POLICY ON RENEWABLE ENERGY AND ENERGY EFFICIENCY IN THE

UK:

Opportunities, Obstacles and Funding

A Presentation to the London Renewable Energy Conference

by

Professor Paul Ekins

Head of Environment GroupPolicy Studies Institute

Friday 11th October, 2002

Structure of Presentation

• Energy and Sustainable Development

• Energy Efficiency

• Renewables

Sustainable Development Criteriaof the Sustainable Development Commission

• Integrating the economic, social and environmental dimensions of quality of life

• Respecting biophysical limits • Making the polluter pay • Protecting and enhancing UK

competitiveness • Promoting social justice and inclusion • Achieving energy security

Conclusions for Energy Policy

• “A combination of energy efficiency and new renewable energy sources performs strongly against all the sustainable development criteria and is the first choice when it comes to meeting the energy demand and supply challenges of the future in a manner consistent with sustainable development.”

PIU Energy Policy Objectives• Current Government formulation: ‘Ensuring secure, diverse

and sustainable supplies of energy at competitive prices’• PIU recommendation: In setting future energy policy, “the

guiding policy principle for government should be sustainable development, requiring the achievement of economic, environmental and social objectives”

• Key priorities: maintain energy security, ensure compliance with existing carbon abatement targets, develop a range of low carbon options to be used to meet possible post-Kyoto targets. The UK should also be pursuing innovation to permit deep cuts in carbon in the longer-term.

PIU Conclusions

• Energy efficiency has the closest match with all the major sustainable development objectives

• Energy efficiency should be at the centre of low carbon strategies – much can be achieved at very low cost

• 20% improvement in energy efficiency by 2010, further 20% by 2020

• The wide range of renewable energy technologies represents the most important priority among zero carbon options

• 20% by 2020 target for renewables. • Development of a wider range of renewables options. • Urgent removal of institutional barriers to renewables

 

COSTSEnergy

cost, p/kWh

Carbon abatement cost, £/tC (2020)

Potential contribution to carbon emission

reduction, MtC

  2020 Minimum Maximum 2020 2050

Domestic EE

Low  

 

 

-300 50 15 30

Service sector EE

-260 50 4 10

Industrial EE

-80 30 9 25

Transport EE

Probably negative

Detailed assessment needed

14 30

Large CHP < 2 -190 110 3 5

Micro CHP 2.5-3.5 -630 -110 1 5

Onshore wind

1.5-2.5 -80 50 1 5

Offshore wind

2.0-3.0 -30 150 8 >20

Marine (wave and tidal)

3.0-6.0 (wave)

70 450 Small >20

Energy crops

2.5-4.0 70 200 3 10

Solar PV 10-16 520 1250 <1 >20

Nuclear 3.0-4.0 70 200 7 >20

Carbon sequestration

NA 80 280 Small >20

Fuel cells Unclear Unclear Unclear Unclear Unclear

Gas (CCGT)

2.0-2.3 The reference case against which the carbon reduction for other options was calculated

Coal (IGCC)

3.0-3.5 This would only be a carbon reduction option with carbon sequestration

Costs• Economic growth reduced from 2.25% p.a. to 2.23% p.a.• 60% carbon reduction by 2050 would cost perhaps 1% of

the economic growth which can be expected over the next fifty years

• Benefits:– Internalise externalities– Clear international statement about the greatest environmental

challenge facing humanity – Put the UK in a leading position to benefit from low-carbon

technologies and activities

Case for vigorous policy is clear

Policy Imperatives

• Deploy energy efficiency technologies (remedy market failures)

• Create a market for renewables

• Context: Domestic carbon reduction target will not be attained on current policies.

Policy for Energy Efficiency

• Sectors: Industry, Transport, Households

• Principles (reinforce each other)– Incentives for demand reduction– Incentives for greater efficiency (rebound

effect)– Regulation– Technological innovation

Industry• Demand reduction: Climate Change Levy, emissions

trading. NEED– CCL to be increased over time – Carbon permits to be auctioned

• Greater efficiency: Carbon Trust (Action Energy, ECAs, information on best practice). NEED– greater resource to reach SMEs

• Regulation: IPPC. NEED– Tighter targets

• Innovation: technology challenge. NEED– More powerful price signals

Transport• Demand reduction: Fuel duties. NEED

– Restored fuel duty escalator as necessary to achieve increasing real price of carbon

• Greater efficiency: Fuel efficiency agreement with manufacturers, company car tax reform, differential vehicle excise duty, consumer information

• Regulation & Innovation: Powering Future Vehicles. NEED– Visionary targets (e.g. very low carbon emission targets

by a certain date) – Faster development of low or no carbon fuels

Households (1)

• Demand reduction: no policy. NEED– To establish expectation of rising real price of energy

with complementary measures to protect those on low incomes

• Greater efficiency: Warm Front (HEES), EEC, no policy for middle classes. NEED– Strong incentives to implement all cost-effective

options

Households (2)

• Regulation: Building Regulations, energy efficiency labels. NEED– Stronger building regulations– Mandatory energy efficiency audits– Household appliance efficiency regulations

• Innovation: NEED– Construction of low-carbon buildings– Low or no carbon energy appliances (e.g micro-CHP

using fuel cells)

Renewables

• Objective is to create profitable markets

• NFFO• Renewables Obligation

Summary of NFFO  NFFO

1 

NFFO2 

NFFO3 

NFFO4 

NFFO5

Total

Number of projects 75 122 141 195 261 794 (335 live)

Average price (p/kWh)

7.10 7.20 4.35 3.46 2.71  

Contracted capacity (MW DNC)

152 472 627 843 1177 3271

Operational capacity (MW DNC)

141 172 299 158 94 865(26%)

Lessons from NFFO

• Too low prices mean less projects

• Planning permission difficulties

Renewables Obligation

• Obligation to buy certain percentage, 10% by 2010(requires unparalleled construction rates)

• Buy-out price 3p/kWh• Recycle revenues from buy-out• Exemption from CCLPLUS• Capital grants• Research, development and demonstration

WILL IT WORK?

Renewables Obligation

Potential constraints on profitability and market viability:

• Planning• NETA• Embedded generation• Perhaps not enough incentives for higher cost, longer-term

technologies• Uncertainty beyond 2010

Conclusions

• Many policies have been introduced• They are not yet reducing UK carbon emissions• Not yet enough evidence of commitment through long-term

policy signals (especially prices)• Household energy efficiency very problematic• Not yet clear that Renewables Obligation will kick start

renewables market to required extent

NOT YET ENOUGH TO GIVE THE UK A CLEAR LEAD IN THE LOW-CARBON MARKETS AND TECHNOLOGIES OF THE FUTURE

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