Darling powers up clean energy

The Sunday Times
April 26, 2009
Extra subsidies will secure the future of key projects such as offshore wind farms
Danny Fortson

The firms behind the world’s largest wind farm, the London Array, are poised to approve the long-delayed project after Alistair Darling announced an aid package for the industry.
Green projects like the London Array were the big winners in last week’s budget, with the chancellor backing a range of environmental schemes. His help varies from subsidies for new coal-fired power stations and offshore wind farms to assistance for homeowners to fit insulation.
Businesses in the sector were among the few to give the budget unalloyed praise. The companies behind the London Array said the government’s new incentives “boost the economics of the scheme and so its commercial viability”.
A final investment decision on the £3 billion project will be made soon and construction is expected to begin later this year. If all goes to plan, the first phase will be completed in time to provide power to London for the Olympic Games in 2012.
If any of the government’s projects were deemed “too big to fail” this was it. Comprising 341 giant turbines spread over 90 square miles of seabed off the Kent coast, the Array has long been held up by Whitehall as a trophy project that embodied its ambition to convert Britain to a low-carbon economy.
Yet for nearly a year, it has been on the ropes. Construction costs have soared. Royal Dutch Shell pulled out last year, calling its economics “questionable”. The firms still backing the scheme – Germany’s Eon, Denmark’s Dong Energy and the Gulf investment fund Mas-dar – warned that without immediate aid, they would scrap it.
Cue Darling’s “green budget”. The chancellor unveiled a slew of incentives last week, most of them aimed at getting the offshore wind industry back on track. The measures included £525m in increased subsidies and up to £4 billion in European Investment Bank (EIB) loans for projects stalled by the credit crunch.
Other low-carbon support includes £375m for energy-efficiency schemes, such as household loft insulation, and £405m in new cash to support low-carbon manufacturing. The government also gave the green light to a new generation of clean coal power stations and committed Britain to a binding carbon budget (see panel below), the first country to do so.
Some environmental campaigners carped that the measures fall well short of Barack Obama’s $150 billion (£103 billion) “green new deal” for America. Within industry, however, there was a general feeling that it had received a disproportionately large piece of the Treasury’s dwindling pie. Philip Wolfe, director-general of the Renewable Energy Association, said: “We had three main areas of concern and in difficult circumstances they addressed all of them to a degree. This is a big step forward.”
Angus McCrone of New Energy Finance called it “a much better package for clean energy than other recent attempts”.
The government has hitched the country’s future to offshore wind, even though the technology is still in its infancy. Around the world today, there is less than 1GW of offshore wind capacity. That is equal to the power output of a typical gas-fired station. The government has set a target of generating 33GW of power from wind, most of it offshore, by 2020.
Analysts say the new measures should lead to the start of construction on offshore projects that will generate 3GW of power. These include Npower’s 750MW Gwint y Môr farm on the Welsh coast and three large projects from Centrica. Within hours of Darling’s announcement, Dong said it would begin construction of its Walney farm project in the Irish Sea.
The government has given assistance in a few key areas. One was a 50% increase to the per-megawatt subsidy for power generated from offshore wind, on top of a previous 50% hike that came into effect this month. Valid only between 2011 and 2014, it is targeted at farms that have yet to be built.
Another key measure was a one-year increase from 20% to 40% for the capital allowances for projects given consent this year. For large sites that is a big bonus.
“The government has very clearly created a window for a lot of these projects that have been stuck on the cusp. We should see a lot of them get consent pretty quickly,” said one power-company executive.
The BWEA, the wind-energy trade body, said the EIB loans could help 5GW of new onshore wind projects that were otherwise facing prohibitive borrowing terms.
The complications, however, are many. Today only one company, Siemens, makes offshore turbines. These have to be resilient to perform in the harsh conditions at sea. Vestas, the world’s largest turbine maker, pulled out of the market after its disastrous project at Horns Rev on the Danish coast, where it had to bring all 80 of the turbines it had installed back onshore to fit new gearboxes.
“There is much larger operational risk offshore. You need to have people and boats ready on short notice to go out there and fix it if there is a problem. Horns Rev nearly broke Vestas’s back,” said Jens Thomassen at HG Capital, an investor in renewable projects.
The cost of building offshore wind farms is roughly double that of onshore farms. The added expense is offset, in theory, by the greater power generated from higher winds and the larger size of the farms offshore.
Some experts think this argument may not always hold. In an analysis of four of Britain’s offshore sites, HG found that the amount of time a scheme is generating full power is virtually identical to onshore farms, at 27% to 29%, rather than the 35% to 40% typically cited.
And because of the treacherous sea environment, offshore farms spend about 20% of the time out of commission for maintenance or repairs, as opposed to 2% to 5% for a typical onshore farm. “Offshore will definitely be important, but you really have to question if this is the best way to spend our money right now,” said Thomassen. The cost of building the miles of undersea cable to connect to the mainland is estimated to be at least another £10 billion.
They are daunting figures, but the government also focused on the smaller end of the green industry. It set aside £45m for developers who fit low-carbon technologies such as rooftop wind turbines and ground-source heat pumps on warehouses and office blocks. Another £25m was earmarked to pay for community-level heating projects.
Darling did make one glaring omission – the national electricity grid. It was built in the 1950s to transport the electricity generated by a handful of large plants. The new energy network, made up of far-flung wind farms, new nuclear stations and possibly thousands of household generators, will be far more disparate and technologically demanding.
Indeed, next week the government will unveil its £7 billion plan to roll out smart gas and electricity meters to every home in the country. Its silence about the inevitable overhaul the grid will require worries some. David Smith, head of the Energy Networks Association, said: “Ignore energy networks and nothing will happen on delivery.”
New carbon budgets tie UK into legal limits on CO2
THE first three “carbon budgets” introduced by the government last week set a binding target for Britain to cut carbon-dioxide emissions to 34% below 1990 levels by 2020,writes Tricia Holly-Davis.
The budgets put Britain on track to meet an 80% reduction in emissions by 2050, and pave the way for investment in the development of new low-carbon energy sources and technologies.
The targets are legally binding, though the Climate Change Act, which established the concept of carbon budgets, gives the government an escape clause by allowing it to meet its targets through the purchase of carbon credits. Alistair Darling said the government would aim to meet the first three carbon budgets without buying these credits, but would keep them as a “fallback option”.
On the surface, the 34% reduction seems optimistic, given Britain’s reliance on fossil fuels to produce electricity. However, in reality, Britain only has to reduce emissions by about half the target outlined in the budgets, because our emissions are already 16% lower than 1990 levels. “It works out to a marginal year-on-year reduction of about 3%, which is much more realistic,” said Daniel Waller, a carbon management expert at AEA, a climate-change and energy consultancy.
The provisional estimates of carbon-dioxide emissions for last year were 532m tonnes, a 10.5% decrease on 1990 levels and 2% lower than in 2007. The Department of Energy and Climate Change said the fall was due to the switch to natural gas from coal, particularly for electricity generation, and energy efficiency.
Nevertheless, growing demand for energy means that to keep reducing emissions by at least 2% a year and meet the targets of the carbon budgets “will require a transformation in the way the UK meets its energy needs”, according to the government. Ministers will publish an energy and climate-change strategy this summer outlining specific policies to meet their emissions targets.
Britain banks on burying power-station carbon dioxide
BRITAIN could lead the world in an ambitious – some think over ambitious – scheme to make coal a clean fuel, writes Dominic O’Connell. In the budget, Alistair Darling confirmed the government would invest in four trial projects to demonstrate that carbon dioxide, the main greenhouse gas, can be removed from the exhaust gases of coal-fired power plants.
Coal is an important fuel for Britain. Coal-fired stations account for 37% of our electricity generating capacity, and last year provided 31% of the electricity we used. But coal – in greenhouse gas terms – is a dirty fuel, and the stations’ continued operation is at odds with government plans to cut carbon-dioxide emissions (see adjoining panel). The answer, the government hopes, is in technology that promises to take the carbon dioxide out of coal – known as Carbon Capture and Sequestration (CCS).
There are two types: pre-combustion, which captures the carbon dioxide before the coal is burnt, and post-combustion, which takes the gas out of the smoke afterwards. In each case, the carbon dioxide is then cooled until it is liquid and piped or shipped away for injection into underground stores, typically old oil or gas fields.
While the technologies for both methods are well understood – the Swedish power company Vattenfall already has a small plant running in Germany – they are not yet proved on a large scale.
The biggest problem is cost and wastefulness. Taking out carbon dioxide consumes at least 25% of the power plant’s energy production, meaning much more fuel needs to be burnt to produce the same amount of electricity. Critics also say that the long-term effects of storing carbon underground – with the possibility of escape into the atmosphere – need to be more fully explored.
In fleshing out the details of the scheme, Ed Miliband, the environment secretary, said that new coal plants would not be approved in Britain unless they were fitted with CCS.