RESPONSE TO THE CONSULTATION ON THE UK RENEWABLE ENERGY STRATEGY

Lynne Jones MP

September 2008

Another consultation document

I entirely agree with the Government that we need to radically reduce greenhouse gas emissions and to diversify our energy sources and that measures are needed to save energy and address fuel poverty.  However, I am disappointed at the slow progression through yet another consultation document that seems to accept that it will take several more years before the necessary measures have any chance of being put in place.  Meanwhile, our European neighbours forge ahead in the expansion of renewable energy.  I am therefore a signatory to Early Day Motion 1919, which welcomes the long-awaited policy initiative that the UK Renewable Energy Strategy consultation contains, but urges the Government to pursue the expansion of all forms of renewable energy with the utmost urgency, rather than waiting until 2010.  A copy of this EDM is appended.

Radical action needed

Climate change is the most important challenge for humanity, requiring urgent and radical action.  We will need to work extremely hard if we are to reach the EU target of producing 15% of the Country's energy from renewable sources by 2020.

The Government’s consultation document concedes that the target will only be achievable if there is a completely new approach to generating energy.  I agree and our strategy must focus on bold commitments and on reinforcing our ambition for domestic renewables.  I am alarmed by reports that the Government wants British investments in renewable energy anywhere in the world to count as part of the UK’s effort.  Whilst such investments are welcome, we should not be attempting to either dilute the EU targets or change the way the target is calculated.

The Government proposes to help kick-start emerging technologies by removing all barriers to generation of renewables and providing substantial incentives.  I note that loans and grants will be made available for people and businesses to install green technologies such as solar thermal units and heat pumps.  While this is to be welcomed, I would contend that, unless generous funding is allocated to the scheme and the loans and grants are easily obtainable, this proposal by itself will be insufficient to encourage the levels of microgeneration that will be needed.  One of the advantages of the feed-in tariff system, considered below, is that there is less need for subsidised loans and grants, as many people will be able to finance loans with the income from the tariff.

Feed-in tariffs welcomed

I welcome the Government’s recognition of the potential benefit of a UK system of feed-in tariffs.  I believe that feed-in tariffs backed up by a national programme of installation of smart meters, on a par with the nationwide conversion from coal gas to North Sea gas, would make a significant contribution to meeting the UK's renewable target.  I am one of 281 MPs who signed Early Day Motion 890, which calls on the Government to adopt feed-in tariffs.  A copy of this EDM is appended.

I was pleased when, last November, Gordon Brown appeared to back feed-in tariffs, indicating that it should be "made easier for people to generate their own energy through microgeneration, and sell it on to the grid".  However, little has happened since and there was no inclusion of feed-in tariffs in the recent Energy Bill.   I supported Alan Simpson’s amendment to establish a renewable energy feed-in tariff that would have rewarded consumers for each kilowatt hour of energy exported back onto the public gas or electricity network from a renewable source.  I note that this amendment had strong cross party support; however, it was met with stiff resistance from the Government.  In a sign of the strength of feeling on this matter: when it came to vote on the Bill, 33 Labour MPs defied the whips and voted against the Government.

The consultation document says that the Government will give ‘consideration’ to feed-in tariffs.  I would strongly urge the Government to move from such a half-hearted response and commit to a feed-in tariff for microgeneration and community renewables as a matter of urgency.  Feed-in tariffs have been successfully introduced in many EU countries and have led to rapid increases in the deployment of technologies such as solar power.  The UK, with our system of Renewable Obligation Certificates (ROCs), currently lags far behind all our main EU neighbours.   We generate only 4% of our electricity from renewables, primarily hydropower, – a figure that has changed very little over the past few years, in spite of a succession of energy bills.

In July 2007, The Environment, Food and Rural Affairs Committee, of which I am a member, called for a feed-in tariff to be introduced to support small scale renewables.  We recommended that: “the Government replaces ROCs and export payments with a single fixed rate per KWh, varying according to the type of generation.”  The relevant section of the Report, Climate Change: Citizen’s Agenda is appended.

The German Model

The German model of feed-in tariffs has proven to be extremely effective for boosting adoption of renewable energy technologies.  Germany currently produces 15% of its electricity from renewable sources, compared to the UK's 4%.

I urge the Government to adopt the same approach for the UK, as has been so successful in Germany, where householders are well-rewarded for feeding the electricity they produce from microgeneration into the national grid.  For example, the rate of these feed-in tariffs for photovoltaic panels has fuelled their rapid expansion and, though there is as yet no mechanism for paying for heat, a premium rate for systems that make use of waste heat from electricity generation has encouraged combined heat and power.  Furthermore, higher production helps push prices down sharply.  Last year, Ashley Seager reported in The Guardian that: “A typical 3kw PV system costs about £17,000 in Britain but less than £10,000 in Germany.”  The German Deputy Environment Minister, Matthias Machnig, has said that the German feed-in tariff has had the effect of creating new, world-class industries resulting in 250,000 jobs and billions of euros of exports a year.

One of the arguments the Government has deployed against the feed-in tariff system is that it is too expensive.  However, Germany has shown that action against climate change and economic growth can go together.  Evidence to the above-mentioned Environment, Food and Rural Affairs Committee Report was that the average annual cost per customer of the German feed-in tariff is about £12, compared with about £7 for the ROC system.  But, importantly, the German system supports far more renewable generation.

UK Government incentives to householders have so far failed to persuade many to invest in renewable energy. The Government currently gives grants to help with the initial costs, but these are too small and too restricted to be effective and people are naturally put off by the bureaucracy involved and the high initial cost of buying and installing them.  In comparison, German households and businesses that generate renewable energy can sell it back to the grid at more than triple the market price, which means that they have a reason to install microgeneration technologies that goes beyond environmental conscientiousness.

Solar Energy

I concur with the view of Solarcentury, a company specialising in solar energy, that there seems to be very limited ambition for solar photovoltaics (PV) contained in the consultation document.  The 2020 target should mean that the UK needs significant contributions from all proven renewable energy technologies, which includes solar thermal (already reasonably cost-effective) and solar PV.  I have installed solar thermal in my constituency home and solar photovoltaics, as well as a 1kw wind system, in an off-grid property in Wales so I have direct experience of the effectiveness of these technologies.

In 2006 the President of Japan's Sharp Corporation, the world's biggest maker of solar cells, stated that he expected the cost of generating solar power to halve by 2010, halve again by 2020, and to be comparable with that of nuclear power generation by 2030.  The projected drop in photovoltaic prices is in line with the timescale of power from a proposed new round of nuclear build in the UK coming on stream.  To my mind, this simply adds to the case against nuclear power, which I will discuss in more depth below.

As outlined by Solarcentury (in their response to the consultation), the global installed solar PV market is forecast to reach 11 GWp per annum by 2012.- the equivalent of 4.4 million domestic solar PV installations a year.  At the current rate of solar PV growth in the UK, the UK share of that global market will be just 0.1%.  It seems illogical for the Government to effectively turn its back on a global market projected to be growing by 80% by 2012, especially in the context of the EU's 2020 targets.

Last year, the estimate is that just 270 solar photovoltaic panels were installed in Britain's homes, compared with 130,000 in Germany.  This May, David Orr, Chief Executive of the National Housing Federation told MPs on the Environmental Audit Committee that, at the current rate, it would take the UK 1,500 years to equal the number Germany already has.  He went on: “One of the consequences of that is that solar panels cost half what they cost in the UK because the supply chain is geared up to delivering them and there are 10,000 people involved in producing them - a really good employment generator.”

Nuclear Power not needed

Nuclear power has often been promoted as the answer to climate change and energy security but I would argue that, given determined and long-term investment, a combination of energy conservation and renewable energy sources could meet all our needs without the security risks associated with nuclear generation.

I was therefore disappointed to note that, in the consultation document, the Government says that they will invest more in renewable energy in the UK, alongside other low carbon sources such as nuclear power.  It is also stated that active steps will be taken to ‘open up the way to the construction of new nuclear power stations’.   This is apparently now to be done through foreign-owned companies.  I would argue that there has already been a great deal of investment in nuclear power, whilst investment in renewables has been risible.  Funding for renewables should be of a similar order to that which was available to the nuclear industry during its period of peak research and construction.

The Government’s Energy White Paper of 2003, “Our energy future: creating a low carbon economy”, spelled out an exciting vision with which I entirely agreed: it set out policies focused on energy efficiency, renewable technologies and a decentralised energy system, where energy was both generated and consumed at a local level.  Since then there has been a failure to make investment in energy efficiency and renewable energy technologies on the scale that is needed, resulting in a reversion to old-fashioned policies reliant on nuclear power.

Renewables, including, wind, wave, solar and tidal power, could deliver much more electricity than any new fleet of nuclear reactors - and more quickly.  Renewable heat from solar thermal, ground and air source heat pumps and waste/biomass could replace much of our use of oil and gas for heating.  But the potential of these sources needs to be harnessed now if we are going to end our dependence on fossil fuels and reduce carbon emissions.  Ambitious support for renewables will bring benefits - not just of clean energy, but of the jobs and economic growth that come from pioneering new industries and technology.

A National Strategy for the Current Financial Climate and Towards Peak Oil

The current financial climate may affect people's enthusiasm for making choices based on environmental considerations but expectations of high fuel prices will encourage people to look to energy efficiency to reduce their bills and to view clean energy technologies as having the potential to be more competitive in future than continuing to rely on imported fossil fuels.

Thus more and more people will be considering installing micro-generation systems in their homes and communities.  This will be less of an option for those on low and modest incomes.  The Government should therefore adopt a system that provides generous grants to people on low incomes (either individually or in community schemes or via social landlords/local authorities) and guarantees to give those with sufficient income to raise loans a reasonable return over the period of the investment, as is the case with the German feed-in tariff system.  The strategy should support community schemes and investment on a street by street basis, rather than “pepperpotting”.  Urban renewal envelope and block contracts, as took place in the 1980s through local authorities working with private contractors, could be a model for this.

Conclusion

A huge expansion of renewables is required to meet the EU-wide target of 20% renewable energy by 2020.  The Government notes in the consultation document that the UK’s target to achieve15% of our energy from renewables is a ten-fold increase in renewable energy generation from where we are now.  Much of this will come from large scale projects such as on- and off-shore wind farms and wave and tidal power.  However, a substantial contribution could be made by small-scale renewable technologies such as solar panels on roofs or community combined heat and power derived from household waste.  Many large and small businesses could also generate much of their own heat and power through on-site renewable technologies.  Without the adoption of the feed-in tariff mechanism to support domestic and community microgeneration, the Government will fail to demonstrate its commitment to the EU renewables target.

LYNNE JONES MP

September 2008

Appendix

EDM 1919
RENEWABLE ENERGY STRATEGY

That this House congratulates the Government on the publication of the UK Renewable Energy Strategy consultation; welcomes the long-awaited policy initiative that it contains; and urges the Government to pursue the expansion of all forms of renewable energy with the utmost urgency, rather than waiting until 2010.

EDM 890
FEED-IN TARIFFS FOR RENEWABLE ELECTRICITY

That this House notes that massive expansion of renewable energy generating capacity is essential in order to cut the UK's carbon emissions significantly and to meet the EU renewable energy targets; further notes that the UK generates just five per cent. of its electricity from renewable sources; recognises that many European countries have adopted a feed-in tariff system with considerable success, paying a long-term, guaranteed premium price for renewable electricity exported to the grid; appreciates that a feed-in tariff has played a transformational role in Germany which now generates 13 per cent. of its electricity from renewable sources and employs 236,000 people in the renewable energy sector; further notes the finding of the Stern Review that `comparisons between deployment support through tradeable quotas and feed-in tariff price support suggest that feed-in mechanisms achieve larger deployment at lower costs'; believes that there is an urgent need for a feed-in tariff to support smaller scale renewable electricity schemes; recognises that a UK feed-in tariff could work alongside other policy mechanisms that support large scale renewable electricity generation; and calls on the Government to introduce the necessary enabling powers for a feed-in tariff in the current Energy Bill and give a commitment to introduce, following appropriate consultation, a UK feed-in tariff to support smaller non-merchant renewable electricity generation

The Environment, Food and Rural Affairs Committee: Climate Change: Citizen’s Agenda

FEED-IN TARIFFS

126. As well as placing a duty upon the Secretary of State to report annually on the level of emissions of greenhouse gases in the United Kingdom and on the steps taken to reduce emissions, the Climate Change and Sustainable Energy Act 2006 places an obligation on energy suppliers to develop a scheme by October 2007 for paying for exports of electricity to the national grid, for example from domestic microgeneration.

127. B&Q expressed concern about the "reluctance of energy suppliers" to engage in 'reverse selling', i.e. to offer a fair price for any electricity exported back to the grid by householders.[181] According to figures provided by Alan Simpson MP, there is currently a large degree of disparity between suppliers in terms of the price paid back to customers for any surplus energy they wish to sell back to the grid. Only npower currently buys energy back at the same price at which it sells it for. Ofgem said that it is "supporting and participating in a project under the auspices of the Electricity Networks Strategy Group" to address this issue, which, it says, is "one of the key pre-requisites for the greater penetration of microgeneration in the market". [182] Ofgem told us that "we have warned the companies that if they do not sort out selling back we will basically put on the regulatory hobnails and sort it out for them".[183] According to the Energy White Paper 2007 "All six major energy suppliers have now committed to publishing easily accessible export tariffs."[184] During our visit to Wales, Ian Draisey, Marketing Director at Dulas Ltd. told us that feed-in tariffs were needed to make renewable technologies commercially viable for large numbers of households. At present between 10 and 100 times the current number of customers wanted to install microgeneration technology but couldn't justify the cost.

128. During our visit to Germany we heard about the Renewable Energy Sources Act (Erneuerbare-Energien-Gesetz, or EEG), through which a premium "feed-in tariff" is paid to microgenerators for electricity generated from renewable energy sources. The level of premium depends on the year of installation, but once determined remains constant, and is guaranteed for 20 years. For example, photovoltaics generate between 38-54 €cents per kWh depending on their location. All the electricity generated is fed back into the grid, so the householder is paid for every kWh of renewable energy generated, and purchases all electricity used at a lower rate (approximately 18.6 €cents/kWh in 2005) from the energy supplier. The German Renewable Energy Act is funded through 3% of the price per kWh paid by the consumer to the electricity supplier—loosely equivalent to €1.55 per month (about £12 per year) for an average household consuming 3,500 kWh per year.[185] By comparison, the Renewables Obligation cost the average UK household £7.35 per year in 2006-07. Projections by Ofgem predict that this will increase to £11.41 by 2010-11 based on 2006 prices.[186] Although there is no public subsidy required for the German 'feed in tariff' system, this scheme is still paid for by electricity customers since the costs borne by energy suppliers are simply passed on—in 2005, the net cost to consumers was 2.3 billion Euros (approx £1.6bn).[187] According to German Government figures, the total emissions saved by renewables in Germany was 84 million tonnes of CO₂ in 2005.

129. A clear majority of European Member States operate a feed-in tariff support system for renewable technologies, as opposed to the tradable certificate system such as the Renewables Obligation that operates in the UK. The German feed-in tariff structure has stimulated demand for microgeneration technologies to the extent that at least 170,000 jobs have been created (2005 figures), an increase of 10% on the previous year.[188] Germany is increasing its renewable energy output faster than expected, and in July 2007 announced that it has already met its 2010 indicative target to supply 12.5% of electricity from renewables.[189] During our visit to Germany we heard that the feed-in tariff system had been so successful in Denmark that it had already met its 2010 target for renewable energy generation. By comparison, renewables only contributed 4% to the UK's electricity supply in 2005, against a target of 10% by 2010.[190] According to data from Ofgem, only 57 of the 975 generators accredited to receive Renewables Obligation Certificates (ROCs) were small generators (below 50kW), and were accredited to individuals as opposed to businesses.[191]

130. The UK Government is committed to the Renewables Obligation, and ruled out fixing the price paid for renewable generation from its recent review of this policy.[192] Feed-in tariffs were not mentioned in the review's consultation document. However, the then Minister of State, Ian Pearson MP, observed that: "[t]he point about selling energy back into the grid and making it easier for people to be able to do that I think is a very important one, it has a symbolic importance as well as a financial one and we need to get this sorted out."[193] In May 2007, the Government conceded that the Renewables Obligation was "designed to support large scale deployment of renewables and we do not feel that it is the best way to deliver the incentives that the microgeneration industry require".[194]

131. The current system of Renewable Obligation Certificates (ROCs) for individual householders is too unwieldy for microgeneration, and risks losing citizen engagement. We recommend the Government replace ROCs and export payments with a feed-in tariff with a single fixed rate per kWh, varying according to the type of generation.

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