Energy Bill proposals could still freeze out independents, warn Friends of the Earth

 

Despite improvements to the Energy Bill, the proposals could still make it virtually impossible for community groups to set up renewable energy projects and could hand the ‘Big Six’ electricity suppliers even more control over electricity markets than they have at present. That is what Friends of the Earth are saying alongside a new report just published (written by myself). The Government has spurned pressures to establish a simple system, used in Germany, of ‘fixed’ feed-in tariffs that would give an even playing field to community based renewable projects  as well as multinational corporations.

 

The Government’s proposals mean that full access to incentives for renewable energy may be only available for very big power companies that can directly trade on electricity markets. ‘It would be very complex and difficult for companies like us and community renewable schemes in general  to sell power directly onto the market’, said Annette Heslop who is Director of the community wind company Energy4All.  The company has a dozen operational or planned projects based on community ownership. They have been working to establish projects under the current ‘Renewables Obligation’ (RO) programme. But the RO will be phased out after 2014 and replaced with a complex ‘contracts for difference’ (CfD) system that many critics argue has been chosen because this system makes it difficult to work out how much subsidies will be earned by nuclear power. Companies can only access the CfDs if they are able to trade directly on power markets, something which requires many millions of pounds start up capital, regular payment of large fees and a trading desk needing staff.

 Cooperatives UK  says that: ‘With the end of the Renewables Obligation, suppliers will have no incentive to purchase renewable electricity from independent generators’. There are fears that without an obligation, and without serious competition from independent generators, even the Government’s modest plans for renewable generation will not be met.

Following pressure from independent companies the Government have included a clause in the Energy Bill that would give the Government power to make electricity suppliers offer contracts to supply electricity, called ‘power purchase agreements’ (PPAs), to independents. However in practice, when long term PPAs are issued to independents,  the electricity suppliers often keep a large share  of the market value of the renewable generation. ‘The (long term) PPA is likely to generate a lot less income than would be gained on the short-term power markets’ says Annette Heslop of Energy4All. 

Critics argue that the proposed ‘contracts for difference’ (CfD) proposals will allow the Big Six to use the complexity to make extra profits from renewable energy compared to a ‘Fixed’ Feed in tariff system that would be fairer to independents. An independent report published by Cambridge University Professor David Newbery estimated that by 2020 the CfD system is likely to cost £70 million a year more for onshore windfarms alone compared to a ‘Fixed’ Feed in tariff system.

 

Friends of the Earth has just published my report giving the details of how a 'Fixed' Feed-in Tariff is a far better solution that the 'contracts for difference' proposals. It is called 'A Proven Solution - How to Grow Renewables with a Fixed Feed-in Tariff'. See http://www.foe.co.uk/resource/briefings/david_toke_fits.pdf

 

Come to the 'Feeding Renewables' Conference on January 18th!

 

I have been the prime mover in organising a Conference together with the support of the University of Birmingham (and also the collaboration of the Claverton Group of Energy Experts) to discuss what policies are necessary for an effective UK renewable energy programme. This is taking place at Lucas House at the University of Birmingham on Friday January 18th. As can be seen a number of leading speakers and experts on renewable energy are taking part. Although registration fees are payable for corporate delegates, free place are available for individuals upon application to me, at the email address d.toke@bham.ac.uk. See below for details of the Conference.

Feeding Renewable Policy

A Conference presented by The University of Birmingham and the Claverton Group of Energy Experts, Friday January 18th

This Conference will focus on policies needed to underpin a feed-in tariff system for funding renewable energy and also the sort of policy environment that is needed to ensure maximised expansion of renewable energy. The event coincides with the passage through Parliament of the Energy Bill implementing Electricity Market Reform (EMR) which is concerned with giving priority to a low-carbon electricity strategy. A mixture of expert speakers and participants from industry, government, environmental NGOs, and academia will discuss the details of the issues and options. Attendance fees will be £200 corporate, £50 individual and non-profit groups –free to speakers of course. Booking should be done through the online shop at; http://shop.bham.ac.uk/browse/extra_info.asp?compid=1&modid=2&prodid=546&deptid=17&catid=20
 

The Conference will be held in the Edgbaston Room,

Lucas House, University of Birmingham, 48 Edgbaston Park Road, Birmingham, B15 2RA, http://www.venuebirmingham.com/venue/edgbaston-room

Timetable

Note each individual speaker session (apart from the panel session) will comprise a talk for 20 minutes with 10 minutes for discussion

10.20 Tea and coffee

10.50 -11.00 Chair’s opening comments by Dave Andrews from the Claverton Group. Dave has worked widely in the energy industry, including a recent stint at the European Commission, and he has been the biggest force behind the formation of the Claverton Group.

11.00 Holly Tomlinson, Regulation and Compliance Analyst for Ecotricity: ‘How the Energy Bill might affect green electricity suppliers and also renewable generators’. Ecotricity is a leading green electricity supplier and the only one that is principally concerned with installing renewable energy projects.

11.30 Dr David Toke: ‘What sort of Feed-in Tariff do we need for renewables?’ David Toke will discuss the different types of feed-in tariff and what might be an optimum solution for renewables. Dr Toke is the author of a report ‘Fixing Renewables’, a new report published by Friends of the Earth and Senior Lecturer in Energy Policy at the University of Birmingham

12.00 Rachel Cary, Policy Advisor, Green Alliance: ‘Implementing a feed-in tariff for energy efficiency’ Rachel has done a lot of the work on the Green Alliance’s proposal for an energy efficiency feed-in tariff. She leads the low carbon energy theme of the policy work of the Green Alliance. See http://www.green-alliance.org.uk/staff/Policy-team/Rachel-Cary/

12.30 Nigel Cornwall, Managing Consultant and Director, Cornwall Energy: ‘How Electricity Market reform may affect independent renewable generators’. Nigel Cornwall is said to be one of the few people in the country who has a deep understanding of how the electricity system and, in particular, the Balancing and Settlement Code works.

1.10 Lunch

1.40- 2.10 Alan Whitehead M.P. Alan is Chair of the Parliamentary Renewable And Sustainable Energy Group (PRASEG) and is very much involved in debates around the Energy Bill. Amongst his Parliamentary activities he is a member of the Commons Select Committees on Energy and Climate Change and Environmental Audit

2.10-2.40 Martin Alder, ‘What policy do we need to maximise renewable energy deployment?’

Martin runs Optimum Energy Ltd. which specialises in renewable energy contracts, trading and renewable market economics. OEL is a partner with the Wind Prospect Group in the Wind Direct joint venture. He is Director of Energy UK, and Chairman of their Renewable Energy Committee. He represents Energy UK as the UK member of the Eurelectric workgroup for Renewables and Embedded Generation. He is a member of the DECC CfD expert group. ‘

2.40-3.10 David Hirst: What are smart grids? What sort of ‘smart grid’ and demand-responsive system do we need to have a proper functioning system based on renewables? David Hirst is and inventor who runs consultancy through his company RLTec and has been involved in patenting and promoting demand-side response and smart grid technology.

3.10-3.25 Tea and coffee

3.25- 3.55 Gaynor Hartnell, Chief Executive of the Renewable Energy Association (REA). Gaynor will talk about what renewables need in terms of policy support in order to achieve the EU target for renewable energy.

3.55-4.45 Panel Session. Each of the following panel members will give a 6 minute presentation followed by a question and answer session:

Graeme CooperGraeme is Policy Regulatory & Compliance Manager at Fred Olsen Renewables. Fred Olsen Renewables is an independent developer in Norway, UK, Ireland, and Canada

Doug ParrChief Scientist, Greenpeace UK. Doug has been involved in numerous publications, presentation, submissions, campaigns and media interventions promoting sustainable energy on behalf of Greenpeace

Dave TimmsEnergy and Climate Campaigner, Friends of the Earth. Dave Timms, previously Economics Campaigner for Friends of the Earth has led various FOE initiatives, including the 2007-2008 campaign for the small renewable energy feed-in tariff and campaigns for energy efficiency and anti-fuel poverty.

4.45 Chair’s closing comments

4.50 End of Conference

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 http://alansenergyblog.wordpress.com/2012/11/30/things-are-not-as-they-seem-3-the-levy-cap-now-with-added-geek-warning/

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.....

http://www.reuters.com/article/2012/12/04/enel-edf-idUSL5E8N4DIJ20121204?feedType=RSS&feedName=industrialsSector

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 http://engensa.com/blog/wp-content/uploads/2011/06/French-nuclear-negative-learning-by-doing.pdf. 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!