The UK government, like other EU Member States, has allocated a certain pot of money to spend on expanding renewable energy capacity as part of its plan to meet greenhouse gas emissions reduction targets. A large part of this is in the form of guaranteed prices for wind and solar electricity generation, bridging the gap between the market price and the price needed to provide sufficient incentive for operators.
The problem with any such mechanism is that it has to be planned well ahead and certain assumptions made. The Department of Energy and Climate Change forecast in March that the electricity price would be £68 per megawatt hour in 2020 and £80/MWh in 2030, up from a lowish £40 currently (a consequence of the mild winter).
Aurora Energy Research disagrees with these figures, predicting last week that the price would be £46/MWh in 2020 (down from an average of £51 in 2013) and just £41/MWh in 2030 (about half the DECC figure). This is compounded by the announcement in this year’s Budget that the Carbon Floor Price – a levy on fossil fuel use which partially offsets renewables subsidies – is to be frozen. There are more details of the Aurora report in a recent Financial Times story: Ministers warned of threat to green energy projects
The whole complex system comes under the umbrella of the Levy Control Framework, which caps the total cost (paid for via consumers’ bills) at a fixed amount each year, rising to £7.6bn in 2020. Unless this is increased, there is likely to be a shortfall in the renewables capacity installed. On the other hand, if the cap is raised further, consumers will pay the price and may begin to rebel. After all, consumers are also voters, and politicians ignore them at their peril.
In truth, the Westminster government has multiple dilemmas, as indeed do other Member States, Germany in particular. Having set off down this particular road, it is very difficult to make a significant change in policy. The root of the problem is the insistence on a target for renewable energy. Across the whole EU, this target is 20% of total energy use by 2020, but individual Member States have different goals depending on their circumstances. The UK, being a slow starter in such matters, has a commitment to a 15% use of renewables. Because of the low baseline when the target was set, this is actually rather demanding.
As renewable energy generation is more expensive than conventional power stations, it has required subsidies. These have been reduced to a degree as the price of wind turbines and solar panels has dropped (in the case of photovoltaics, largely due to the very significant manufacturing capability of China and an overall excess capacity in the industry), but the fall-off in investment when subsidies are reduced is a good indicator of such schemes’ lack of economic viability.
The other factor which does not seem to figure directly in politicians’ calculations is that it is not the price of wind turbines or the cost of the electricity they produce when the wind is blowing, but the total cost of the electricity supply system which is the important parameter. By some reckoning, modern wind turbines can generate electricity at a competitive price, but this does not take account of either the cost of linking them to the grid, often over long distances, nor of the fact that they produce electricity only intermittently, and not necessarily when there is a demand for it.
Another problem is the widespread public opposition from communities close to proposed wind farms. Loved by some as a thing of beauty, many of those in close proximity to wind turbines regard them as ugly, intrusive, noisy eyesores. This has put more emphasis on building wind farms off-shore, where their presence is less obvious.
At one level, this makes a lot of sense, particularly as their output is somewhat higher (although still intrinsically intermittent). However, off-shore turbines are more expensive to install and maintain and, crucially, each one needs to be connected to the land via undersea cables. All in all, this makes off-shore wind considerably more expensive than on-shore, which of course compounds the government’s dilemma over subsidy caps.
On one hand, politicians are committed to the target of 15% of electricity from renewable sources by 2020 and therefore want to achieve this in the least costly way, by encouraging land-based developments. On the other hand, public opposition this has created pushes them towards more costly off-shore developments, which makes achieving the target at an acceptable cost even less likely.
The carbon floor price was another initiative designed to incentivise a move away from fossil fuels. However, the UK’s unilateral action threatened to disadvantage domestic industry, hence the current freeze.
Crunch time must come before too long. Whichever government is in power at the time must make a hard decision about which path to take. Overtly cutting back on support for wind farms will cause howls of anguish from the renewables lobby, but concentrating on more on-shore wind farms could be electorally disastrous.
More off-shore wind capacity would hardly be better because it would raise utility bills more. Although the economy is at last picking up, the UK still has an enormous pile of debt to be serviced and paid off and is running one of the higher deficits in the OECD. Tax rises and/or public service cuts are inevitable and unnecessarily inflated electricity bills will test the electorate’s patience. Choosing to maintain the current cap and missing the 2020 target would put a major crack in the edifice of EU climate change policy, with unknown consequences.
Next May’s general election may make little difference to the final decision, as there is currently a broad political consensus on renewables policy. However, at some stage the government of the day will have to make a tough decision and this cannot be put off forever.
Martin Livermore
The Scientific Alliance
St John’s Innovation Centre
Cowley Road
Cambridge CB4 0WS
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