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United Kingdom

Government shows willing on policy

Barriers to renewable energy created by Britain's new electricity trading arrangements (NETA) are among the issues to be tackled by the UK's latest energy policy white paper, promises energy minister Brian Wilson. NETA's success in driving down the wholesale price for electricity should not be at the cost of the government's other main objectives, he stresses. "Fortunately, the white paper does give us an opportunity to get that balance right," he said, speaking at a conference in London organised by the UK's Renewable Power Association.

The future of nuclear power, government targets for renewables beyond 2020, and the need for more sector restructuring if targets are to be met have been the live issues of debate in Britain over past weeks

Barriers to renewable energy created by Britain's new electricity trading arrangements (NETA) are among the issues to be tackled by the UK's latest energy policy white paper, promises energy minister Brian Wilson. NETA's success in driving down the wholesale price for electricity should not be at the cost of the government's other main objectives, he stresses. "Fortunately, the white paper does give us an opportunity to get that balance right," he said, speaking at a conference in London organised by the UK's Renewable Power Association (RPA).

"I am absolutely clear that if we are serious about the climate change agenda, we cannot have a system that drives out clean generation and actually encourages dirty old generation to be taken out of mothballs," said Wilson. He expects to publish the white paper in early 2003.

The white paper was the focus of much speculation and comment at the conference "Renewable Power Delivery" held at the Olympia Exhibition Centre, October 23-24. Wilson indicated that targets for renewable energy beyond 2010 will be a key issue. Many of the speakers called for a 20% target for renewable energy's share of UK electricity by 2020, in line with a recommendation by the Cabinet Office's Policy and Innovation Unit (PIU) in its review of energy policy earlier this year.

Meantime, however, the UK is unlikely to meet its existing objective of 10% of electricity from renewables by 2010, most speakers agreed. To reach 10% requires a build rate of 1% per year, explained Alan Robinson from British power company Innogy. He was confident the industry could achieve that by the second half of the decade, but this would be too late to meet the target. Wilson, however, stuck by his target. "I am certainly not prepared to write off the 10% target; if we did certain things we could make 10% by 2010."

Opinion was divided over the threat to renewables from nuclear power. Stephen Tindale of Greenpeace said the government must stop subsidising the nuclear industry. "There is a straight choice to be made; do we go down the nuclear route or do we go down the renewables route." Peter Lehman from the Energy Saving Trust added that some parts of government took the view that renewables would not be able to deliver because costs are too high. "There is therefore a gap, and if that gap is going to be covered by a low carbon technology, they believe it is going to be covered by nuclear," he said. Liz Reason from ILEX Consulting was of a different opinion: "As somebody ... who is reasonably familiar with government thinking, I do not pick up that government is itching to start subsidising nuclear power," she said. Robinson was blunter. The government should stop worrying about the nuclear industry. "Just let them get on with it; if they can't make money they'll go bust in the way some industries do."

Fundamental restructuring

The Renewables Obligation (RO) -- the UK's new support mechanism -- is the main driver for renewable energy, pointed out several speakers. Wilson claimed it is working well and attracting investment into renewables. He stressed the obligation will be around for the long term, with a duration of at least 25 years and commanding cross-party support, so there is no question of it being undermined in any future change of government.

Michael Grubb of the Carbon Trust explained that while Renewables Obligation Certificates (ROCs) are an important driver for technologies closest to market, a mix of policies will evolve for less developed technologies. These will include capital grants and research and development grants. "But over time, the aim is to achieve an evolution whereby costs come down and the mechanisms are going to move increasingly towards market based supports of ROCs and climate change levy exemption," he said. But merely tinkering with ROCs and grants will not be enough to achieve the targets, he added. It is going to involve some fundamental restructuring of the electricity system and the way it is regulated, to address key issues such as distribution charges and embedded generation.

Grubb estimates that current expenditure on renewable energy in the UK's climate change program totals some £1.3 billion, of which ROCs account for 75%. "That is a pretty good situation compared with many countries."

Wind energy, particularly offshore wind, would bear the lion's share of new renewable capacity built under the obligation, believed Robinson. "We need to be building at up to 800 MW a year, which is very possible to do," he said. "Other technologies will fill in the niches." But he cautioned against too much involvement by government. "I don't want politicians to take the lead. I want them to set the rules, create the market and let us get on with the job."

He called on the industry to "stop whingeing" and try to get on with delivering, although recognising that there are still barriers to be overcome. The government, meanwhile, should stop having reviews that are never going to go anywhere, he said. From Warwick Business School, Catherine Mitchell criticised the "plethora" of government departments with responsibilities impacting on renewables and the environment for failing to integrate government thinking. "They have to bring everything together in one smallish department that has direct links into cabinet." The white paper must set out how its 2020 target is to be delivered, she said. This includes clarifying whether, in trade-offs between government objectives, the economic or the environmental objectives should take precedence, she explained. "That means there will have to be a review of the role of Ofgem (the energy regulator)."

Raising finance under the renewables obligation was identified as another barrier by several speakers, but most agreed it was a matter of time before the financial community becomes more confident in lending to renewable projects. David Porter from the Association of Electricity Producers (AEP) remembered that banks had been slow to finance projects under the former support system -- the Non-Fossil Fuel Obligation. "But the banks did get used to it and money was forthcoming. There will be a getting-used-to-it factor under the Renewables Obligation."

Grubb could not understand why ROCs were considered by some to be not bankable. "ROCs have not even started fully operating yet. It seems a little early to bury them and ask what comes next? This kind of instrument is a pretty smart way of getting some substantial financial flows into the industry," he said. "The firmest thing you can get hold of in the electricity market today is a ROC."

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