This week, we hear that the UK government has made some investors very happy (Eight renewable energy projects approved) but others rather unhappy (Drax drops 13% as government changes subsidy terms). And, looking ahead, we are told that Onshore wind farms subsidies would be scrapped by Tories. The message is clear: the renewable energy market is entirely shaped by government policy.
What is happening in the UK is not atypical. Many other EU Member States have set up complex schemes, generally built around feed-in tariffs. Essentially, generators and householders are being paid to install various renewable energy or heat systems – wind, solar, hydro, biomass and heat pumps – which would make no economic sense in a normal market.
The reason for this, of course, is that the EU in its collective wisdom agreed the neat but impractical 20:20:20 targets. By 2020, emissions are set to be reduced by 20% and energy efficiency increased by the same percentage, but the icing on the cake is the requirement for 20% of total energy use to be from renewable sources.
In the UK, which always tends to take European directives and targets more seriously than some countries (which may go some way to explain the rather Eurosceptic public mood) our elected representatives went one step further and passed the Climate Change Act in 2008. This in principle commits the country to meet a series of five-year carbon budgets, but exactly what legal sanctions a government can take against itself is not yet clear. There is also the important principle that a current government cannot be bound by the decisions of previous parliaments, leaving the way open to repeal of the Act. However, it would be a brave government which took such action over the life of the next parliament, despite a likely majority of voters in favour.
In the meantime, governments are conscious that they only have a finite pot of (our) money to use to fulfil their objectives. This means that priorities change and what may have appeared to have been a guaranteed income stream for energy companies comes to an abrupt end. Take the situation in Spain, for example, where the crisis-hit government cut subsidies suddenly two years ago.
The longer term consequences of this are not yet fully clear, but there looks to be a loss of €1.2bn of public funding to the renewables industry this year and jobs in the wind industry (presumably largely for installation of new turbines) have fallen from 41,000 to 23,000. There is more background from the BBC report Will the wind in Spain blow slower on the plain? Interestingly, this report leads with a picture of very traditional windmills in La Mancha, reminding us that the modern wind industry is simply a more sophisticated take on a technology which has been with us for centuries.
Another technology which has been around for even longer is burning wood for heat. Admittedly, Drax will be using that heat to generate electricity, but the principle is the same: extracting heat from a medium-density storable source of energy. In a free market, wood is the fuel of choice only for subsistence living or as a supplementary source of heat in modern homes. There is indeed nothing like a cosy wood fire, but they are much less attractive when they are the only source of heat in a hut without proper ventilation.
It was coal, with its higher energy density and ready availability, which enabled the Industrial Revolution. It is coal, oil and gas (and, more recently, nuclear fission) which have fuelled the unprecedented economic growth and prosperity which so many people now enjoy. In the same way that wood, wind and water were displaced by coal in the 18th Century, so fossil fuels will surely be at least partly replaced in the not-too-distant future.
But this will not happen because current renewables technologies are propped up by long-term public subsidies. Rather, it will be that generating and storage technologies have evolved to the point where they are economic to use. The point is often made that current wind turbines and photovoltaic panels have fallen considerably in price and that the electricity they produce is becoming competitive with more conventional generating sources.
By one interpretation, this may be true, but it fails to take into account the additional connection and transmission costs or the overall system cost increases necessary to accommodate an intrinsically intermittent source of energy. The integration costs may be quite manageable up to a point, but increase rapidly as wind and/or solar reaches a critical capacity.
According to Spain’s national grid (REE), wind and nuclear each contributed 21% of electricity generated last year and total wind, solar and hydro capacity is now nearly half the total. However, what they fail to mention is that the output from renewables will rarely be near the peak and sometimes will be close to zero. There has to be fossil-fuelled or nuclear capacity available to cover the troughs and intrinsic variability and that comes at a cost. In effect this is a hidden subsidy which is not assigned to renewables, but would be unnecessary without current levels of wind or solar generating capacity.
New wind turbine installations in Spain have plummeted, but continue to surge ahead in Germany and the UK. But opposition to onshore wind farms has led the Tories to suggest they will increasingly favour offshore ones. This may solve one problem, but it creates another; offshore installations are more expensive to install and operate, so a given level of subsidy pays for less electricity.
And as for wood, it can provide dispatchable electricity, but less efficiently than coal. There is no new technology in the wings which can change this, so Drax and other generators will rely on subsidies for the entire time they burn biomass. At some stage during their life, there may well come a point when the subsidies are withdrawn and the plants decommissioned. That is an inevitable consequence of investing in something which has no chance of being economic.
Martin Livermore
The Scientific Alliance
St John’s Innovation Centre
Cowley Road
Cambridge CB4 0WS
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