The Earthship at Stanmer Park, just outside Brighton, East Sussex, UK. Photo: Esa Ruoho via Flickr (CC BY-NC).
Repowering renewables - a silver lining amid the gloom?
28th August 2015
The Tories' decision to scrap the UK's renewable energy sector deserves condemnation, writes Oliver Tickell. But there is a silver lining: it creates the space in which to design better, cheaper, more cost effective support mechanisms to drive the clean energy revolution forward.
Should environmentalists be hugely attached to the current structure of renewable energy support? No. It is in fact an expensive, wasteful and ineffective way of leveraging the enormous sums we need to be invested in greening the UK economy.
Another day, another government attack on renewable energy. This time it's smaller scale renewable energy that's in the firing line - and domestic-scale solar in particular.
Under changes announced yesterday in a 'consultation' on the future of the Feed-in Tariff, (FIT), energy secretary Amber Rudd wielded the axe on pretty much everything, but solar in particular.
Rooftop installations will see the FIT payments reduced to just 13% of current levels, the princely sum of 1.69p per unit. The biggest installations in the 1-5MW range will get just 1.03p.
The solar industry believes it can produce power at the same price as fossil fuels by 2020 - but to achieve that will need sustained investment and growth. Now we know - it's not going to happen.
Oh yes - the government is also planning to end the FIT scheme altogether by 2019, for all technologies. And as far as the government is concerned, the only alternative to these proposed cuts is to bring the FIT scheme to a complete halt in January 2016.
But has the government got a point?
Actually, yes it has. Where it's going wrong is that while it cuts away at renewable energy incentives, abandons the plan for all new homes to 'zero carbon' in 2016, and ditches the 'Green Deal' scheme for raising the energy performance of existing dwellings, it's putting nothing in their place, and apparently has no plan to do so.
But should environmentalists be hugely attached to the current structure of renewable energy support? No. It is in fact an expensive, wasteful and ineffective way of leveraging the enormous sums we need to be invested in greening the UK economy.
And if there's one thing to be said for what the Tories are doing, stripping away all the support mechanisms for renewable energy, it's that it creates an opportunity to begin again with a more rational and cost effective mechanism.
So what the problem with FITs, the Renewables Obligation (RO), Contracts for Difference (CFDs) - all the existing mainstays of renewable energy support?
They all work by offering future 'income support' for renewable installations. On the back of the promise of a future income stream the developer then has to go out and get the finance to pay for it now.
But while the government can borrow money at just 0.5% interest, green energy developers are paying at least ten times as much to cover all the perceived risks, and add an element of profit to the lender on top.
And because almost all the cost of renewable energy is capital cost (small running cost as there's no fuel to buy, and wind and sun are free) the single biggest cost element is the cost of capital - that is, the interest paid.
What that means, in effect, is that every new solar power station or wind farm represents a huge long term financial cost to the nation, to be paid out of everybody's future electricity bills. And most of the money is actually going, not into renewable energy, but into servicing loans to the exclusive benefit of banks and other financiers.
Another result is that many potential schemes never go ahead at all, not because of any intrinsic fault in their design or viability, but because they fail to attract finance at a viable interest rate, or indeed at all.
Then there's the uncertainty of future cost inherent in, for example, CFDs. Because they guarantee the generator a fixed price for many years to come for the power they generate, the amount of public money to be dished out varies inversely to the wholesale power price. When the price is low, the cost of the CFD increases.
And that's exactly whey the unhelpfully named 'levy control framework' (which finances the FITs, CFDs etc) has run out of money - lower than expected power prices.
So what's the answer?
The solution is actually astonishingly simple - as indeed it has to be, given that another problem with the existing system is its inordinate, multi-layered complexity.
First, no more income support for renewable energy. Scrap FITs, CFDs and the RO altogether. That's easy - after all the government is already most of the way there.
Second, provide capital grants paid on successful commissioning and verified operation of a project, at scale and technology appropriate rates, periodically reset for each technology to reflect their declining cost and risk.
Because these grants would be paid by the government, they would carry an effective interest rate of the Bank of England minimum lending rate, currently 0.5%. That represents a huge saving in public cost.
Third, guarantee market access to renewable energy generators through two mechanisms: requiring energy companies to provide an ever-increasing minimum proportion of renewable electricity in their power mix; and to buy renewable energy whenever it's available, up to an ever-increasing maximum level of their total power needs at any point in time.
Fourth, guarantee domestic-scale renewable generators at least the wholesale electricity price per unit exported, plus a 10% bonus to account for absence of transmission / distribution losses since their power will feed directly into the local network.
Fifth, give renewable energy generators a right to supply power to local customers directly over the local electricity distribution network, paying no more than a regulated fair price for so doing to the network owner.
This package would provide all the necessary incentives for the UK to build a growing, successful renewable energy industry, at far lower cost and risk to taxpayers and energy users than the current system.
No way should we feel grateful to the Tories for ravaging the renewable energy sector. But we should seize the opportunity to design a better, cheaper, more effective system to support its growth well into the future.
Oliver Tickell edits The Ecologist.
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