United Kingdom

United Kingdom

Truths in infancy

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Wind energy in the UK is under attack. Three engineering institutions have produced reports for the government's Energy Review suggesting wind energy has an Achilles' heel -- intermittent supply -- which rules it out as a serious generating option. Articles in the technical press have made the same point. "Intermittent sources, such as wind power," they all argue, "require significant excess capacity and provide no firm power." But late last month it just so happened that about 40% of Britain's nuclear capacity was out of action for technical and maintenance reasons -- convenient proof that no power source is 100% reliable and that substantial amounts of capacity can go off-line without destabilising the system.

Criticism that is full of half-truths and unsubstantiated claims is not a professional approach to the energy debate. British energy regulator Callum McCarthy joined the trend last month when he blithely agreed that network connections for renewables would be hugely expensive if the government's targets are to be met. Making wind look expensive and difficult by ignoring the facts is pure mischief making. Nobody has said that 8000 MW of renewables will be installed overnight. It won't. By 2010, only about 50% of that will be connected to the distribution network -- half the amount that McCarthy bases his fears on. He should also remember that most of the perceived problems at the distribution level are institutional rather than technical, so the solutions are in his hands.

The favoured topic of wind's detractors is that wind is more costly than conventional generation. Being perceived as expensive does wind energy no favours. It risks alienating the customer, particularly when McCarthy exaggerates the impact of the Renewables Obligation on electricity bills by claiming it is helping prevent domestic electricity prices from falling in line with wholesale prices. This is sheer nonsense. The Renewables Obligation has only been functioning a few months. Prices are rising due to an acute shortage of demand driven by an ambitious government mandate, not because generation costs for wind are rising. What's more, the structure of the legislation shields customers from high purchase prices and, once green power supply meets demand, will force them down again. Explaining that kind of market complexity is a difficult enough job in the first place, without those who know better deliberately leading customers astray.

The government has chosen a high target for renewables with the aim of firing up the market. Its strategy is working. The rush for renewables is on, with wind developers scrambling to get megawatts installed and green power fed into the awaiting arms of electricity retailers, who if they fail to comply with the mandate face a £0.03/kWh fine. Not surprisingly, with the Renewables Obligation in its infancy and the market going hell for leather while still in diapers, purchase prices for renewables are shooting up (page 44). This does not mean the customer is being fleeced, however, as everybody -- from the engineering establishment, to the electricity regulator and even the gasping nuclear industry -- would have us believe last month.

The interesting and unusual aspect of the British legislation is that revenues from fines on non-compliant retailers -- those who chose to "buy-out" of the obligation -- are recycled back to retailers who comply with it. So the good guys get a financial reward, which they use to offset the price they paid for their green power. In other words, they can afford to pay over the odds for it. The effect of this mechanism is to push up the perceived cost of the Renewables Obligation, but it does not push up the overall cost -- and it is this that is of concern to the customer.

Negotiating childhood

Under a grown up Renewables Obligation, when supply increases to meet demand, prices will fall below the buy-out level. In Britain, with its myriad of institutional problems, that point could be years away. Meantime, the legislation must be negotiated through infancy and guided through its teenage years.

It could be that the market should be split up, so that wind is not included in the same basket as the less developed renewables. The prices being struck directly between electricity retailers and generators are not known, but the suspicion is that large onshore wind plant operators with financial clout are making a killing (though probably on short term contracts), while smaller developers and more marginal renewable technologies are being pushed out in the cold. It could also be that a 3% obligation is just too high a starting point. Push a child beyond its limits and you risk a hyperactive nose dive. Among the institutional barriers are McCarthy's trading regulations and, most daunting of all, Britain's notoriously cumbersome planning process for site permits. Until these come down -- and come down they must -- wind developers are likely to head for sites with modest winds and modest connections costs.

Encouragingly, it looks as though the renewables obligation is the vehicle to allow developers this flexibility. But there is still a real danger of history repeating itself. The lessons of the early days of the now expired Non Fossil Fuel Obligation should not be forgotten, when many companies rushed into wind, attracted by the prospect of high prices, only to find their proposals blocked by the obduracy of Britain's planning system. Until it is changed, planning is still the single largest barrier to wind energy deployment in Britain.

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