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wanting to change its reporting structure,” continues Dale. “What’s fun about working at Statkraft is the importance attached to thorough analysis and innovative thinking. When we looked at the number of wind farms that were built in each country,we thought that’s all well and good because the UK has built a few, but we’ve got quite a big economy. What does it look like if you normalise that with the size of economies? I was shocked to see that China and India were doing more relative to the size of their economies than we are.” And with China and India set to lead the world’s future economy, this was an encouraging sign for Dale. “Seeing as China and India have huge amounts of indigenous coal ,everyone was worried about the Kyoto Protocol and standing up to this reduction in carbon and particularly with attorneys in India saying, ‘Look, you guys have done all the polluting in the industrial revolution and it’s our turn to grow now. By the way, we’ve got all this indigenous coal; we’ll be burning that.’ It was quite a scary thing, but instead these guys are embracing the idea of renewables. “China appears to have decided that this is going to be a big competitive advantage in the future for the nation: they’re going to make sure that they build wind farms in the future and have an industrial base in building such farms to export to the rest of the world. This is good because in the end carbon is a global problem and if you can get more carbon reduction per dollar in China than in the UK, then of course you should build it in China and we should make sure that the money flows there. However, I suspect the UK has the strongest wind resource and yet we’re not building it.”
Incentives Ultimately, what Dale is alluding to through raising this carbon problem is the single greatest example of market failure available today. According to him, the way you address this problem is with trading incentives and money. Essentially, the idea would be that the market decides who gets what money, plain and simple; the issue is no longer about eco-warriors and activists – it’s become a major global industry facing up to addressing a major global problem. “What we need to do is build the right incentives so that globally we address this issue of market failure. We should have a lot of wind farms in the UK, more than anywhere else, if it’s cheaper to do it here,” confirms Dale. And while the UK might be slightly more expensive than China or India in the context of civil engineering, one would still expect to see more progression within the market than there has been. “The idea of renewable incentives is all about kick-starting things. Marine current turbines and all these new kinds of technologies could be extremely interesting. They could be lower cost than wind in the
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long term once the technology is sorted out, but we can’t get to that point unless we start building it now and then the next one we build will be cheaper and the next one cheaper still. “What you have to do is give it a kicker. You give it five renewable obligation certificates (ROCs) and then as soon as the cost comes down, in the next banding you give them four ROCs, then three ROCs; make sure to only do this for the new projects that are being built and you’ll manage to gradually build it down. You create that industry by allowing it to kick-start and that’s how you address the market failure.” “A ROC price is a floating market price so it’s more complicated,” explains Dale, “but it should be more economically efficient. What’s happening in Germany is that they’ve had 28,000 MW of wind capacity built, but the load factors on some of those wind farms are very low and it’s not as economically sensible or efficient as in the UK. However, in the UK we’ve got far higher ROC prices than we should do because people haven’t been able to build wind farms due to planning permission and grid problems. Developers are very keen to get them built because they’ll make so much money from it. With feed-in tariffs, you’re likely to get volume delivered more quickly, but it’s less economically efficient.” When it comes down to it, the main problem with the current incentive structures is that they are inescapably exposed to the ridiculously low price of carbon. With the global carbon price currently sitting at around €17 per tonne, Dale doesn’t think the world’s players are taking it seriously. “We’ve got a whole bunch of politicians bleating on about the problem of global warming, but let’s the money. What is happening is that special interest groups in each country are all pleading ‘We’re going to have to close our cement works and move it out to China if you don’t address the carbon problem here.’ “What then happens is politicians in each country accept lower and lower targets. They estimate the caps higher and higher, so the carbon price never ends up at an acceptable level,” he says. While the price of carbon is undoubtedly playing a role in renewable incentives, Dale believes that the “speed of incentives will come down, ultimately, to political will”. With that in mind, what – if anything – can encourage this political will? According to Dale, it comes down to voters who are somewhat apathetic in Great Britain. “Politicians generally respond well to voters and pressure groups trying to persuade other voters that there is an issue that needs to be addressed. There’s a compelling case that climate change is a serious issue for us that needs to be addressed. Whether the British public will back it or not in our generation I’m not so sure, but I see my children being educated already about recycling and climate change, so the next generation of British voters will hopefully want to see more being done.”
What we need to do is build the right incentives so that globally we address this issue of market failure. We should have a lot of wind farms in the UK, more than anywhere else, if it’s cheaper to do it here
Duncan Dale was appointed by Statkraft in 2009 to develop its trading and origination business in the UK. Having previously worked on a series of energy start-up companies and brokered energy deals across Europe, Dale moved to Statkraft after spending the majority of his career with Powergen and TXU.
01/09/2010 14:09