The European Commission has launched a thinly veiled attack on feed-in tariffs and the latest Energy Communication from the Commission threatens to change state-aid rules that currently favour renewable energy. Meanwhile the UK debate is distracted by the arguments surrounding the Government's fantasy new nuclear power construction programme.
The EU Commissioner for Energy, Günther Oettinger has criticised the feed-in tariff used in his own country (Germany) for distorting the market - Apparently he believes that the system of renewable energy subsidies in Germany is unfair in the context of wholesale power prices being pushed down not only in Germany but also in The Netherlands and Switzerland. One may wonder just what is probelmmatic about wholesale powered prices being reduced, especially given the EU Renewable Directive requiring that 20 per cent of EU energy should come from renewables by 2020.
One also wonders how exactly the renewables target is to be met without special incentive regimes - subsidies - call them what you like - for renewable energy. However, it seems that given two apparently conflicting objectives, that is clearing away 'distortions' in energy markets caused by Government interventions, and the target for renewables, Oettinger has decided in favour of stopping what he calls 'distortions' in the energy market. Coincidentally, of course, this coincides with the agenda of the major electricity utilities and their mainly fossil fuel (plus some old nuclear) portfolios who are concerned that the growing renewables market (almost entirely owned by independent companies in Germany) is depriving them of electricity sales. You can see Oettinger's reported attitude in a news report on Renewables International website, http://www.renewablesinternational.net/eu-energy-commissioner-criticizes-german-energy-policy/150/537/59979/.
You can also see the formal notices from the European Commission in the website
http://ec.europa.eu/energy/gas_electricity/internal_market_en.htm
and specifically, the detailed Communication on:
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:52012DC0663:EN:NOT
Please note the passage:
'The Commission is in the process of reviewing the guidelines on State aid for
environmental protection to reflect changes in the technological landscape and
EU policy objectives in the energy sector, while minimising competition
distortions in the internal market.
In particular, the revision aims at ensuring that State aid control
facilitates the granting of aid provided that it is well-designed, targeted,
least distortive and provided that no better alternatives (regulatory, market
based instruments) are available. The Commission will encourage in particular
solutions that are cost-efficient and promote cross-border integration.'
Currently state aid rules give a clear exemption to Governments to establish and operate feed-in tariffs for renewable energy, but as this passage suggests, this exemption is now under threat. The Commission hints that it favoures some pan-EU certificate-based scheme ('market instruments'). This sort of scheme is well known for being very expensive (like the UK Renewables Obligation), except that it would not be as effective as the Renewables Obligation in building capacity since a) the EU could never agree a strong enough pan-EU single trading instrument (look at the poor showing of the EU-ETS 'market instrument') and b) the whole system would be under the effective control of the major electricity companies who would control the certificates. Independent investment, vital for acheiving the targets and giving competition to the multinationals, would wither.
The Commission says it wants lower prices for the consumer - but what will happen if the Commission gets its way is that more of the energy will come from fossil fuel plant run by multinational companies. The interests of the electricity majors are clear - either the renewables market has to be controlled by them or there should be no significant renewables market.
The only (small) crumb of comfort in all of this is that the Commission's proposals would not help nuclear power in the UK. Outside of what seems currently to be the unlikely possibility that the UK Treasury would sanction a cost recovery guarantee being handed to EDF (a blank cheque), new nuclear construction seems very unlikely. Of course you wouldn't believe this by reading what is said in the newspapers, but then there are too many people who are paid to be optimistic about nuclear power. Some suspect that the Government will try and hide a 'blank cheque' for nuclear in the so-called 'investment instruments' that can keep financial terms secret - it is very necessary to make an issue out of this possibility - see the article in The Independent on http://www.independent.co.uk/news/uk/home-news/taxpayer-billions-could-be-secretly-funnelled-to-edf-to-underwrite-cost-of-proposed-power-station-at-hinkley-point-8473810.html and also see the Parliamentary exchange on http://www.parliament.uk/business/publications/hansard/commons/todays-commons-debates/read/unknown/109/
However the 'investment instrument scheme', if it is a secret plot to give back door assurances to nuclear power, looks so hare-brained from a number of angles that the whole thing beggars belief. One problem of course, is that too many people have invested too much commercial and political capital in the public relations fairy tales spun by nuclear supporters over the past few years that they have lost touch with financial and commercial realities - see earlier blogs on this.
But a really major tragedy is that the nonsense about the fantasy 'new nuclear' programme is distracting the attention of British opinion away from the threats to renewable energy programmes. First there is the issue of the lack (as yet) of robust incentives for independent generators in the UK, under the proposed Electricity Market Reform, which are vital to the renewables programme continuing even at its present level of expansion (see earlier blogs). Second there is the very real threat posed by the EU Commission against any renewable energy strategy.
Thursday, 31 January 2013
Saturday, 12 January 2013
Green energy conference to discuss Government plans for renewables
Feeding Renewable Policy
A Conference presented by The University of Birmingham and the Claverton Group of Energy Experts, Friday January 18th
Find copies of some of the documents and powerpoint presentations discussed at the Conference on :
http://www.birmingham.ac.uk/schools/government-society/departments/political-science-international-studies/news/2013/01/feeding-renewability-conference.aspx
See some comments on the Conference from Birmingham Friends of the Earth activists:
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 individuals and free to voluntary groups – also 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
Note each individual speaker session (apart from the panel session) will comprise a talk for 20 minutes with 10 minutes for discussion
Find copies of some of the documents and powerpoint presentations discussed at the Conference on :
See some comments on the Conference from Birmingham Friends of the Earth activists:
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 individuals and free to voluntary groups – also 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
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
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 David Olivier. David will discuss strategies for reducing energy demand in buildings and in the supply system via not only CHP but also heat pumps. He has helped bring to fruition a large number of low-energy domestic and commercial buildings and associated energy systems over the past 20 + years and as such is among the most knowledgeable and experienced low energy buildings consultant in the UK
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 Cooper, Graeme is Policy Regulatory & Compliance Manager at Fred Olsen Renewables. Fred Olsen Renewables is an independent developer in Norway , UK , Ireland , and Canada
Doug Parr, Chief Scientist, Greenpeace UK
Dave Timms, Energy 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
Friday, 4 January 2013
British increase in coal generation is much bigger than Germany's
The latest energy statistics suggests that Germany is doing much better in restraining coal used to generate electricity compared to the UK. Yet, to read the British press you would automatically assume that the exact opposite was true and that coal use was increasing dramatically in Germany compared to the UK - All, allegedly, because of the German policy of switching away from nuclear power and towards renewable energy and energy efficiency.
According to this week's Economist magazine 'In Germany, RWE, the biggest user of coal in Europe, generated 72% of its electricity from coal and lignite (a dirtier, low-grade form of coal) in the first nine months of 2012, compared with 66% over the same period in 2011'. The article also comments 'By displacing conventional forms of energy this way renewables have undermined utilities’ finances. Moody’s, a ratings agency, recently said the whole sector’s creditworthiness is under threat. In response, companies are switching from gas to coal as fast as they can, so renewables are in fact displacing gas but not coal.'
See http://www.economist.com/news/briefing/21569039-europes-energy-policy-delivers-worst-all-possible-worlds-unwelcome-renaissance
What the Economist does not mention is that the shift from coal to gas is independent of whether, like Germany, the country has a policy of phasing out nuclear power. This has to do with relative energy prices. Indeed, in the the UK, despite the fact that its pro-nuclear establishment has ordered the extension of the life of existing nukes and wants (wishfully!) to build more nuclear power, the shift from gas to coal is even bigger than the figures quoted in the Economist! As is stated on page 37 of the latest statistical digest produced by the Department of Energy and Climate Change:
'Gas’s share of generation fell from 46.3 per cent in the third quarter of 2011 to 28.2 per cent in the third quarter of 2012 due to high gas prices. It was gas’s lowest share of generation for the third quarter in at least 14 years. Coal’s share increased from 22.9 per cent to 35.4 per cent over this same period'. See
http://www.decc.gov.uk/assets/decc/11/stats/publications/energy-trends/3945-energy-trends-section-4-electricity.pdfIt does seem clear that the Economist published its piece in a context where a lot of British public opinion seems to live in some dreamworld where everything is always worse once you step onto the continent. In this case people may want to hear stories about how the Germans are foolish green idealists while the Brits are sensible followers of a sustainable energy path. The story also seems to suggest that a policy which weakens the hold of German utilities on energy markets is a bad thing. Is it really? So who is the Economist writing to please exactly? The Economist claims to be able to give people sound business information, but in publishing an alarmingly selective set of statistics it seems to be grossly failing in this case.
Of course, as this blog has suggested, the policies in Britain are designed to safeguard and strengthen the grip of the major utilities on the energy business. This strategy is very damaging to a sustainable energy strategy. The truth is that the Germans are much nearer to getting things right than we are.
Friday, 21 December 2012
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.
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.
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
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 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!
Friday, 23 November 2012
More Government hot air on green energy spending
Today's announcement by the UK Government that it may allow several billion of pounds spending on green energy by 2020 is little more than hot air. There will be practically no new renewable energy projects unless the Government sets a good enough 'strike price', that is a high enough level of guranteed income per each unit of electricity generated. Independent renewable energy generators are likely to be frozen out of the market completely by the 'contract for difference' (CfD) arrangements they propose. The prospect of new nuclear power (which is not green anyway) seems increasingly unlikely.
First let us deal with the nuclear hot air that abounds. I must say it is puzzling that press releases issued by EDF agencies and John Hayes, the Minister of State for Energy, give the impression that a deal with EDF over Hinkley C is imminent. But this is only puzzling if you ignore the tendency of Government, for six years now, to announce the imminent arrival of nuclear power. It is becoming a bit like 'Waiting for Godot'. But on a rational level the propect looks exceedingly unlikely.
As discussed in earlier blogs, nuclear power would need a strike price of over £150 per MWh before Hinkley C even begins to look financeable (even ignoring the fact that the EPR is a design with no generating experience). At a 10 per cent internal rate of return (IRR) Hinkley C might just be financeable at a strike price of around £100 per MWh (the sort of level the Government is rumoured to set). But EDF are going to have to make the investment 'on' balance sheet - that is by holding the debts on their balance sheet- which means deferred dividends for shareholders. This is 'equity' financing from which shareholders will expect a much higher return - 15 per cent IRR being a minimum benchmark. Yet EDF could earn this level putting the money into lots of other projects. This also assumes that EDF has much money to invest, and even this is very doubtful. In fact EDF's share price has fallen considerably in recent months and continues to fall and its debt to earning ratio is rising to worrying levels. See http://www.bloomberg.com/news/2012-07-31/edf-seeks-partners-to-build-u-k-reactors-as-debt-balloons-1-.html
http://www.businessweek.com/news/2012-11-14/edf-slides-on-profit-outlook-cut-in-output-target-paris-mover
Indeed, just as EDF is reported to be seeking new business partners for its share in new nuclear investments, its partner in Hinkley C, Centrica, is now on the edge of formally ending its 20 per cent option in Hinkley C. Centrica says, in effect, it has much better things to do with its money. See http://www.thisismoney.co.uk/
The only possibility for salvaging this position would seem to be some sort of Government underwriting or something to that effect. This appears to have been ruled out by the UK Government, and although, in theory, the French Government could do this, this raises the issue of why they would want to do it. AREVA the nuclear constructor (whose holding company is mostly owned by the French Government) underwrote an EPR being built in Finland. Yet AREVA's financial position is, shall we say, challenged. See http://en.wikipedia.org/wiki/Areva. Given the difficult state of French public finances, effective handouts by the French state to foreign nuclear adventures by state companies look unlikely, and certainly very irrational. Francois Hollande has appeared to rule this out as well.
As if all of this was not bad enough news for nuclear prospects, the Government are also in trouble with in Brussels with its nuclear subsidy plans, with its request under state aid rules for the CfD nuclear arrangements being seriously questioned. See my earlier blog on this. See also Alan Whitehead's blog at
http://alansenergyblog.wordpress.com/2012/11/19/things-arent-quite-what-they-seem-2/
The prospects for renewable energy are a little better than this, although the prospects are hamstrung by the Government proposals, which as discussed in earlier blogs, will as they stand, effectively prevent independent generators from establishing projects. Given that one half of the Government does not want many more onshore windfarms anyway, one must question the Government's will to do much about this. Of course onshore windfarms can be funded with relatively modest subsidies from the consumer. They will need a 'strike price' of about £80 per MWh for a reasonably sized programme if this was funded by a proper feed-in tariff - a so-called 'Fixed' Feed-in tariff that allowed independents to take up power purchase contracts.
But the Government will have to offer more than £100 per MWh if much of the 'Round 3' offshore windfarm programme is to be built. Something in the range £120- £130 per MWh is likely to be required, depending on the success of the cost reduction programme. Solar pv also needs at least this sort of level for the large schemes, and at least £160 per MWh for smaller ones. The costs have come down a lot, but the orders need to keep coming in to maintain this progress. The only surviving Conservative minister with significant green credentials, Greg Barker, appeared to have won a concession for an energy efficiency feed-in tariff, but how much of a real option this will be also remains to be seen. Judging by Ed Davey's answers to Alan Whitehead at the DECC Select Committee on November 20th, that might not amount to very much. Thanks to David Lowry for pointing this out. See
http://www.publications.parliament.uk/pa/cm201213/cmselect/cmenergy/uc749-ii/uc74901.htm
The point about today's announcement about the Energy Bill is that it says absolutely nothing about these details of strike prices and contractual terms. These are not set to be announced until at least February next year, and there are even doubts about the level of transparency about such issues. Quoting large sums for the 'Levy Control framework' (LCF), is pretty meaningless. The LCF is, in any case, merely an artificial Treasury invention designed to give it formal power to control DECC spending commitments. Unless the right strike prices are set, and unless the right contract terms are given, very little of this sum will actually get spent. Indeed, the advantage (to the Treasury) of announcing a reasonably large figure LCF figure for 2020 (although nothing for beyond that) is that discussion is focussed on the cost to the consumer, whereas in fact under the real Government plans, spending on renewables is likely to be quite thin by comparison - with consumer costs, in reality, being very small indeed. So we should brand this announcement for what it is - a lot of hot air. We still await news of some substance. Indeed we should demand some substance in the way of real feed-in tariffs for real green energy sources: renewable energy, energy efficiency and most certainly not nuclear power.
Wednesday, 14 November 2012
How gas manipulation scandal could spread to electricity with Electricity Market Reform
Media reports about price opacity in gas trading markets sets a context in which price manipulation
can occur. The Government is about to introduce
an Energy Bill implementing Electricity Market Reform which will make the
precise amount of subsidies paid to nuclear and renewable energy sources very
difficult to calculate and handover more control of the the renewables market
to the major electricity players. In the process this reform will effectively
prevent independent developers from setting up renewable energy
projects.
Independent analysts have already warned that the complex and
highly opaque system of 'contracts for differences feed-in tariffs' (CfD- FiTs),
that is proposed by the Government, will create favourable conditions for major
electricity companies to make money out of the complexity. Currently we have a
relatively transparent method of calculating how much extra is paid for
renewable energy, but this will disappear as the funding for 'low carbon' energy
sources is pooled together. What a coincidence it is that we will find it
difficult to calculate exactly how much extra (on top of market rates) is paid
for nuclear power! Proposals for a much simpler and cheaper 'Fixed FiT' system
(used in Germany) have been sidelined. This system would be much more
transparent and would also give independent developers good chances of
establishing projects.
Under the Government's EMR
proposals, there will be no publicly accountable monitoring of subsidies paid to
low carbon generators (the government insists they are not subsidies anyway)
because the system of paying 'top-ups' will be administered through ELEXON, a
private subsidiary of the national Grid. There is no arrangement, at least so
far as I can see in the currently constituted Bill, for there to be any publicly
available information on subsidy levels or 'top ups'. Payments to individual
companies for particular projects will be labelled as 'commercially
confidential'. The Government may establish a body to provide backing to the
contracts (to provide guarantees of payments) but this does not mean that there
would be any monitoring of payments actually made.
Currently, under the
Renewables Obligation, OFGEM administers issues of renewable obligation
certificates (ROCs), and it is possible to get hold of details of ROCs issued to
particular generators from OFGEM. This information is relatively easy to
understand and turn into estimates of subsidies paid. However OFGEM is being
kept out of direct monitoring of payments made under the CfD arrangements, so
this avenue will not be open.
It may be possible to make generalised
informed guesses about what levels of support particular technologies are
receiving through CfDs by subtracting estimates of power prices from 'strike
prices' for the technologies (inasmuch as even these are made public - not
certain in the case of EDF and Hinkley C yet), but these will be only informed
guesses. Future pressure may require the National Grid to publish details of
their own estimates of the power price fluctuations (necessary to make decisions
about top-up payments), but even if this happens a) this information will
require the help of experts to generate estimates of 'top-ups' paid, and b) even
then there will be a level of uncertainty because the power prices estimated by
the national Grid will not necessarily be the same as the money that is actually
received by the generators. Fears have been expressed that the major electricity
companies can manage the complexity to generate extra profits for themselves out
of the system.
Because CfDs are only available to companies that trade
on electricity markets (which is a very expensive, capital intensive operation
usually only open to electricity suppliers and very large companies) this
effectively excludes even quite large independent companies from developing
renewable projects. It is ironic that at a time of criticism of the 'Big Six'
the EMR firmly entrenches control of the renewables market in their favour. A
report I have written about this is being published by Friends of the Earth.
Learn more about this controversy. Hear and discuss how propects for renewable energy and independent developers could be improved with the right amendments made under the forthcoming Government Energy Bill. Do all of this at a Conference on January 18th at the University of Birmingham. Details can of the Conference can be found at: http://www.claverton-energy.com/wp-content/uploads/2012/11/Feeding-Renewable-Policy_yc_5_10_2012.pdf
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