Wednesday, 5 December 2012

The Energy Bill is an Improvement

It has been a mildly pleasant surprise for me to read the details of the Energy Bill proposals that were finally published last week and to  realise that this effort represents, for the renewables lobby at least, a distinct improvement on the awfulness that preceded it. Three changes essentially contribute to this change. First, the income stream from the so-called Contract-for-Differences (CfD) 'feed-in tariff' will be guaranteed by the Government. Second, the Bill proposes reserve powers to be given to the Secretary of State to alter the licenses of electricity suppliers to make them give power purchase agreements (PPAs) to independent generators. Third, developers of renewable projects have the prospect of being able to take up CfDs or PPAs when they need them and can set up their projects.

Essentially what these changes will mean (if the details implementing them are sorted out properly) is that the programme going forward under the current Renewables Obligation (RO) will be continued under the CfD arrangements. The scheme will have Treasury-imposed caps on spending meaning, in effect, that with luck, just over 20 per cent of UK electricity will be supplied by electricity from renewable energy by 2020. That is not enough to meet the targets under the EU Renewable Directive of course, and certainly not the carbon reduction targets. So let us not get out the bunting. But it is working out not to be quite the nuclear-carve-up-fix that we suspected two years ago.

Ironically, because of the Treasury imposed cap (the so-called 'levy control framework'), this progress will be heavily reliant on implementing as much onshore wind as possible since this is cheaper than offshore wind. Alan Whitehead has indicated how the alleged largesse to be permitted by the Treasury does not translate into as much money for new schemes as might be imagined. See

Gremlins that lurk in previous versions of the Electricity Market Reform (EMR) proposals still threaten to burrow their way out of course. Will the 'Big Six' electricity suppliers be sufficiently well handled to ensure that they will be obliged to offer good PPAs for independent generators? One liklihood is that the Big Six will demand that large deductions from the CfD strike prices (to be announced by the Government next year) should be diverted to them to compensate them for 'balancing' renewable output from schemes developed by independent generators. In fact such payments are estimated by academic analysts to be of the order of £2-£4 per MWh depending on the time period studied (compared to a total likely strike price for onshore wind of around £80 per MWh). However, you can bet your life that the electricity suppliers will want a rather larger payment for being obliged to give PPAs to people they regard as competitors (!). Of course without being forced to give good PPAs to the independents the Big Six will propbably not strain themselves looking for projects since they will not have to compete with as many other companies. The independents should be paid the same as the Big Six for their renewable energy production. But will this happen in practice?

Expect a lot of arguments over this issue. Incidentally, the stories purveyed by anti-windfarm lobbyists that somehow variable renewable energy sources have hidden subsidies coming from somewhere else (where?) to pay for balancing (backing up) their production is nonsense. Wind operators have to pay for balancing costs out of their own income streams (which will come from the CfDs or the current RO income stream) - hence this discussion here.

Another particularly large gremlin is whether the 'strike prices' will actually be big enough to ensure that the money allocated (capped) in the Treasury's 'levy control framework' (LCF) will actually be spent. See my previous blog for some indicative figures on this.

Other gremlins are that despite the consultation about demand reduction, this (and demand side measures) may still get sidelined in favour of the rush to build gas fired power stations. Focus should be on making sure that  'capacity credits' earmarked for the gas fired power are equally available for those providing a) demand side measures (which shave peak demand) and b) upfront investments in energy efficiency (which saves energy). See some of Nick Eyre's work on investing 'upfront' costs in energy efficiency, being published soon in the journal 'Energy Policy'.

Oh yes, nuclear power........sinking fast.......See the following for example.....

The nuclear industry tend to blame lots of things for their cost malaise. Costs have increased more than expected. Who expected? Nuclear power has never been cheap. It is just that now the Government's 'competitive' framework shows that nuclear is too expensive to be funded under EMR. If you look at the costs of the last Sizewell B plant built in the UK the costs are much the same as are projected for French EPRs and also, incidentally, Hitachi's models. Sizewell B was funded by hidden consumer subsidies. The notion that the French PWR programme involved cost reduction through learning, and that the same would occur if only britain did the same is a myth. Cost increased during the French programme, not declined. See The whole thing of course, was based on the costs being underwritten by the consumer (as nuclear power always is when it gets built). In the absence of commercial competition (to which the renewable companies are exposed in France as elsewhere) the costs of nuclear power could be effectively hidden.

What has changed in recent time is not that nuclear costs have gone up a lot. It is that in the UK the terrible hype pushed out by the nuclear industry in recent years is just being exposed for what it is. Also, the expected blank cheque for nuclear that would help to hide the awkward truth about costs has not emerged.

So, I give a couple of cheers for Ed Davey on all of  this. The trouble is, since the expectations of people like me have been so low for such a long time, we should take this all in perspective!

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