009, the UK dropped out of the top 10 last year. This was the conclusion of Pew Environment Group in its report “Who’s winning the clean energy race: 2010 edition” as reported by the Energy Select Committee earlier this month.

So what has caused this slowing down? The decision on Feed In Tariffs for small scale generation has unnerved investors, as has the prospect of the Renewables Obligation ending. But is this fair? The Government would have it that it had inherited a Feed-in Tariff so generous towards PV that it looked like it could easily account for not the entire anticipated spend for all technologies, but get through it in one year rather then three. Regarding the Renewables Obligation, the Conservative party had set out its manifesto its desire to see the policy replaced by Feed-in Tariffs, and many commentators were in agreement that the current market wasn’t going to bring in the major carbon saving investments required to deliver an 80% reduction by 2050.

Set against that the Government has done some positive things to progress the agenda. Firstly, it demonstrated its intention towards the 15% renewables target was not in doubt. The coalition had the platform of the previous administration’s thinking on how to get achieve it, in the form of Renewable Energy Strategy, published in 2009 and shortly after taking office the UK was required to send the European Commission its National Renewable Energy Action Plan, declaring how it would meet its target. Along with virtually all other member states, the UK set out its commitment to meet its target, and to do so with domestically-produced renewable energy, not relying on imports from neighbours.

Also on the positive side, the decision on grandfathering of biomass under the Renewables Obligation fell to the new Government and largely it got the answer right. Plus, the 2009 Energy Act gave the incoming government the enabling powers for a renewable heat policy, which included the ability to decarbonise the gas grid from the injection of renewable gas. This was progressed and draft legislation for the Renewable Heat Incentive has now been published, despite the coalition agreement having made no mention of committing to it. The agreement did contain a commitment to put an emphasis on energy from waste and marine renewables. So far so good…. We are still waiting for some robust indication that the new Government will set renewable transport on the road to delivery; as at the moment the biofuels sector is floundering with policy seems to be expressly designed not to meet the required target. Given that biofuels are one of the cheapest ways of achieving the overall renewables target, logic would suggest this must be revisited.

Less encouraging has been the Localism Bill, the watering down of commitment to the Green Investment Bank and the poor handling of the Feed-in Tariffs.

The proposals for Electricity Market Reform are of major importance. The magnitude of the task of reform is huge, however, and the response to the proposals in the consultation document were far from unanimous. Despite the title of the project, it is not the electricity market that is being reformed; we are sticking with NETA - the “new electricity trading arrangements” put in place 10 years ago. EMR is more of an intervention to steer through a generation mix designed at achieving an average of 40–60gCO2/kWh emissions (compared with nearly 500 CO2/kWhg/kWh today. This is to be done by awarding contracts for new generation using low carbon sources. Essentially this will fulfil the role played by the Renewables Obligation, and extend the special treatment to nuclear power and carbon capture and storage.

The renewables industry reacted to the proposed reform by wondering whether it wasn’t better to stick with what we had. The Renewables Obligation wasn’t broke, so why try to fix it? On the detail, also, the renewables industry was unanimous. Contracts for Difference are far more penal to technologies with variable levels of output (e.g. wind) and it isn’t necessary to start from the position of seeking one size to fit all with respect to the type of contract offered – the choice of contract type would effectively pick the winner. Competitive bidding for contracts was the issue on which there was the strongest unanimity. It was met with universal objection.

The Energy and Climate Change Select Committee was forthright in its opinions. It has just published its report on the EMR, and the accompanying press release called on the coalition to “be up-front about nuclear subsidy” saying that it would “deeply irresponsible to skew the whole process of electricity market reform simply to save face” [because it had promised not to subsidise nuclear]. This is referring to the Government’s favoured option of “Feed in Tariffs via a contract for difference, a contract form which inherently favours nuclear generation.

So to summarise so far the Government can be praised for reiterating commitment to the 15% renewable energy target, declaring its intention to be the “greenest government ever”, suggesting it will be pragmatic on energy from waste and running with the RHI baton. It gets a question mark for its EMR proposals. It scores badly, however, on its handling of the Small Scale Feed-In Tariffs .

The Small Scale FITs for renewables were introduced in April 2010, the Government’s first intervention was in the Comprehensive Spending Review that Ocobter. It left the tariffs where they were, but declare that the spend in the final year (2014 – 15) had to be 10% less than previously anticipated. This was initially heralded as a victory, as the tariff levels had been rumoured to be facing the chop. Almost a month later in November 2010 Greg Barker was making statements in the House of Commons which seemed unashamedly and deliberately designed to undermine investor confidence in the ground-mounted PV projects. The following March, drastically reduced tariffs were proposed for PV projects over 50kW in size, for implementation later this year. The proposed reductions were between 40 – 70%, depending on the size of the project. DECC is digesting the results of this consultation at this very moment, along with contemplating its reaction to a challenge brought by a number of PV developers for a judicial review.

The Renewable Energy Association’s agenda is to get the UK back to stability as soon as possible, and see investor confidence restored to the sector. How is this to be done?

Here are just three suggestions:-

Reorient the Feed-In Tariff for Small-Scale renewables back towards its original policy intent. This had been to bring adequate rates of return for investors, based on anticipated generation costs given capital and operating costs.Previously IRRs of 8 – 10% had been aimed at, with the exception of solar PV, which had been 5%. Industry would like to see 12% across the board. Forget whether projects are over 50kW or not and don’t try to rewrite history by saying the tariffs were only ever meant to support householders and community projects.When the Tories were in opposition they were calling for the small scale feed in tariff maximum threshold to be increased to 10MW! We welcome a more regular assessment of the tariffs, as has also been proposed, as the generation costs for PV are falling rapidly. Indeed they are expected to reach the retail price of electricity for domestic customers in the UK before the turn of the decade.

On EMR – Government should step back from its position of seeking to deal with nuclear, CCS and renewables all with the same type of contract (i.e. the one that suits nuclear) and instead cater for their different needs. Have renewables-appropriate contracts for renewable generators. The first of the Select Committee’s recommendations was that “It is important that the Electricity Market Reform package is geared to deliver our renewables targets as well as our decarbonisation objectives” .

Put some kind of context to power generation from biomass. We are not calling for a specific target, but given that DECC regards it as one of the seven technologies which together are anticipated to contribute around 85% of the renewable energy target and this requires a massive expansion by 2020 it is helpful to know how many GW we are aiming at.This has not been explicitly published. Contrast this with the Committee on Climate Change, which sees this sector as having no role at all in decarbonising the UK beyond that date!

The Official National Renewable Energy Action plan enshrines the lead scenario from the Renewable Energy Strategy, which implies around 3.3 GW of capacity from biomass and bioenergy related power generation by 2020. Among these are number of less glamorous or less understood technologies including landfill gas, combustion of waste, waste wood power or CHP.There are also some, which for the want of demonstration, could prove invaluable in the future in assisting us convert solid biomass into the kinds of liquid and gaseous fuels and feedstocks that our economy runs on, i.e. gasification and pyrolysis. It is rational for the Government to do all that it can to support the cheaper renewables technologies, so please let’s have the Government say loud and proud, that it wants to see over 3GW of capacity delivered by 2020. In output terms that is equivalent to around 6GW of offshore wind energy, yet offshore wind dominates the agenda. Other renewables need to be up there alongside.

These technologies must not be overlooked in the context of the EMR as clarity is needed where they are waste-derived or do not comprise 100% biomass. Would, say, an gasification project running on solid recovered waste (say comprising 50% biomass, 50% residual plastic waste) be eligible for half its output on the basis that the biomass part is virtually zero carbon, or not eligible for a contract at all, on the basis that its overall emissions are around 400gCO2/kWh?

This is not a complete list of things the government needs to do to restore confidence, but it’s a start.There is no time to lose. The rate of investment into the sector needs to accelerate, not the opposite, as has been the case recently. It has not been easy, given the economic climate, and the challenges of coalition government, but the industry is keen to work together with DECC and other relevant departments to help make it happen.