THE HARTNELL INTERVIEW: ED DAVEY TIM YEO’S MESSAGE TO THE INDUSTRY CAROLINE FLINT: LABOUR'S GREEN JOBS REVIEW
Made in Britain GRASPING THE BENEFITS OF RENEWABLES INVESTMENT
WILLIAM HAGUE: THE CLIMATE CHALLENGE THE BRITISH RENEWABLE ENERGY AWARDS THE ENERGY BILL
contents summer 2012 edition
The challenging economic climate has put the costs of renewables under an intense spotlight. Under pressure from the Treasury, DECC is grappling with the task of maintaining momentum towards the renewable energy targets, whilst not allowing any possibility of over-reward. This is widely speculated to be the cause of the delay in the publication of the conclusions of the RO Banding Review. Hopefully by the time you read this edition, the results will finally be out. Renewable energy is the fastest growing energy sector globally, and in the UK it’s emerging as the most credible option for generating low carbon electricity. Regardless of the environmental imperative, it is increasingly recognised as making economic sense in its own right. However, the Chancellor seems happy to see renewables fingered as the cause of rising energy bills. The public must be given the correct information about costs. Electricity bills increased an average of around £160 in 2011, largely because of rising gas prices. Renewables accounted for only £20 of household energy bills last year. We have made the positive case for investment in renewables in our report ‘Made in Britain’. However, the case cannot be made often enough. Find out how you can help on page 15, where you can also read Lord Stern and his colleagues at the Grantham Institute confirm our belief that the Government must develop a much better understanding of the basic economics of renewables investment. William Hague’s excellent article shows we have some powerful allies with a firm understanding of the scale and importance of our industry internationally. We strongly encourage him to continue with his helpful interventions. Likewise we’re delighted with Caroline Flint’s new green jobs review and hope our members submitted evidence, alongside our own substantial case, for putting renewables at the heart of a joined-up energy and industrial policy. In this edition I also interview the Energy Secretary Edward Davey. We talked at length about Electricity Market Reform (EMR). My own article on EMR features a commentary from DECC Select Committee Chairman Tim Yeo – who also gives his first address to industry as REA President on page 10. Tim Yeo has done a sterling job in his quick fire review of the Energy Bill, and the Committee has a full programme, with the economics of wind power and the impact of potential Scottish independence on energy and climate change among the nine enquires currently in progress. Finally, I hope you enjoy our pictorial coverage of our annual Awards ceremony. What you won’t get from the photos is the glowing praise Greg Barker heaped on the association. In return I want to thank him here. He is a fantastic advocate for our sector, and we look forward to continuing to provide him with that frank advice that he commended us for. Gaynor Hartnell
4 News Round-up 8 Policy Overview 10 Tim Yeo’s Message to the Industry 11 Should We Fear a ‘Golden Age’ of Gas? 12 AD – Where’s the ‘Huge Increase’? 14 Made in Britain: The Benefits 16 Caroline Flint: Low Carbon Jobs 17 The REAL Green Deal 18 The Hartnell Interview: Edward Davey 22 REA Events Overview 25 William Hague: The Climate Challenge 26 The Energy Bill 28 British Renewable Energy Awards 30 Gerard Reid: The New Investor Army 32 Gearing Up for Nextgen 35 UK Export Finance 35 Stabilising Solar FITs
CREDITS REA News is edited by Leonie Greene with the assistance of James Beard and contributions from REA staff and invited guest writers. Thanks to Pelamis Wave Power, DECC, REA staff, REA members and others for photos, as credited. For this edition our sincere thanks to Edward Davey, Caroline Flint, William Hague, Tim Yeo, John Baldwin, Bob Ward, Tony Hales, Angela Wratten, Doug Parr, Jonathon Porritt, Gerard Reid, Mattia Romani, Ali Sherwani, Nicholas Stern, Mark Storey and Dimitri Zenghelis. Feedback on REA News is encouraged: firstname.lastname@example.org
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The cover photo Pelamis Wave Power devices under construction, contents page photo shows guests at the REA Awards dinner. Images: Content page: Phil Clarke-Hill, front cover: Pelamis Wave Power
Published by the Environment Media Group, Elizabeth House, 39 York Road, London SE1 7NQ, Designed by Margarita Lorenzo Sales: Rob Mowat, Commercial Director, t: 020 7633 4514, e: email@example.com, www.environmentmedia.co.uk Disclaimer: This magazine has been compiled in good faith and the Publisher has endeavoured to ensure accuracy throughout. Neither the Renewable Energy Association nor the Environment Media Group can accept responsiblity for any inaccuracies or the products or services advertised.
REA Press Officer James Beard gives a round-up of the key news stories James Beard email: firstname.lastname@example.org, Twitter: @REA_News
2012 investment struggling to match 2011 records
Despite the economic gloom, solar is generating record levels of power
Hey big lenders! The Co-operative Bank plans to invest up to £300 million this year in renewables (having already invested £700 million to date), and RBS is looking to lend more than £300 million in what it has described as “a very robust asset class”. Overseas, the European Bank for Reconstruction and Development plans to invest €6.5 billion in renewables over the next three years, while Goldman Sachs plans to invest a whopping $40 billion over the next decade in renewable energy, which it described as “one of the biggest profit opportunities since its economists got excited about emerging markets in 2001”.
David Cameron at the Clean Energy Ministerial. The REA believes the Prime Minister should and could give stronger leadership on renewables
Global ‘Twitterstorm’ puts fossil fuel subsidies in spotlight at Rio Awareness is gradually mounting of the fact that, internationally, subsidies for renewable energy are dwarfed by subsidies for fossil fuels. Environmentalist Bill McKibben has been at the heart of raising awareness in the USA, where the “End Polluter Welfare Act” in Deputy Prime Minister Nick Clegg represented the UK Congress was at Rio+20 as a Twitterstorm raged outside proposed to abolish US fossil fuel subsidies totaling $113 billion. The movement came to a head as the Rio+20 summit was getting under way, with the hash-tag #endfossilfuelsubsidies becoming the second highest trending hash-tag globally. Michael Liebrich, chief executive of Bloomberg New Energy Finance, joined in, tweeting: “Renewables provide 17% of world energy, but fossil fuels get 92% of subsidies.” Re-tweet that! EU Climate Action Commissioner and winner of the 2012 REA Judges’ Award, Connie Hedegaard, ensured the message got to the heart of the Rio+20 Earth Summit, tweeting: “Fossil fuels subsidies have no place in today's world. They must be phased out.”
Cameron addresses Clean Energy Ministerial There was some confusion about whether or not the Prime Minister would deliver his long-awaited green speech at the international Clean Energy Ministerial, which was held in London this year in April. In the end he delivered a short speech, saying that “renewable energy is vital to our future” and that investment in renewable energy is “good for our business”. Reaction was mixed, with the PM drawing criticism for claiming to lead the “greenest government ever”. The REA felt that Cameron could have made a stronger investment case, with REA Chairman Martin Wright responding in the Guardian: “Renewables give us energy independence, they are totally sustainable and over the long term they will provide low cost energy and, above all, price stability. They represent a tremendous business opportunity.”
Green growth champions emerging? George Osborne’s Budget did not win any praise from green NGOs. However, the number of voices calling for the Treasury to embrace green growth is growing. Nick Clegg said in a speech to Canary Wharf that “going for growth means going green. The race is on to lead the world in clean energy... the choice for the UK is simple: wake up, or end up playing catch up.” Foreign Secretary William Hague wrote to David Cameron to stress the need for the UK to embrace green growth or risk getting left behind. In May the Environmental Audit Committee published its report on the green economy, urging Government to do more to unlock the jobs and growth potential of sustainable technologies and industries.
Images: Mr Mitchell, winner of Chris Rudge Renewable Power’s recent photo competition, DECC, UK in Brazil
Recent studies by Clean Edge, Pew Charitable Trust/Bloomberg, and UNEP/Bloomberg all concur that 2011 was a record breaking year for renewables investment. Pew/Bloomberg saw UK investment topping $9.4 billion – an increase of $2.4 billion on 2010 levels – and UNEP/ Bloomberg revealed a total for global renewables investment of $257 billion. A record 71% of new generation capacity in the EU in 2011 was renewable, the European Wind Energy Association revealed in February, with solar booms in Germany and Italy noted as key drivers. However, Bloomberg revealed in April that global clean energy investment in the first quarter of 2012 dropped to its lowest levels in three years, and so did the UK figure, which saw us slip from 5th to 6th in Ernst & Young’s Country Attractiveness Indices the following month. A ray of sunshine for 2012 came from Germany in May, where the world record for penetration of PV into the power supply was smashed at 22GW.
summer 2012 REA NEWs
winter 2010 REA NEWs
Illustrious new appointments at the REA
Britannia urged to act fast to rule the waves Aquamarine Power’s wave energy converter. The UK is a world leader in marine renewables, but projects need support through commercialisation to retain that lead
In February, the DECC Select Committee published its report The Future of Marine Renewables in the UK, with Committee Chair Tim Yeo saying that “Britannia really could rule the waves when it comes to marine renewable energy”. The recommendations were widely reported, and the REA’s warning that the UK should not repeat the mistakes of the 1980s – when the UK lost its lead in wind turbine development – featured prominently. In April, DECC launched the £20 million Marine Energy Array Demonstrator scheme (MEAD), welcomed by REA’s Head of Marine Dr Steph Merry as “the product of close cooperation between DECC and industry stakeholders” and “directing funding exactly where it needs to go”.
There have been several changes at the REA. The REA has welcomed marine renewables and energy finance expert Martin Wright into the role of Chairman and Tim Yeo, Conservative MP and Chair of the DECC Select Committee, as the Association’s first ever President, as reported by the Times in March.
RO Banding Review delay hints at DECC/Treasury tensions It has been a rocky road for the RO Banding Review, which hopefully will have been published by the time we go to press. Nerves have been frayed by various rumours, not least that the Treasury is attempting to cut support for onshore wind by 25% – from 1 to 0.75 ROCs –
REA ensures UK deep geothermal potential clear The Sunday Times, the Daily Mail, the Guardian, the Telegraph, Sky News, and several local papers and radio stations all covered the new deep geothermal report by Sinclair Knight Merz, produced in association with the REA. The report found that the UK’s deep geothermal resource could produce up to 20% of our electricity and heat millions of homes. Chair of REA’s Deep Geothermal Working Group Dr Ryan Law said “we don’t want to be left out of a global industry which is estimated to be worth £30 billion by 2020,” and REA’s Leonie Greene added “Isn’t this exactly the kind of investment the UK Government should be making today to secure our future prosperity?”
A deep geothermal borehole being drilled in Newcastle. With sufficient Government support, deep geothermal could revolutionise the UK energy landscape
well beyond the 10% DECC had been consulting on. Gaynor Hartnell warned in the Observer that unexplained delay and backstage manoeuvring “risks undermining investor confidence and pushing costs up considerably”, while Ed Davey warned against playing “fast and loose” with onshore wind investors in the Financial Times. Gaynor also bemoaned the “chopping and changing” in Government’s renewables policies in the Telegraph following Vestas’ decision to scrap its proposed turbine factory in Kent – and the 2,000 jobs it would have created – because of the “political situation”. Further questions were raised about DECC’s relationship with HMT when the latter declined to appear before the DECC Select Committee on the Draft Energy Bill. Tim Yeo – who cited Gaynor Hartnell in his request for HMT to field a panellist – said that HMT’s “refusal to give oral evidence will seriously inhibit the effectiveness of our inquiry”. Gaynor Hartnell gave oral evidence to the Committee on 19th June.
DECC report exposes risks of fossil fuel dependence DECC published a report by Oxford Economics in May which highlighted the economic risks of continued fossil fuel dependence, finding that climate change policies including renewables could reduce the impact of fossil fuel price spikes by 50% in 2050. The REA welcomed the report but is urging the Government to systematically audit the very wide benefits of renewable energy investment.
Images: Phil Clarke-Hill, Bryn Pinzgauer, Aquamarine Power
Tim Yeo is the REA’s first President
summer 2012 REA NEWs
The public loves us!
Locals celebrate the launch of the Hepburn Community Wind Farm. We believe the majority of people will back a positive growth plan with renewables at its heart
The vocal anti-renewables minority uses a range of techniques to undermine renewables, but it never uses opinion polls – because opinion polls consistently reveal overwhelming public support for renewables. In April a RenewableUK/ Ipsos Mori poll showed 66% of Britons are “in favour of the use of wind power in the UK” and 43% see wind power subsidies as “value for money” while only 18% do not. Also in April, a Friends of the Earth/YouGov poll revealed 85% of Brits “would like to see the Government increasing the use of clean British energy and reducing the use of overseas gas”. In June an Independent/ComRes poll found 68% of the public believe that new wind farms are “an acceptable price to pay” for greener energy in the future. DECC’s own research in June found 80% public support for renewable energy versus 5% opposition. 56% of people said they would be happy to have a large-scale renewable energy development in their area.
UK farms and SMEs want to go renewable SMEs and farms want to be key players in the UK power supply. In February, 38% of SMEs responding to a survey by Opus Energy expected to be generating energy on-site within five years. In March, a report by the European Commission forecasted that the proportion of UK SMEs using on-site renewables will more than double between 2012 and 2014. Most impressive is the uptake among the farming community, with 30% of UK farms involved in some form of renewable energy production, use or supply by the end of this summer, according to a survey by NFU and NatWest. The REA has consistently called for policy to embrace the needs of these new investors.
Harvesting sugar beet to make biofuels for transport. While bad biofuels must be condemned, good biofuels bring fantastic environmental and economic benefits
Case for biofuels stacking up Clare Wenner, REA’s Head of Renewable Transport, and several REA members gave evidence to the DECC Select Committee for the evidence session on bioenergy earlier this year. They made the case for stable policies and a clear trajectory to reach the 2020 renewable transport target in order to realise the economic and environmental benefits of biofuels and bioenergy in the UK. Their case was strengthened in April as the Government’s Bioenergy Strategy recognised that “for as long as we use fossil fuels, sustainable first generation biofuels... offer a cost-effective contribution to reduced emissions from transport”. The International Energy Agency prepared a report for the Clean Energy Ministerial stating that “biofuels production needs to double... by 2020 [to prevent global warming over 2° C]”. See events pages for details of REA’s parliamentary reception on biofuels in June.
Images: Hepburn Wind, John Rennie & Sons, British Sugar
UK Pellet Council
An on-farm anaerobic digestion system near Aberdeen. 30% of UK farms will be actively engaged with renewable energy by the end of the summer
NPPF finally unveiled March saw the publication of the long-awaited National Planning Policy Framework, (NPPF) which condensed 1,300 pages of planning guidance into just 50 pages. Whilst for renewable energy there are a number of positive features. There are concerns about how it will impact on approval rates. In April, the REA welcomed the publication of the Guidance for Local Authorities by the Planning for Climate Change Coalition (of which the REA is a member), with Gaynor Hartnell saying “there can be no better example of sustainable growth than the deployment of renewables in sympathy with the local environment.”
Following extensive discussions within industry, the REA has set up the UK Pellet Council to oversee implementation of the European Pellet Council’s ENPlus scheme in the UK. For biomass heat to become a mainstream choice, users need to have confidence that they are using high quality fuel that is suitable for their boiler. ENPlus takes European standards on fuel specifications and turns it into a complete package for providing fuel quality assurance throughout the supply chain. The UK Pellet Council’s initial focus will be to run the scheme in the UK, starting in July, but its remit also includes the full range of issues relevant to pellets in the UK. The Council, which is working closely with the REA’s existing biomass heat group, is chaired by Richard Smith of Verdo Renewables, and has a steering group of representatives from several leading companies in the sector.
REA NEWs summer 2012 7
Policy Overview, Summer 2012 With the battles between the Treasury and DECC now playing out in full Technicolor in the media, not least over the RO Banding Review, REA’s Head of Policy Paul Thompson does his best to pin down some certainty in a wobbly policy landscape.
to to this
We hope that the Government doesn’t score an own goal with the renewable energy political football
A small hydro installation in Mapledurham. The REA helped DECC put solar on a more stable footing; the challenge now is to ensure an equally satisfactory outcome for other microgeneration technologies
Unfortunately we’re now having to relive old battles to prevent some serious own goals disfiguring the policy framework. Local power Hopefully the solar FIT difficulties are now firmly in the past. The REA and STA played a major role in securing the best degression management framework possible under a fixed budget cap. It’s exactly this kind of situation where the value of our policy expertise comes to the fore. It’s now down to us in the industry to counter the market slump by getting the message out that solar is still a great investment. Read more on solar on page 35. For the other FIT technologies, the degression management framework is due shortly. The REA has worked hard to improve the proposals for AD, wind and hydro, and to ensure that the growth of solar PV isn’t at the expense of the other technologies. Read more on AD on page 12. The REA is continuing to make the case that important small and mid-sized investors are in danger of falling through the policy framework. Turn to p. 30 to
read why financier Gerard Reid thinks marginalising these new investors is a particularly bad idea for a Government watchful of costs. Other built environment policies, such as the Green Deal and building regulations, are in danger of missing long term opportunities by considering only very short term costs. This is in part the result of a major pushback from the construction sector, with popular local planning policies for developments to meet a portion of their energy needs from renewables (often called ‘Merton rules’) also under attack. Renewable heat The Renewable Heat Incentive started in November 2011. As at the end of June, 118 installations have been accredited, with a total capacity just shy of 50MW. You could be forgiven for not believing it until you see it, but we hope to see considerable progress on this over the next six months. DECC is planning two consultations for the summer covering a dizzying range of improvements to the scheme.
Images: OlivIreland, Kirklees, British Sugar, Mann Power Consulting Ltd
ootball may be a sore point given England’s painful exit from Euro 2012, but it is the sight of renewable energy becoming a rather large and conspicuous political football that has made for uncomfortable viewing at the REA. While it’s not a match we wanted, we’ve been heartened by the Lib Dems’ raising their game to counter the attack on renewables subsidies by the Treasury and some backbench MPs. Secretary of State Ed Davey rightly says that this particular football match risks raising the price of all tickets: “The cost of capital for investment in the UK will go up, so there will be a political risk premium." The subsidy debate in the UK media and in political discourse is frustrating because it too often ignores the fact that, as Energy Minister Charles Hendry pointed out at a recent parliamentary event, the oil, gas and nuclear industries have historically benefitted from huge public subsidies. IEA analysis shows fossil fuels today receive six times the subsidies renewables receive globally, and these subsidies are still rising. Goods new then that the international #endfossilfuelsubsidies campaign became the second biggest Twitter trend in the world during the Rio summit. We’re undertaking our own fossil fuel subsidy analysis here at the REA to make sure the message gets through at home.
summer 2012 REA NEWs
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A biomass boiler in Barnsley Town Hall. The world’s first RHI has taken its first baby steps, and looks set to mature rapidly over the next six months
Sugar beet grown in the UK to be made into biofuels. Biofuels made with UK feedstock rank among the most sustainable in the world
The consultation due in September is expected to propose tariffs for those technologies omitted from the scheme on day one. This should improve the scheme for many technologies, such as waste, biogas, CHP, deep geothermal, air source heat pumps and single domestic installations. The longer term challenge is to develop the recent Heat Strategy into a firm programme of action that gives sufficient policy clarity for the next 10 years to encourage investment. Central power The REA, along with the rest of the world, is still unravelling exactly if and how the Contracts for Difference will work for renewables under the new EMR proposals. All eyes have been on the DECC Select Committee’s vital pre-legislative scrutiny of the draft Energy Bill. Our Chief Executive Gaynor Hartnell is leading on this and gave evidence to the Committee in June. Read more about this increasingly controversial piece of legislation on page 26. Renewable transport There are some positive signs here, with both the Committee on Climate Change and the Government recognising that biofuels have a key role to play until at least the 2030s. Yet progress towards setting out clear Government policies that will encourage investment in the UK is still painfully slow, with the Government waiting for a forthcoming (delayed) report from the
“We absolutely have to be green in this Government, and being green means being straight with investors and companies and not messing them around.”
Ed Davey, Secretary of State, DECC
European Commission on indirect land use change before committing itself. Current policy stops at 2014. Until policy is set beyond this – and preferably for some way beyond 2020, it’s difficult to see why anyone would invest in UK-based production, despite consistent evidence that biofuels made from UK-produced feedstock perform strongly on emissions savings and environmental sustainability. Strategic and cross-cutting policy European energy policy has a huge impact on the UK. While we are concerned by the Government’s reluctance to endorse a 2030 renewables target, we are encouraged that, at a recent meeting of the EU Energy Council, the UK voted with the majority to support the ‘no regrets’ option for the development of a long-term EU energy policy framework to 2030. This option calls for “a substantially higher
share of renewable energy in EU gross final energy consumption beyond 2020, including in 2030”, noting the “increasingly competitive nature of renewable energy”. There is a clear acknowledgement that decisions are needed soon on the way forward beyond 2020 – the Commission’s own research shows that delaying these decisions risks growth in the renewable energy sector dropping to as low as 1% per annum by 2020. There is no decision yet on the preferred option, with a 2030 renewables target only one approach on the table. Conclusions The clock is ticking. With the policy landscape wobbly at the start of this decade and many politicians making clear their determination to remove subsidies for renewables by 2020, the window of opportunity for the sector to prove itself is getting smaller and smaller. The UK remains far behind other EU countries in investing in renewables, so any hasty removal of subsidies seems premature. After all, this is an industry that Goldman Sachs says presents the best investment opportunity “since its economists got excited about emerging markets in 2001”. We’d like to see fewer political football matches and more Olympian efforts by a united Team GB.
Paul Thompson, Head of Policy email@example.com
REA NEWS summer 2012
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Tim Yeo MP, President of the REA We have all been holding our breath for Tim Yeo's verdict on the draft Energy Bill. With over 20 years experience in the politics of energy, and currently Chair of the ECC Committee, he commands huge respect across Parliament, Government and the industry. Here Tim Yeo gives valuable advice on advancing our cause in difficult times.
am very pleased to be writing to you in my new role as President of the Renewable Energy Association. My close interest in energy and climate change policy dates back to the early 1990s, when certainly the latter was regarded as a fringe topic. I am pleased this is no longer the case but we do still have big challenges ahead. Unfortunately some good work from the Coalition Government – accepting the Fourth Carbon Budget for example – has been marred by incidents like the solar PV FIT debacle and now the interference in the ROC banding review. The renewable energy industry needs to ensure its achievements are fully recognised – its growth is a really positive story for the UK. We have to embrace low carbon energy and decarbonise our buildings and transport systems to enjoy more sustainable growth as well as a high quality of living and to meet our emission reduction targets. The Green Deal will kick start a much more comprehensive approach to tackling heat, alongside the Energy Companies Obligation, and I look forward to the publication of further details about these schemes later in the year. We must all continue to push for more improvements in energy efficiency and demand-side management. Decarbonising our surface transport is also key – whether that be by modal shift from road to rail, sustainable biofuels or further increasing the efficiency of our engines until electric vehicles become more prevalent. Of course this is all dependent on the decarbonisation of our electricity supply. The Committee on Climate Change’s target to have our power sector virtually decarbonised by 2030 is challenging but necessary. Renewable energy is obviously absolutely essential in this transition. Perhaps the industry does need to
Tim Yeo MP is the REA's first President
become more adept at communicating the advantages of different technologies. Energy from waste is often unfortunately underemphasised and it is frustrating when onshore wind is criticised by some MPs who fail to recognise its cost advantages over offshore. Offshore wind is going to struggle more to become cost competitive, without generous help, than both onshore wind and solar PV. We also need to continue research into technology areas such as non-wind marine renewables which do have the potential to provide base load electricity capacity but are unlikely to reach the point of mass deployment until the mid 2020s at the earliest.
“The benefits brought by the renewable energy industry should be viewed in a much wider context than they otherwise have been – they will provide the UK with a long term commercial advantage.”
The cost to consumers of incentives for renewables will continue to receive intense scrutiny, and rightly so as energy bills are putting real pressure on household budgets. However, as we are all aware, renewable incentives only make up a very small proportion of bills and the other costs must be equally scrutinised. The industry needs to continue to invest in new jobs and help reduce the UK’s emissions and I recognise that in order to do this you need certainty from the Government. I will continue to do my utmost to demand the clarity of vision and stability of policy that the UK renewable sector requires. The Government must also lead the way with a more systematic approach to developing the skills required by the industry. It is important that the REA keeps up its work pressing for action in this area. The benefits brought by the renewable energy industry should be viewed in a much wider context than they otherwise have been – they will provide the UK with a long term commercial advantage. If you haven’t done so already, contact your local MP to explain what you are doing for the local community in terms of jobs and investment while at the same time helping the country by cutting our carbon emissions and reducing reliance on volatile imports. MPs will always make time to see their constituents so a constituency link is very helpful when trying to communicate with MPs and get them on side. I very much look forward to the next three years – through my role as President of the REA, I hope to better understand the challenges and opportunities you face. By working together we will help ensure the renewable energy industry develops to its full potential.
summer 2012 Rea news
Should we fear a ‘golden age’ of gas? The IEA’s controversial report ‘Golden Rules for a Golden Age of Gas’ warned that if environmental rules are not obeyed any new ‘golden age’ will be short lived – and climate change objectives won’t be met either way! Three people well known to the REA share their views on the implications of gas for the UK renewables industry: Jonathon Porritt says we shouldn’t trust this Government with gas
he UK’s energy future depends first and foremost on efficiency. After efficiency, it’s renewables – both very big renewables and very small, and everything in-between. If we’re to deploy renewables at scale, we’ll need huge new investments in storage technologies, smart meters, smart grids and all the rest of a radically low-carbon infrastructure. We might even need to do some carbon capture and storage on any remaining fossil fuel generation. That’s where we need to be – and we need to get there as soon and as cost effectively as possible. But where will the rest of our electricity come from during that transition? For me, it absolutely cannot be from coal (carbonintensive) and absolutely cannot be from nuclear once our existing fleet of reactors closes. That leaves gas, which is indeed, for me, the preferred ‘transition hydrocarbon’. But the priority for policy-makers has to be on energy efficiency and renewables: nothing they do to promote gas as the transition hydrocarbon must be allowed to weaken in any way those two priorities. Which is why we would be ill-advised to trust this particular Government. There is now a very strong likelihood that Ministers will seek to engineer another ‘dash for gas’ at the expense of efficiency and renewables. In which case all the good work done through the Climate Change Act could all too easily be undone – with grave consequences for the future.
John Baldwin gives three cheers for gas!
ix years ago I was Project Director on Excelerate Energy’s project to import LNG to Teesside when there were 30 new projects to import LNG into the US – then came shale gas. Now the US is potentially a major LNG exporter and it reduced coal demand 20% last year. I was a graduate engineer the day gas started production at South Morecame in 1984 – at 5 tcf it’s our largest field. Cuadrilla says Bowland shale could contain 200 tcf of gas – even if only 10% can be recovered that means unbelievable riches. Heating is mostly gas, electricity is becoming gas, so what about transport? By 2025 we are set to import 1 million barrels a day of oil from the Middle East, increasing costs by £50 billion a year. Better to reduce this cost by running trucks on gas and send a smaller cheque to Qatar (or Cuadrilla), as gas costs less than half the price of oil in energy terms. The plan should be to produce shale gas and use the taxes from that to support wind and solar and to fund insulation (a Green Deal with subsidy on top). Intermittent renewable electricity and gas go hand in hand – they need each other. Without gas for dark and windless days we are snookered, but without wind and solar we can’t sufficiently reduce emissions. Shale gas, energy efficiency, biomethane, wind, solar, CCGT, dualfuel trucks from the high pressure gas grid – now that is what I call a coherent approach!
Dr Doug Parr says hard facts do not support another dash for gas
eaders of ill-judged media commentary claiming cheap gas will bring secure decarbonisation need to look at the facts. Most of the rise in consumer bills in recent years has been caused by increases in gas prices. Whatever has happened in North America, both Deutsche Bank and Pöyry think shale gas will not change things much in the EU market. DECC analysis, Merrill Lynch, and Ofgem’s Alastair Buchanan concur that increases in Asian demand for LNG is likely to further increase gas costs over this decade. The amount of unabated gas we can have on the system in 18 years time is limited if we are not to blow our own climate targets. Bloomberg estimates that 11GW of new gas-fired power stations could be built over the next few years – stations which are likely to have rights to emit unabated until 2045. Lord Turner recently wrote to the Energy Secretary on behalf of the Climate Change Committee warning of “the risk that there will be too much gasfired generation instead of low carbon investment”. Gas reliance increases imports. Much would be LNG passing through the Straits of Hormuz. Lord West, former head of the Royal Navy, recently said if the straits were blockaded, the sharp fall in our gas supplies would be the country’s single most critical issue. We will be burning gas for years to come but this needs to be in CHP with district heating to optimise efficiency and it must support the growth in renewables.
Jonathon Porritt is a preeminent environmentalist, writer, Chancellor of Keele University and founder of Forum for the Future. John Baldwin is Managing Director of CNG Services, the UK’s largest CNG filling station and Chair of the REA Biogas Group. Dr Doug Parr is Chief Scientist and Director of Policy at Greenpeace UK. REA NEWS summer 2012
Anaerobic digestion – where’s the ‘huge increase’? provides a complementary on-demand power source. There were good reasons for going for a ‘huge increase’ in AD – but it’s not hard to see why an industry that was fired up for ‘huge’ growth is now asking what’s going on.
An AD plant in Badenova, Northern Germany, commissioned in March. The German Government understands that biogas plants which ferment animal slurries not only generate clean power, but also prevent the release of methane into the atmosphere
David Collins is concerned that Government ambitions for AD are quietly slipping. With landfill gas output falling, the UK risks producing even less biogas electricity in 2020 than it does today.
he UK’s National Renewable Energy Action Plan (NREAP) anticipates 1.1GW of power from biogas in 2020. This comprises contributions from landfill gas, water treatment works and purpose-built AD supported under both the FITs and the RO. However, biogas from landfill is set to drop from 1GW today to just 274MW, a quarter of current output, in 2020. Biogas from sewage works is not anticipated to increase given little incentive. It is down to investment in new AD plant to deliver over 700MW of biogas electricity by 2020. And that’s before we look at the potential for biogas in heat or biomethane.
Image: Purac Puregas
The solar hangover The extent to which solar has been allowed to monopolise the limited FIT budget is clear in the FIT consultation for non-solar technologies. DECC proposed that just 56MW of AD can be installed before 1st April 2014 before a capacity trigger cuts the FIT tariff by 5%. We have one member alone with plans to install 100MW. For on-farm AD there has been
commendable innovation in the industry to deliver the technology to make the current FIT levels viable – tariff adjustments at such low levels of deployment barely allow this innovation to consolidate. Projects have already been derailed by proposals to reduce the FIT for 500kW AD plant by 10% this October (from 9.9p/kWh to 9p/KWh). DECC’s rationale is alignment with RO support at this scale. However, particularly for projects with no gate fee, this has seriously upset the finances on which projects have been assembled. DECC’s difficult experience with solar is resulting in an over-reaction in AD policy. This is not a technology with anything like the same level of deployment acceleration. Furthermore signs that AD is ‘booming’ because of the number of planning permissions are misleading – just 10% of AD planning approvals actually get built. Understanding benefits We have been working closely with DECC to improve the original FITs proposals. This feeds in to the REA’s wider call for Government to better understand the benefits of renewable energy investment as well as the costs. For example, slurry AD can exceed the emissions reduction potential of many other energy technologies. AD also saves on mineral fertilisers and cuts landfill emissions. It requires no offshore infrastructure and it
“We will introduce measures to promote a huge increase in energy from waste through anaerobic digestion.” The Coalition Agreement 12
An integrated approach – Tony Hales, Technical Manager of Purac Puregas, explains the Swedish model With almost 50% of final energy consumption coming from renewable sources, Sweden leads the way in the EU. Sweden began biogas production in the 1960s. From early endeavours in the waste water treatment industry, production has subsequently spread via the widespread use of municipal solid waste, agricultural biomass and industrial bio waste. Sweden’s success is largely due to the proactive and cooperative approach adopted by the Government, gas distribution networks and biogas producers – a model the UK could do well to follow. The critical advantage of a CHP-heated biogas upgrading plant is that it can offer 85-90% efficiency when recovering the heat from the engine jacket water and exhaust systems, whereas the efficiency of conventional generator sets is only 35-38%. An additional revenue stream can be gained by upgrading the biogas to gas grid quality or vehicle fuel standards. Using CHP heat for the upgrading process gives improved overall efficiency and operational flexibility by perfectly matching the available gas flow from the plant. Biogas upgrading with CHP heating fits well with EU environmental protection and renewable energy objectives. Purac Puregas has adopted this integrated approach in Europe and the UK could do well to follow by adopting this combination of established technologies, experience and knowledge.
David Collins Head of Biogas firstname.lastname@example.org
summer 2012 Rea news
Rea news winter 2012
Made in Britain: Grasping
the investment benefits The costs of renewables are often exaggerated and the benefits are not systematically quantified. Leonie Greene explains what the REA is doing to encourage the Coalition Government to develop a rounded understanding of renewable energy investment – before we fall even further behind our international competitors. Prompted by the TUC, the REA asked the Business Secretary Vince Cable for a place on the Green Economy Council, which, amazingly, has no renewables representation. The reply was negative. The REA will persist in making the case for a dedicated focus on the huge skill needs of the renewables sector and the tremendous industrial opportunity. ‘Made in Britain’ is just the start of better articulating the benefits of investment. We want to see Government routinely assess benefits including employment; growth and exports; tax revenues; balance of trade benefits; security; consumer choice and sector competition; a lower-inflation economy; as well as climate and other environmental benefits (like waste management).
Energy Minister Greg Barker speaks at the launch of 'Made in Britain'
nemployment; economy rebalancing; rising fossil fuel prices; energy security; poor growth. Renewables can meet these huge challenges head on. Bullets don’t come more silver than this. Costs are reasonable – no more than business as usual according to serious long-term analyses, but with vast and sustainable growth potential. Globally renewables investment was at a record high of nearly $260 billion last year, according to Bloomberg New Energy Finance and UNEP. So why isn’t renewable energy at the heart of an inspiring economic recovery strategy? The case is made at top level; Nick Clegg regrets the UK’s poor ranking of 28th in the world for modern infrastructure and says a “ruthless” focus is needed on infrastructure investment with real growth potential – like energy. David Cameron said protecting future generations is “one of the most important challenges we face” and this needs “urgent attention”. Renewables are "very good for business too” and “crucially for green jobs". These sentiments are spot on, but ad-hoc. They are not sufficiently supported by policy outputs and by the structure of Government in practice. In Germany, economic, industrial, energy and climate policy are delivered in
the round. The UK Government operates in silos and appears stymied by a damaging dynamic with the Treasury (the same Treasury that fears rocketing oil prices could further undermine economic recovery). REA gets the benefits ball rolling The role of renewables in addressing the serious challenges we face is self-evident. Yet two years into this Government we are having to articulate this vital agenda ourselves. We’re not alone in being surprised – Sir David King recently described supporting the green economy as a ‘no-brainer’. To develop the positive investment case we worked with low carbon sector experts Innovas to produce the first ever estimate of the total number of people employed across the UK industry, along with turnover and exports. The report was made possible by sponsorship from REA members Centrica, E&U Skills, Estover Energy, Myriad CEG, RES, RWE and SummitSkills. A copy of our report ‘Made in Britain’ has been sent to every MP and a cross-party EDM means MPs can underline their support for the sector. The REA’s Chief Executive Gaynor Hartnell wrote to over 20 Ministers requesting a meeting to discuss the wide implications of the proposals set out in ‘Made in Britain’.
The UK’s ad-hoc approach to benefits Credit where it’s due; Government articulates the industrial benefits of investing in offshore wind, wave and tidal relatively well. Ministers regularly cite significant sector investments. In spring DECC published research by Oxford Economics quantifying the potential for renewables investment to reduce energy price volatility. This is progress, but it is far from the systematic approach needed for understanding a sector which President Obama believes is so vital that it will determine who leads the global economy. Political advocates of renewable energy would be strengthened by a systematic approach to understanding the benefits. Unfortunately it is being left to big picture politicians like William Hague to interject concerns that the Government is failing to seize the opportunity. Our sector and its needs must be clearly articulated. Lumping renewables in with ‘lowcarbon’ or ‘clean-tech’ means we get lost. As Will Hutton says in the foreword to ‘Made in Britain’, “this is an important industry in its own right and it deserves to be taken seriously – and for its obstacles to be recognised and as far as possible addressed quickly and effectively. It is one of the hotspots for industrial and business innovation.” The sector has distinct and urgent skills needs
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that the UK National Skills Audit says must be answered to safeguard the vitality of the whole economy. That isn’t happening, despite the huge unemployment problems we face. How can we get Government to champion the benefits? If we are not to fall further behind internationally, the Coalition needs to take positive ownership of the renewable energy agenda. The reasons why they have not appear both complex and frustratingly simple. The Coalition is opposed to the case for public investment to stimulate growth, and this is a live political debate that goes to the heart of party ideologies, so it will not be resolved any time soon. A compelling growth strategy of any description has yet to materialise. Renewables strengthen the case for proactive investment and we welcome the Labour Party’s review into low carbon jobs (read more on page 16). Our report shows that £12.6 billion of turnover was created in the industry and its supply chains in 2010/11 on the back of £1.3 billion in public subsidy in 2010. The simple barrier is the lack of focus on renewable energy and the absence of a passionate vision that speaks directly to urgent employment, security and growth needs. Narrow advocacy, focussed on costs, has left this agenda vulnerable to attack by hostile back-benchers and negative campaigning in parts of the media. Equally surprising are
DECC’s efforts to safeguard conventional forms of energy – hardly embracing the future. We urge all our members and allies to get behind the REA’s call to put renewables right at the top of industrial and energy policy – and to join departments up around a positive vision. Failure to do so leaves us stuck with the current approach to infrastructure described by Nick Clegg himself as “too incremental, haphazard. Slow.” Surely he wants to fix that, but it now needs to be a priority. Articulating the many benefits of renewable energy would provide a sound basis for getting his colleagues on side, particularly those at the Treasury. It’s a wholly sensible ask. After all, it is only his colleagues he needs to convince – polls show over and again that the great majority of the public are squarely behind us. REA urges members to contact their MP to ask them to sign the ‘Made in Britain’ EDM and to ask them to write to the PM/DPM/ Treasury urging them to act on the practical recommendations in ‘Made in Britain’. The executive summary can be downloaded free of charge from the REA website.
Leonie Greene Head of External Affairs email@example.com
Praise for Made in Britain “This report could hardly be more timely. We need stronger voices from the mass of people and from business arguing for common sense. This report will contribute to helping that voice express itself – and I very much welcome it.” Will Hutton
“The REA’s report sets out plainly the opportunities and challenges in this area. We are determined to seize the momentum and secure maximum benefit for the UK.” Energy Minister Greg Barker
“This report makes the strongest case yet to show that green opportunities, and the jobs the sector has the potential to create, can provide decent, highly skilled employment to people whose jobs are being lost as a result of changes in the global economy.” Frances O’Grady, Deputy General Secretary of the TUC
‘Made in Britain’, priced £25, can be ordered from firstname.lastname@example.org. The executive summary can be downloaded free of charge from the REA website.
Grantham Research Institute warns over low-carbon economics The UK has committed to a transition towards a low-carbon economy. This transition could not only contribute to the management of the immense risks posed by climate change, it could also be, with good policy, intensely creative and full of opportunity. This policy must be founded on sound economics, which embodies robust and dynamic analysis of the costs, benefits and risks associated with both low-carbon growth and the alternatives. In our policy brief on ‘The basic economics of low-carbon growth in the UK’, which can be freely accessed at http://www.lse.ac.uk/grantham, we set out some of the essential economics upon which UK public policy for low-carbon growth should be based. First, we point out that some standard models used in policy analysis are structured in ways that are inherently misleading. Second, we argue that the expenditure involved in making the transition must be analysed as an investment, rather than being seen simply as a net cost or solely as a direct cost to the public purse. Third, we emphasise that this investment can drive an economic recovery. Fourth, we make clear that the transition to the lowcarbon economy is likely to be dynamic, innovative and a period of strong growth. And fifth we highlight the importance of the credibility of policy in fostering new investment. There must be tough and serious economic analysis of the management of the transition to the low-carbon economy. There will be costs and difficult decisions. Costs are not saved and investment is not promoted by procrastination or by capture by narrow interests. With careful analysis, we can get to grips with the real issues. There is a great opportunity for the UK to lead in the growth story of the future.
Nicholas Stern, (pictured), Mattia Romani and Dimitri Zenghelis are based at the Grantham Research Institute on Climate Change and the Environment at the London School of Economics and Political Science.
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Low carbon jobs and growth Caroline Flint, Shadow Secretary of State for Energy and Climate Change, says the UK must have an active industrial strategy to seize the opportunities low carbon economic growth can create.
ne of the legacies of Labour’s time in office was broad acceptance of the need to tackle climate change. The acceptance by the present Government of Labour’s climate change targets, set out in the 2008 Climate Change Act, led me to believe that Labour had created a new crossparty consensus. That clarity of direction is important for achieving our climate change targets, but also because it underpins the attractiveness of the UK to low carbon investment. However, today there are doubts over whether the Government is sincere in its support for that consensus and open for green business. A new wave of industrial revolution is sweeping the world, with huge opportunities for low carbon jobs and growth. But Britain is being left in the doldrums. We must get on board or risk missing out on growth, job creation and a revival of Britain’s manufacturing sector. The idea that economic growth and environmental sustainability are incompatible couldn’t be more wrong. Investment in the low carbon economy can in fact be a route out of the recession, and a way of achieving the jobs and growth this country so urgently needs. That is why Ed Miliband has asked me to lead our work on low carbon jobs and growth as part of Labour’s policy review. This review will ensure that the next Labour Government has the right policies to get Britain back open for green business. This Tory Government seems to be holding on to the hope that businesses will reward austerity with private investment. But what businesses need is a clear vision, with supporting policies, that gives them the confidence they need to invest. Instead, on the low carbon economy, we are getting mixed messages from the Government, and a failure to grasp the opportunity that investment in low carbon presents.
both onshore and off. We have the best marine energy resource in Europe, with the potential to supply 20% of current electricity demand and create 10,000 jobs by the end of this decade. And around the country there are a whole host of ways we could be generating more low carbon energy – through combined heat and power, waste to energy, heat pumps, biogas and more. With carbon capture and storage we are on the verge of developing The Rt Hon Caroline Flint MP is leading Labour’s policy review work on low carbon a valuable and jobs and growth. You can find out more about the review by visiting exportable www.shadowdecc.org.uk. technology, but that There have been delays to the Green opportunity will not last forever. Investment Bank, financing of the Green In the past Roosevelt’s New Deal helped Deal is unclear, we have seen chaotic kick start economies. Investment in low mismanagement of cuts to the Feed-in Tariffs carbon is the obvious candidate to revive for solar. And now, with the new Renewables Britain’s economy today. Nearly 1 million Obligation banding, there are real concerns people already work in the environmental that the Government is going to do to the industries in the UK, with the potential wind industry what they have already done for another 400,000 jobs. Not only would to solar, putting jobs and businesses at risk. investment in low carbon help the UK return All of this not only makes achieving our to economic growth, but it would also help us climate change targets less likely, but also to keep the lights on and achieve our climate risks making the UK less attractive to green change targets. investors. We are on the cusp of a new industrial Today we have an economy without revolution that is shaking up the old world growth and unemployment still over 2.5 order. We have to be leaders, not followers, million. Where other countries see a market in that revolution. It is about creating an that is already worth more than £3 trillion economy that is cleaner, more competitive and opportunities for new industries, new and provides the energy we need. The longer skills, new supply chains and new energy we delay action, the costlier it will become to sources, the Government just sees burdens for mitigate and adapt to climate change and the business and blots on the landscape. The UK economic opportunities of leading the way urgently needs to grasp this opportunity, or on low carbon will slip through our fingers. risk being left behind our global competitors. Now is without doubt the time seize the The UK is the windiest country in Europe opportunities low carbon economic growth – we should be a world leader in wind energy, can create.
summer 2012 Rea news
The REAL Green Deal
Energy Secretary Edward Davey gets hands-on with energy efficiency at Biddick Hall estate in South Tyneside
Drilling holes for foam insulation injection in a London home. The Government estimates that the Green Deal could deliver up to £1.3 billion worth per year of energy efficiency and heating measures across Great Britain
managing these procedures in time for the soft launch in October and the full launch in January. REAL will also participate in DECC’s Consumer Protection Steering Group and report regularly to DECC on trends in industry practice. REAL Chief Executive Virginia Graham is delighted to see REAL’s role expanding. “There is a natural synergy between renewables and energy efficiency,” she said. “We look forward to putting the lessons we’ve learnt into practice so that the Green Deal Code of Practice ensures a high quality experience for consumers looking to cut their carbon emissions and fuel bills by installing energy efficiency measures.”
REAL’s Chief Executive Virginia Graham. Formerly a Director at Ofgem, Virginia has extensive experience in administering government energy programmes. email@example.com
The REAL logo is a symbol of professional excellence.
REA NEWS summer 2012
Images: DECC, London Permaculture
he Green Deal, one of the Coalition Government’s flagship policies, aims to make it easier and more affordable for householders and businesses to implement energy efficiency measures. There is a clear win-win in getting it right – because ultimately using less energy means both fewer emissions and lower energy bills. However, as with microgeneration, it is very important to ensure that the consumer is protected when they are making decisions concerning big changes to their buildings. With this in mind, DECC has awarded a contract to Gemserv and REAL (set up by the REA in 2006) to run the new Green Deal Oversight Body. Gemserv and REAL currently administer the Microgeneration Certification Scheme (MCS) and the OFT-approved Consumer Code for renewable energy respectively, and their proven track record was no doubt a factor in DECC’s decision. Gemserv will be responsible for the overall administration of the Oversight Body, while REAL will be responsible for monitoring participants’ compliance with the Green Deal Code of Practice. The REAL team’s task for this summer is to develop the Green Deal monitoring and complaints procedures, such as auditing and mystery shopping, and the guidance to go with these. These will be in place for Green Deal participants later in the year, when REAL will begin actively
The Hartnell interview:
Edward Davey The economy is struggling. The Energy Bill is poised to begin its passage through Parliament. Rising household energy costs are a top public and political concern. DECC’s new Secretary of State, the Rt Hon Edward Davey MP is in charge of energy policy at this hugely significant and challenging time. REA’s Chief Executive Gaynor Hartnell has plenty of questions for the man most likely to determine whether or not the UK will meet its 2020 renewable energy targets.
Gaynor Hartnell, REA Chief Executive
Hartnell: Given the current economic circumstance we were pleased to hear DPM Nick Clegg argue that ‘green’ and ‘lean’ can go together. What implications, in your view, do the current economic difficulties have for our sector? Davey: The need for investment and jobs means it’s really important that we forge ahead with our plans for creating an investment-friendly climate for energy, in particular for renewables. One of the arguments in favour of supporting the renewables revolution is to help with the economy, as well as climate change. Not only do you see strong recent performance in this sector, but the potential is there for even stronger performance going forwards. Hartnell: I couldn’t agree with you more. But is everyone else in the Government on the same page? Davey: As Secretary of State I very much support the ‘lean can be green’ view. The PM does too. He committed the Government to being the greenest ever; hosted the recent Clean Energy Ministerial; and made a very clear intervention in support of renewables
– there is commitment across the Coalition. If you look at the Coalition Agreement, it commits us to very ambitious action on climate change. It includes pushing the EU to adopt a 30% emission reduction target by 2020. It includes investing £1 billion in carbon capture and storage demonstration projects, and it talks about creating the world’s first Green Investment Bank. Hartnell: All very good. However, it's Treasury commentary that is worrying. It was exemplified by Tim Yeo’s letter to the HMT when they declined the invitation to give evidence to his Committee on Electricity Market Reform. I agree with you that there are also positive messages coming out – but not from George Osborne, who is critical. Davey: If you focus on what the Chancellor is trying to do in terms of attracting investment
“I made it clear that I believe we cannot afford for people to think there is political risk in the UK.”
Hartnell: I agree. In the context of the EMR, whilst we have administered pricing, it's absolutely essential that industry trusts that prices are determined on the basis of evidence, and not because of any political agenda. Davey: That’s right, and whether it's the new RO bandings, that we’re going to
Images: DECC, Pelamis
Rt Hon Edward Davey MP, Secretary of State, Department for Energy and Climate Change
in the UK, he has put energy infrastructure right at the top. It's one of the reasons why I was very clear in these straitened financial times that, if there is uncertainty, and if that undermines confidence, then that can undermine the Government strategy for investment and infrastructure. I made it clear that I believe that we cannot afford for people to think there is political risk in the UK. Political risk in one part of our renewables investment will feed through not just into other renewables and other forms energy, but into all infrastructure investment. We must be clear with investors and companies and we need to make sure that when we make decisions, they are based on the evidence. This is a point I drove home when I addressed the global conference on offshore wind; let’s go with what the evidence supports. If we do that, we will retain investor confidence.
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announce shortly, or whether it's the first Contact for Difference (CfD); while we are in an administrated price-setting regime it's important politicians understand how investors and companies will react. However, this is one of the reasons why we want to go to CfDs set by the market. Hartnell: There are many in the industry who are wary of auctions after their experience with the Non Fossil Fuel Obligation policy. One of the things that will be very important in reassuring people, is confidence that Government is seeking a significant amount of renewable electricity. Without targets after 2020, that becomes a harder thing to do. Davey: I think that the actual EMR framework itself ought to reassure people, because it is designed to help us decarbonise our electricity generation. EMR is a fundamental driver of decarbonisation. In the first phase we envisage auctions for specific technologies. Later the auctions will be for all low carbon technology. But I hear your point about targets. I know there are a number of different targets that people want; some people want a renewables target for 2030, some people want a decarbonisation target for 2030... what I would remind you is, we have the most ambitious climate change administration in the world. Hartnell: If auctions are initially technology specific you must have some sort of target to guide the volume you’re allocating. If you’re holding technology neutral auctions, then you’ll be having nuclear and renewables and CSS all competing together, then you can have a target based only on carbon. With auctions only coming into effect for projects commissioning after 2020, if there is no overall renewables target, how will people be reassured? Davey: We envisage running auctions from 2017 – that’s not many years away. We are still in a period where we are realising cost reductions. We need to get the cost of each and every low carbon technology down. As to when we move to just low carbon technology auctions – we’re not absolutely sure. I think we’re on track for the early 2020s. You talk about targets but you’ve got to remember that one of the purposes of EMR is to be more strategic, as well as trying to get price discovery through the auction process. The systems operator, National Grid, is required to put forward a delivery plan of how it sees energy security being met over the following five years. That delivery plan will be in the public domain and it will be reviewed by a committee of independent
“One of the advantages of having published the Energy Bill in draft form and having pre-legislative scrutiny over the summer is that we can be openminded about the types of issues you’re raising.”
The Secretary of State met with Gamesa when they moved into the UK earlier this year. Davey is keen to reassure investors that future price-setting under EMR will be based on hard evidence, and to remind his Coalition partners that investor perception of political risk will add to costs
technical experts. That evidence will go to the Secretary of State, so, on top of the other DECC strategies, it will be a further strong signal to the market about our expectations going forward. Hartnell: The State Aid issue had a lot of coverage in the ECC Committee prelegislative scrutiny sessions on EMR. If the renewable CFDs could sail through the State Aid process without any difficulty having a Government-backed counterparty to the contract – as originally envisaged – but nuclear can’t, could you see a situation where the two are separated? Davey: I don’t want to prejudge negotiations with the Commission on State Aid. I believe we’ve designed a set of proposals, whether they apply to renewables or nuclear or CCS, which are in line with the rules. So I’m not going to accept a premise which
“Some of the opposition you get to renewables is because people say ‘oh we just can’t afford this’. Well, CfDs are about challenging people who say that this is not affordable.”
suggests that there will be a ruling that State Aid is involved or special measures are required. I think that would pre-judge those discussions, and would be very unwise. The counterparty issue isn’t just being driven by State Aid considerations. The crucial thing is that the payment model works, and is seen to work, because people obviously need to be paid for the goods and services they’re providing. Investors in particular need to be reassured that the payment flows will work. We think the counterparty model we originally consulted on; a contract between the generator and all suppliers – a multiparty contract – works. There’s debate about that and whether we should move to a single counterparty model. We’ve heard evidence from different parts of the industry that that is a preferred model and we are looking at those concerns. One of the advantages of having published the Energy Bill in draft form and having pre-legislative scrutiny over the summer is that we can be open-minded about the types of issues you’re raising. We have given very clear steers in the Bill, and shown how far we are down the track with these proposals, and we’re also benefiting from this extra period of debate between the Select Committee and stakeholders. We’re not behind schedule and are enabling further debate to be had on the basis of the draft legislation. Actually I think it gets you the best of all worlds. It enables any remaining
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contracts that are much more bankable. But we’ve also got to remember consumers and taxpayers who shouldn’t be paying through the nose. We need to reassure them that the move to low carbon is affordable. Some of the opposition you get to renewables is because people say ‘oh we just can’t afford this’. Well, CFDs are about challenging people who say that this is not affordable.
Pelamis wave power devices under construction. The Secretary of State shares REA’s view that renewables have a valuable contribution to make to employment and economic recovery
issues to be examined before we get to final legislation which, hopefully, if we can have these discussions before we lay the final legislation, will ease its passage through Parliament. Hartnell: What do you think of my logic that if the strike price for nuclear is not a subsidy for nuclear per se, but simply a fair price for low carbon electricity, should that not form a kind of floor price for any low carbon electricity? Would you agree with that? Davey: Let’s be clear there’s a difference in our public position from nuclear to renewables. We’ve said on nuclear ‘there can be no public subsidy’ and Chris Huhne set that out in detail in October 2010. It certainly would be logical to say that nuclear cannot get any advantages that aren’t available to other low carbon technologies. That’s, in a way, how we think it’s useful to describe the ‘no public subsidy’ argument. Hartnell: That is helpful. Still on EMR, we’re concerned our ‘squeezed middle’ doesn’t fall through the policy gaps. The ‘squeezed middle’ is technologies too large for the FIT but for which CFDs, and the RO at the moment, are too complicated. Do you envisage that they will be catered for in the future? Davey: We’re trying our best to encourage mid-size investors and options because we want to open up the market. Part of the aim of EMR is to achieve a more level playing field for different technologies and different companies. Some independent generators describe problems getting PPAs, and suggest that the move to CfDs would make that
“We’re trying our best to encourage mid-size investors and options because we want to open up the market.” worse. We’ve issued a call for evidence to find out what the problems are for independent generators in securing PPAs, as they are a very important part of the scenery. We’re only going to decarbonise, meet very ambitious targets, and make the transition to a low carbon economy if we’ve got a very wide variety of companies and technologies and options, so this is not a market reform where we want to close anything down. Hartnell: My concern is that the types of companies we want to encourage to invest in industrial scale on-site renewable generation may not even understand what a PPA is! They need something really simple and accessible, like a fixed FIT for example, to encourage them into this market. Davey: When CFDs are in place they may become more comfortable with them. They’ve worked in other countries (Denmark) and they may sound complicated at first but the basic principles are not fundamentally complicated. I think that when the market gets used to them some of the concerns people have about complexity will be answered. We’re trying to do two things: encourage more investment in low carbon power, and I’ve spoken to investors who much prefer CFDs to the RO, because the see them as real
Hartnell: If you were heading up the REA, Secretary of State, how would you respond to anti-wind MPs like Chris Heaton-Harris? Davey: I think it’s important to show that there’s a really positive impact from your industry. Renewables provide real community benefit and that’s increasingly going to be the case. Renewables support thousands of jobs across the economy, and are attracting billions of pounds of investment into our economy. I think getting over the fact that our economy needs a lift and that our renewables industry is a growth area is something that I hope colleagues like Chris Heaton-Harris will understand and respond to. From all the evidence that’s coming out, and we are paying attention to the evidence you’ve been compiling, it’s really strong. Hartnell: At DECC’s request, some time ago, we surveyed our biomass and bioenergy members about having a voluntary community payment, such as the scheme launched by RenewableUK with a foreword from Charles Hendry. Wind developers agreed to pay £1,000 per MW per year. Most of our members felt it wasn’t such a good idea. Some said that the reward under the RO was not sufficient to allow them to afford it. Davey: It’s absolutely vital that communities are properly engaged in and around the planning process. I’ve certainly spoken to renewable companies and investors who recognise that a voluntary payment is quite a smart thing to do. Hartnell: My concern with voluntary payments is they could make renewables more expensive when it’s not always necessary. I think that the Government’s policy of letting the local business rates stay within the locality actually achieves that objective in a very nice way. Davey: Yes we want to encourage and push the business rates. I think too few people have noticed. Hartnell: Yes, we are shortly about to get a briefing out to our members on the subject. Secretary of State, thank you very much for your time.
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Rea news winter 201206/07/2012 19 10:05
Lindsay Barnett, Head of Operations, gives the lowdown on recent and upcoming events
Recent REA events March – REA Biomass Heat Pavilion at Ecobuild
The REA welcomed the Minister’s statement that Government should support only sustainable biofuels, his recognition that policy clarity was needed to unlock investment in the sector, and his acknowledgement of the UK industry’s ingenuity and cooperation, exemplified by the production of biofuels with co-products for animal feed. We would like to thank all our event sponsors: BP, British Sugar, Ensus, HGCA, Ineos Bio, Neste, NFU, Shell and Vivergo.
The REA again exhibited at Ecobuild this year, one of the major national renewables events, held at the ExCel Exhibition Centre in March. At the suggestion of several of our members, for the first time the REA hosted a ‘pavilion’ showcasing a dozen of its biomass heat group member companies. Members interested in repeating this exercise for other technologies at other exhibitions are encouraged to contact their relevant sector head. Several of the REA’s policy experts gave or chaired presentations at Ecobuild. REA Chief Executive Gaynor Hartnell chaired a session on ‘making a market in micro renewables’ and participated in a stellar conference panel on ‘making renewable generation happen: getting the scale right’.
June – UK Biomethane Day
Transport Minister Norman Baker acknowledged both the economic benefits and the need for policy clarity in the UK sustainable biofuels sector at this reception in Westminster organised by the REA’s Head of Renewable Transport Clare Wenner. Over 100 attendees from Government, business and the media gathered to hear the Minister speak, alongside REA Chief Executive Gaynor Hartnell, the reception’s hosts Ian Swales MP and Andrew Percy MP, and representatives from industry and the National Farmers’ Union.
July – ‘Gasification & Pyrolysis: Realising the UK opportunity’
REA held a parliamentary event on 4th July offering MPs the opportunity to meet leading industry players in this exciting emerging sector. The event was chaired by Gaynor Hartnell with addresses from Dr Jeremy Tomkinson and Shadow DECC Minister Tom Greatrex MP. This event provided a unique opportunity to understand the benefits of gasification and pyrolysis, and hear first-hand from project and technology developers working in the sector. We would like to thank all our event sponsors: Advanced Plasma Power, Air Products, DPS, Energos, Imtech, ITI Energy, New Earth Solutions Group and Viridor.
Images: REA, Phil Clarke-Hill
June – ‘Sustainable Biofuels: Decarbonising the UK Transport Sector’
The REA held the first UK Biomethane Day at the National Motorcycle Exhibition Centre in Birmingham on 26th June, in conjunction with REA Green Gas Certification Scheme, GreenGasGrids Project and CNG Services. The event, attended by over 130 delegates, covered all aspects of biomethane injection, including: grid connections, engineering solutions, the RHI, biomethane sales, lessons from EU experience and future developments. REA Chief Executive Gaynor Hartnell chaired the event, while David Collins of REA and Virginia Graham of REAL were among the speakers.
summer 2012 REA NEWs
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RO Workshops 24th July 2012, 09:30-16:30 – BNP Paribas Clean Energy Partners, 5 Aldermanbury Square, London, EC2V 7BP Last few places remaining! W/C 15th November, details TBC
Experts from the REA policy team will take you through every aspect of the RO, in an informal and informative environment, in the latest of the REA’s regular and popular RO Workshops. Forthcoming workshops will focus particularly on the Electricity Market Reform, now that the Draft Energy Bill prelegislative scrutiny has concluded (see p. 26 for more details), and will set out the transition to “Feed-in Tariffs with Contracts for Difference”, which will eventually replace the RO as the main mechanism for deploying larger scale renewable power. “Clear, informative content. Well explained. Right length of time.” RO workshop attendee
Bioenergy Sustainability seminar 20th September, 10:30-13:30 – Addleshaw Goddard, 60 Chiswell Street, London, EC1Y 4AG From spring 2013, both the RO and RHI will only reward bioenergy if it can meet new sustainability criteria. Consultations on the detail are due to be launched over the summer. This seminar will give the latest insight from DECC and industry representatives, including Nigel Burdett, Head of Sustainability at Drax Power, Caroline Season from DECC, Jamie Fisher from SGS, a speaker from Ofgem, and REA policy experts Paul Thompson and Tricia Wiley.
Images: Eli Sagor, REA
Images: REA, Phil Clarke-Hill
Upcoming REA events
18th October, details TBC This conference is being coordinated by the REA and leading planning expert Jane Smith, manager of Energy UK’s industry planning working group. It will cover several live issues in depth, including localism, conflicting priorities, joined-up policy making, landscape, case law, and the NPPF. There will be speakers from DCLG, the CPRE/National Trust, the
National Infrastructure Planning Association, and of course industry representatives.
Renewable Heat Incentive (RHI) Seminar W/C 22nd October, details TBC
The REA has held a series of seminars throughout the development of the RHI. DECC will be launching two consultations over the summer, including proposing new tariffs for a number of technologies not currently included (see Policy Overview on page 8 for more details). The event will feature leading speakers from DECC to discuss the proposals as well as industry insight. The latest RHI seminar attracted an 80-strong crowd, and we expect even more this time round as the renewable heat landscape continues to hot up!
Building Integrated Renewables Workshop 20th November, details TBC The REA is keeping an eye on both the increasing uptake of building integrated renewables, but also the rapidly shifting regulatory landscape. This workshop will flesh out the key areas of concern and opportunities for new build and retrofit building-integrated renewables. Full dates and details will be confirmed shortly.
Book online for REA events, seminars, workshops, or members-only sector group meetings at our upgraded website: www.r-e-a.net/events. For any questions please email: firstname.lastname@example.org.
Rea news summer 2012
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Upcoming partner events The REA is proud to support these indispensable renewable energy events this autumn
Solar Power UK 2nd-4th October, NEC Birmingham
The Renewables Event 11th-12th September, NEC Birmingham
The Renewables Event is a new exhibition that will showcase viable technologies aimed at commercial energy users looking to source renewable energy solutions including: biomass, biogas and biofuels, solar PV, solar thermal, micro CHP, heat pumps, hydro and wind. 80+ leading manufacturers, suppliers and service providers will be at the event to offer advice, products and services to help our visitors fully understand all aspects of introducing renewable energy into your business. Visitors have free access to all conference sessions in which over 25 leading industry experts offer key practical and policy advice, ensuring you and your organisation are aware and up to date. For more information: www.r-e-a.net/events/ the-renewables-event-2012 / @TRERenewables
This year Solar Power UK is bringing together industry experts to discuss the most pressing issues facing the market today, alongside practical training for Green Deal measures, installers and other microgeneration technologies. The Solar Power UK Seminar Series will cover all you need to know about PV, solar thermal, the Green Deal and the wider UK (and global) solar industry. The half-day sessions will provide the latest information and practical knowledge that is vital for staying competitive in the UK market. Add to that two feature areas – PV and large scale solar – with live demonstrations and daily Q&As for all of your installation and design questions – this is one event of 2012 that no one can afford to miss! For more information: www.r-e-a.net/events/solar-poweruk-2012 / @solarpower_uk
nextgen featuring EBEC and Microgen 10th-11th October, Stoneleigh Park The REA is delighted to yet again be a strategic partner on this year’s nextgen, which promises to be bigger and better than ever. For full details from the event organisers themselves, turn to page 32.
summer 2012 REA NEWs
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Climate Change: Why the Government Must Meet the Challenge The Foreign Secretary William Hague writes about the role of the Foreign Office in the fight against climate change.
“We are at the start of a global shift from a high to a low carbon economy”.
The Foreign Secretary, Rt Hon William Hague MP
nder this Coalition Government, the Foreign Office has a renewed sense of mission. It is a mission to promote Britain's national interest, while tirelessly working for a world which is more secure, more stable, more free and more prosperous. In no area is this more relevant than the fight against climate change. In April ministers from more than 20 countries met in London with the goal of speeding up global progress on clean energy. I am in no doubt that we must meet this challenge, not only to safeguard the sustainability of our planet and the security of our energy, but also to ensure we are at the front of the queue when it comes to the jobs and industries of the future. We are at the start of a global shift from a high to a low carbon economy. The shift will be driven by those countries that transform their own economies so as to better compete in rapidly expanding global markets. The scale of ambition from some of our competitors is awe-inspiring. Denmark aims to generate half its electricity from wind by 2020. China is investing $1.7 trillion in the low carbon economy over five years. Germany is pursuing an unprecedented transition in energy through innovation in renewable electricity, energy efficiency and green infrastructure. These policies are driving rapid structural change in the economies of our major partners. They are reshaping markets that are crucial, both as destinations for our exports and sources of inward investment, for the UK commercial diplomacy that has been revitalised under this Government. But the risks are growing too. We have left behind an era in which energy, food, water, and other resources have been relatively cheap and plentiful. Rising demand is carrying us into an age of higher and more volatile prices for energy, food and raw materials. Political tensions in the regions traditionally supplying the world's oil have added to the uncertainties. Climate change is amplifying these stresses, and will do so increasingly. These risks pose a serious threat to growth, through price shocks and inflation. Their political consequences could be more
serious still, with some tempted to see a zero sum competition for resources between consumers and between nations. That would be an historic mistake, triggering a spiral away from the cooperation based on agreed rules that is vital for a globally exposed economy like our own, towards a much more dangerous world of fragmentation, competition and greatly enhanced risks of conflict. A core goal of British foreign policy must be to defend the open global economy against this threat. That will require a rapid global shift towards enhanced resource productivity and energy efficiency, and lower carbon intensity. Encouraging this transition, not least working through the strengthened bilateral partnerships that we have been building especially with the emerging economies, is a top priority for our diplomatic network. Britain can and must play a leading part in the transition through its domestic policies too. Our need for an export-led recovery and for inward investment in modern infrastructure is well known. One of the biggest drivers of that export-led recovery will be the green economy. There is unprecedented global demand for green innovation, which could provide an enormous boost to UK industry in the years to come. Thankfully, actions taken across Government will mean Britain is well placed in the decades to come. At BIS, the Green Investment Bank – first proposed by George Osborne in 2009 – is now becoming a reality, with £3 billion of
public investment set to unleash £15 billion of private money. At DECC, the Green Deal promises to be the biggest home improvement programme this country has ever seen, transforming energy efficiency – and lowering bills. At Defra, measures to preserve and enhance biodiversity, alongside determined efforts to stimulate green growth, are putting the natural environment back at the top of government priorities. As Foreign Secretary, when trying to persuade other countries, both advanced and developing economies, to go green, it is a huge advantage to be able to point to the example we are setting at home. Without this green record, it is doubtful we could have achieved so much at the Durban conference last year. It is to the UK's great credit that our leadership helped persuade the major emerging economies to acknowledge that they too will have to adopt legally-binding targets for carbon emissions. We must stay the course at home if we are to maintain our influence and reach a new global agreement in 2015. Energy security is another essential part of this mix. Our reliance on expensive and volatile fossil fuel imports is damaging to our economy, and will only get worse without concerted action. The transition will not be easy, but for the sake of our longterm security and prosperity, we must wean ourselves steadily off this resource, and turn instead to low carbon alternatives. David Cameron’s great ambition to lead the ‘greenest Government ever’ relies heavily on a Britain that is leading the way on the world stage, pressing for determined and united global action, setting an example to other nations, cajoling those who do worse and aspiring to match those who do better. I can proudly say that the Foreign Office is leading this charge with vigour.
Reproduced with kind permission of the Foreign and Commonwealth Office and updated for REA News.
REA NEWS summer 2012
THE ENERGY BILL DECC’s policy framework is strikingly complicated. Nowhere more so than under the Electricity Market Reform 'Feed-in Tariffs with Contracts for Difference' proposals. The REA’s Gaynor Hartnell channels Donald Rumsfeld to define the known knowns and the known unknowns. But could a new and untested policy present unknown unknowns? Confused? You’re in good company! DECC has undertaken to work with the main renewables trade associations over the summer to iron out all the problems. We will do our best to hold them to that!
Giving evidence at the ECC Select Committee’s pre-legislative scrutiny of the Draft Energy Bill
he Draft Energy Bill has been published, along with a number of accompanying documents, and we await the verdict of the ECC Select Committee pre-legislative scrutiny. The “Feed-in Tariffs with Contracts for Difference” (CfDs) herald the end of the RO, which was far from perfect but which has a number of advantages which the new proposals lack. The RO provides an incentive for electricity suppliers to buy power from renewable generators and has an inbuilt means of ensuring that the rate of deployment would not run away with itself and blow the budget. The timetable From 2014 onwards, renewable generators will be able to choose whether to get a CfD or claim ROCs. Strike prices for CfDs for different technologies over the first five-year period will be published in a “delivery plan”. This period of overlap with ROCs is due to end in 2017, when the RO closes to new entrants. For projects commissioning post-2020, it is proposed that there will be technology-specific auctions, with those for offshore wind starting in 2017, biomass in 2018 and onshore wind in 2019. There is an aspiration to move to technologyneutral auctions, but only when technologies can reasonably compete. From that point we will see nuclear, CCS and renewables bidding against each other. Followers of the EMR debate will know that everyone is arguing that the CfDs must have a creditworthy counterparty. Government has
backed away from directly underwriting the CfDs, due to State Aid concerns. But without this, a key aim of the reforms – to lower the cost of capital – is undermined.
A subsidy for nuclear or fair payment for low carbon power? EMR seeks to encourage new nuclear within the constraints of the Coalition Agreement to not provide a public subsidy, by presenting it instead as a fair payment on the basis that it is low carbon. But if that is the case, then surely the nuclear strike price should form the basis of a floor price for all low carbon technologies? That seems highly unlikely to happen. The REA is agnostic towards nuclear power, but with Government bringing the two technologies together into one mechanism, there is the potential to damage renewables. We don’t like the fact that CfDs for renewables might be delayed or made less bankable because of the constraints of achieving State Aid clearance for nuclear. For renewables, State
ECC Select Committee Chairman Tim Yeo comments following the evidence sessions My Committee’s public evidence sessions on the Draft Energy Bill have now concluded. We have heard from representatives of the ‘Big Six’, smaller generators, NGOs, academics, investors, National Grid, DECC Ministers and officials, and of course the industry associations, including the REA’s Gaynor Hartnell. Whereas pre-legislative scrutiny normally takes 12 weeks, we were only allowed five to reach our conclusions and put out a report. Nevertheless we will make recommendations on how the Bill can be strengthened. On Contracts for Difference there are urgent issues that need to be addressed. The counterparty model is the foremost of these. The proposed multiparty arrangement was criticised by almost everyone who gave evidence to us. Investors have said that as the CfD proposals currently stand there is little chance of the investment needed being obtained. Although the Treasury obviously doesn’t like the idea, unless the Government itself is the single counterparty the cost of capital will be higher than it need be. In turn this will mean consumer bills will be raised unnecessarily. Concerns have also been raised about the ease of accessing CfDs and at what point during the development process they will be obtained. Independent and small-scale generators are worried about their impact on the liquidity of the market and their ability to take part in it. We certainly need more clarity on how CfDs will work within the levy control framework in order to avoid increasing uncertainty for investors. The system used to set strike prices must also be transparent. Finally the need to gain State Aid approval hangs heavy over the whole process. Other glaring omissions from the Bill are any reference to meeting carbon budget targets and the almost complete absence of demand side measures. Overall the proposed arrangements are extremely complex but Electricity Market Reform is essential and we need to get this change right and soon – the timetable must not slip any further.
summer 2012 REA NEWs
Graph illustrates factors relating to Contracts for Difference Aid clearance need not be an issue. There could also be major implications for keeping spending within the levy control framework. Project development risk If CfDs are allocated when projects are at the point of reaching financial close, then developers are required to have spent perhaps millions of pounds on project development without certainty that they will get a CfD. The REA has proposed a two stage commitment process to resolve this. Auctions hugely exacerbate the problem of project development risk. Unpopular though they are, auctions do have an advantage in that, if got right, they offer a readymade answer to the challenge of devising a coherent methodology for the allocation of contracts. Prior to auctions, how is National Grid, as the body chosen to administer CfD allocations, to decide which project developer should get a contract and which should not if demand for CfDs exceeds the allowed supply? Generators must be assured the decision making process is fair and transparent. It is proposed that there are six-monthly allocation rounds, which seems to be a recipe for making this problem even worse. The REA favours awarding them on a first-come-first-served basis.
Allocation between technologies As to how DECC makes decisions on how much capacity should be allocated between renewable technologies, this is an area where DECC acknowledges it needs help. Whatever the mechanism is, it should leave as little to DECC seeking to pick winners as possible. In an administered pricing regime, this can only be achieved if prices are set with absolute accuracy! Clearly this can never be achieved. Price setting is a formidable challenge, which requires DECC to rigorously stick to evidencebased price-setting rather than politicallymotivated tinkering. Can we afford all this? We cannot afford a hiatus when we have a challenging and legally binding target to meet, but on the other hand most of the target should be delivered under the Renewables Obligation. The Government needs to take great care to keep the conditions right for continued investment under the RO, but it is playing rather fast and loose on that front. What will this cost in absolute terms? This we cannot know. Although it is clear that additional risk and complexity is likely to add to costs, and this must be avoided. Members can contact Tricia Wiley email@example.com for detailed analysis of EMR.
Images: DECC, Parliament UK website
The known unknowns! l Will renewables be able to achieve the market reference price for their electricity sales? If not the fundamental objectives of CfDs cannot be achieved. l Will nuclear power need and get a higher strike price than many renewables? l Can CfDs, which will mean a varying level of subsidy, be managed under a fixed levy framework? l Will utilities buy renewable electricity when they are under no obligation to do so? If not the UK will miss its renewable energy target. l Should Government attempt to pick the ‘correct’ deployment of each type of renewable technology? l How will National Grid ration the allocation of CfDs if there aren’t enough to go round? l Where will these complex proposals leave important small and mid-sized investors?
Mixed views on EMR “We need an Energy Bill to take us to the energy system we need for the future. What’s proposed won’t deliver a smart, flexible, interconnected, whole system approach at all. As it stands, unless there are fundamental changes to it, I would scrap it.” Professor Catherine Mitchell, Exeter University “From the banking point of view, CfDs as currently structured, are not something that we could take to our credit committees. There is a high level of complexity in the proposals which will make it difficult to attract investment.” Nick Gardiner, Senior Director, BNP Paribas “The CfD mechanism is investable but at what price? My fear is that consumers will end up paying a higher price because of the complexity and additional cost and risk that has been imposed on the industry through the CFD mechanism.” Ian Marchant, Chief Executive, Scottish and Southern* “The CfD is a better mechanism than continuing under the Renewables Obligation. I would be in favour of having a change in mechanism, as is proposed, but within a market-based framework.” Sarah Vaughan, Director of Strategy & Regulation, E.ON UK* “This reform is not complex; this reform is comprehensive. This reform is addressing the challenges of the decades ahead of us and we have been for years, and I think with a large consensus, advocating for reform.” Vincent De Rivaz, Chief Executive Officer, EDF Energy* * these quotes are extracted from the uncorrected evidence given to DECC Select Committee.
REA NEWs summer 2012
The British Renewable Energy Awards 2012 in pictures
Final preparations are well underway for what promises to be another superb Awards Gala Dinner
Guests begin to arrive and relax in the beautiful Garden Rooms at the Jumeirah Carlton Tower Hotel
The proceedings kick off with Energy Minister Greg Barker dropping by to deliver some warm words of praise for the REA
The gleaming Awards lie ready and waiting
Gaynor Hartnell welcomes everyone and goes through the running order
REA President, Tim Yeo, and Jonathon Porritt, deep in conversation
Our much-loved regular host for the night Peter Ainsworth is on typically outrageous form!
summer 2012 REA NEWs
Journalist Tom Heap presents the Technological Innovation Award to Jon Luckett & Andrew Steward of Glosfume
Michael Ware, BDO, presents the Manufacturer/ Employer Award to Barry Jenkins of G24 Innovations
Steve Hardman of sponsoring company infinis presents the Community Award to Frankie Vander Stok of Camphill Community Glencraig
Richard Morris of EMEC receives the Flagship Project Award from Jonathon Porritt
Eco2 and BNP Paribas are specially commended for taking the Sleaford straw biomass project to financial close
Half the population of Stockport crowd in to receive Stockport Homes’ Pioneer Award
Tim Yeo, MP presents delighted Dulas employees with the Installer Award
Damian Carrington scoops the Journalist Award, shown here with Richard Nourse of Novus Modus
The Judges' Award goes to two recipients. Peter Vis of the European Commission collects the Award for EU Climate Commissioner Connie Hedegaard
Chris Matthews of the Co-operative Financial Services receives the second Judges’ Award from Jonathon Porritt and Gaynor Hartnell
Virginia Graham thanks Gill Owen for her hard work as Chair of the REAL Consumer Code Supervisory Panel, on the eve of her departure to Australia
A Special Award for Services to the REA went to former REA CEO Philip Wolfe (right), and to Andrew MacLellan of ENER-G (sadly absent) for his service as Chairman of the REA Board of Directors – three times in 11 years!
Congratulations to all our winners and runners-ups
Finally, ex-England rugby player Martin Bayfield takes to the stage. Almost hysterical laughter ensues and audience feedback suggests he’s the best entertainment the REA Awards have ever seen. What shall we do next year?
and to those who entered, were nominated, or were shortlisted
REA NEWs summer 2012
The revolution has a new investor army Leading clean tech financier Gerard Reid, based between Berlin and London, explains a clear lesson from Germany that he believes the UK Government would be foolish to ignore.
ermany’s decision to exit nuclear power last year was greeted with some derision across the energy and political worlds. However, Germany would have liked to step away from nuclear 25 years ago after the Chernobyl accident. That made sense politically but there was one simple reason why it didn’t happen; German technocrats believed it was both technically and economically impossible. Faith in German engineering When Chancellor Merkel (a physicist) made the decision to exit nuclear, she did so confident that her country’s engineers and scientists had solutions at hand. A year on, with eight nuclear power stations closed, German baseload power prices recently hit a five year low, and power exports remain high. These are not the outcomes critics expected. Underpinning this success is the Feed-in Tariff (FIT) mechanism, priority grid access for renewable power, and one of the
best grids in the world. Together these have broken the oligopoly of the big four German utilities. Power to the German people Today 20% of all German power comes from nearly one million renewable generators and the vast bulk is owned by individuals, co-ops, farmers, pension funds and businesses. The accessibility of FITs, and the secure and predictable nature of the return, has attracted a whole new class of investor into the power markets. FITs have enabled projects, particularly small ones, to be easily financed and these are the exact projects that utilities, used to investments of hundreds of millions of euros, do not want to finance. Furthermore, utilities, who are answerable to demanding shareholders, will not invest in projects that have long payback periods and that offer typically 7% returns on equity; hence the reason why the German utilities own so little renewable capacity in their own country. Germany invested €25 billion in renewable power last year and added 10GW of new capacity. Germans pay more for their power than UK consumers but that is because of complex VAT levies – renewables have actually depressed electricity wholesale prices by shaving profitable demand peaks.
Leading renewables financier Gerard Reid of Alexa Capital
Renewables added just €0.035/kWh to bills in 2011. Heavy industry is exempted from funding the FIT, paying just 7% more for electricity than it did in 1990. The Government further helps its citizens reduce energy consumption by giving incentives for investments in energy saving measures. The result is that, despite an exit from nuclear, Germany is still on target to meet its 2020 carbon emissions target and the Government is on target to reduce energy consumption by 50% by 2050.
Chart showing who invests in renewable power in Germany
Billions of investment in German renewable power is coming from everyday people and organisations – and they invest for less than the high returns utilities demand
summer 2012 REA NEWs
But not to the British people The Conservative spoke of ‘power to the people’ when they came into office and the Lib Dems advocated 100% renewables. There was tough talk over breaking up the stranglehold of ‘the Big Six’. They are not delivering in practice. They have not been able to control rising energy prices. They have not understood how to empower the new investor. They still chase after nuclear windmills, apparently for ideological reasons, and appear determined to ignore sustainable and cost effective alternatives. This is astonishingly foolish. I believe the UK will fail to make its EU 2020 renewable energy target, despite having such a low target. Time is running out for the UK to recognise that we are in the midst of a profound technological transformation globally. Now is the time to embrace, not resist, technological change. This transformation involves empowering a new army of investors to enable the switch to new technologies cost-effectively. The UK’s fiendishly complex Contract-forDifference FIT hardly appears set to achieve that. Just how powerful the FIT mechanism is can be seen in December of last year.
Gerard Reid is impressed with the political leadership on renewables given by German Chancellor Angela Merkel, who is also a physicist. Reid wants the UK to heed important lessons from Germany on giving 'power to the people'
Germany installed over 3GW of solar in four weeks. Meanwhile the UK Government descended into panic over installing less than 1GW for the whole of 2011. Treasury no doubt believes it is acting in the best interests of consumers restraining this mechanism under a budget cap. Many investors couldn’t disagree more.
Gerard Reid is founder and partner of Alexa Capital. He was previously Director of Global CleanTech Research at Jefferies & Company. He is also a university lecturer in Imperial College London and the TU Berlin. firstname.lastname@example.org
REA NEWS summer 2012
Gearing up for nextgen
he broad based renewable energy event nextgen, which focuses on future energy generation, is now in its 7th year. At its heart is the UKâ€™s largest bioenergy event with over 200 exhibitors showcasing biogas, biomass and energy from waste. Also co-located at nextgen is microgen, the definitive event for the microgeneration community which will have solar, heat pump and onshore wind companies showcasing the latest technology. nextgen is strategically partnered with REA to ensure that the six conference theatres all deliver an exceptional level of educational content across all the renewables sectors. The content is designed to be practical and of real value to people looking to develop a renewable site. Conference sessions also cover the latest trends in legislation, market reports and will include a particular focus on new and innovative renewable energy generating ideas via a series of quick-fire â€˜Dragons Denâ€™ style sessions. All theatre content is CPD certified by the Energy Institute.
nextgen is expected to attract more than 4,000 delegates over two days in October at Stoneleigh Park, Warwickshire, which is centrally located offering easy access for delegates and exhibitors alike. Any company or organisation wishing to meet a target audience of farmers, land owners, installers, local authorities and developers should consider exhibiting and/ or visiting the event. The networking and information gathered is invaluable for gaining a better understanding of the renewables landscape and meeting new prospects and existing clients. More information is available at: www.nextgenexpo.co.uk
summer 2012 REA NEWs
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Cut Costs and Generate Revenue from On-Site Anaerobic Treatment
Energy use, carbon footprint reduction, and water use will be key issues for industry in the next decade. On-site Anaerobic Digestion (AD) provides many companies with the opportunity to address these issues. BV Dairyâ€™s plant in Dorset, operational for over 18 months, is a great example of effective on-site AD. Clearfleau designs and builds these cost effective on-site anaerobic treatment and renewable energy plants for industrial clients. They are designed to handle effluents and liquid residues containing sugars, oils and fats, as well as reject product or ingredients. It is working on several UK dairy projects, as well as building on-site plants for a confectionery manufacturer at one of their main UK manufacturing sites and a malt distillery in Speyside. Clearfleau has undertaken several successful UK trials treating residues from bio-fuel production and anticipates building its first plant in the biofuels sector during 2013. On-site digestion of production residues is an opportunity to transform the way products are produced, generating energy from what is often classified as waste. For further information: Richard Gueterbock richardg@clearfleau 0844 477 6292
Can UK Export Finance help you access new markets? Ali Sherwani, Head of Business Development at UK Export Finance, explains how they can help UK exporters and investors do business overseas.
n these times of economic gloom, liquidity crises, and general financial malaise, it is challenging just to get a product to market. Even after seemingly endless rounds of sourcing development funding, R&D, testbedding, and achieving a commercially viable product, this is not the end of the story. Once you have a product, have successfully negotiated a contract, and started work, you are then faced with the key question: will I actually get paid? That’s particularly a worry for exporters to emerging economies, where there may be high rewards, but high risks too. There is a range of possible solutions to this, from Letters of Credit and bank guarantees to commercial credit insurers. But what if these options are not available, or are difficult for you to access? One solution might be to speak with UK Export Finance. As the UK’s official Export Credit Agency, UKEF is a separate Government Department which aims to provide support for
exporters of UK goods and services against the risks of non-payment under the terms of their supply contracts. UKEF is very keen to help the UK renewable sector in their export effort. Support is given in the form of insurance or guarantees against the risk of loss. As a UK Government Department, UKEF exists to complement, not compete with, private sector, commercial insurers and lenders but, in certain circumstances, may be able to consider giving its support where private sector cover is unavailable or difficult to access. A list of countries where cover is currently
available can be found on the UKEF website. UKEF offers a range of products covering the entire process from bidding through to contractual performance and delivery, installation, and commissioning, including: Export Insurance Policy: insurance against specified political and commercial risks of non-payment by cash buyers. Bond Support: help to raise bonds such as Tender, Advance Payment Guarantees (APG), and Performance Bonds required by your buyers. Export Working Capital Guarantee: facilitates access to working capital for your contract. Buyer Credit and Supplier Credit Finance Facility: can facilitate access to finance for contracts from £25k plus where overseas buyers are seeking medium or long term loan options (we can consider up to 18 years credit for suitable renewable projects). Whilst UKEF’s main focus is on emerging markets, some of our products can also be used to help UK renewable exports to the developed markets. Eligibility criteria apply. For further info, call 020 7512 7887 or visit www.ukexportfinance.gov.uk.
Stabilising Solar FITs Leonie Greene reports on a relatively calm outlook for solar power after recent policy wins, and signs that market difficulties may be easing.
he STA, alongside colleagues at the REA, has achieved many of its key demands for the new solar PV FIT cost control framework. This includes a one month delay in the introduction of the new FIT rates to allow the depressed solar market more time to recover. A volatile start for the UK industry means the UK market has been characterised by dramatic peaks and troughs in deployment. The market dropped off again after the introduction of energy efficiency requirements at the start of April. At the same time the Government announced the UK was back in recession – never a boost for consumer confidence. Since then we have been carefully monitoring the weekly deployment figures. Members receiving our regular deployment graphs will be encouraged that growth may be slow, but it is steady – bar a blip caused by the
capacity triggers for tariff degression banded by installation size – this will help to safeguard the development of the commercial, as well as the domestic market. If the market continues to grow, despite the prolonged economic malaise, we are hoping to see around 800MW of solar PV installed this Sunny days ahead? Members of the FITs Stakeholder Roundtable including Ray Noble, Paul Barwell and Alan Aldridge with Minister Greg Barker on the year under FITs. Getting roof of DECC positive messages out long Jubilee weekend. to consumers that solar power represents As the REA and STA both advocated, a great investment, even after the FIT quarterly reviews of the FIT tariff now form the reductions in August, remains a top priority foundation of the new cost control framework. for the STA. The FIT scheme operates under a fixed budget Drawing on the REA’s extensive FIT model, cap, which presents a risk. The regularity of the STA has developed a ‘solar calculator’ reviews reduces the risk of Government losing underpinned by credible data sources. control of deployment and taking drastic steps The calculator will shortly be available to to protect the budget. Other wins include members enabling them to easily produce retaining index-linking for tariff payments, reliable estimates of returns on investment better treatment of aggregated schemes and for their customers.
REA NEWS summer 2012
REA News Summer 2012