The green revolution

Ed Miliband’s 1,000-page opus is big on aspiration but short on detail, say industry chiefs, and Labour’s low-carbon dreams will remain just that without investment
Danny Fortson
Last October Ed Miliband, the former Cabinet Office minister and confidant of Gordon Brown, was given one of the hardest jobs in government. Chosen to head the new Department for Energy and Climate Change, he was tasked with charting a path to revolution.
New Labour has long spoken of a future in which Britain would be ringed by thousands of windmills, turning in the breeze to create pure, pollution-free power.
Dirty old coal-fired power stations would bury their harmful exhaust deep underground; underwater turbines would draw energy from the tides. Our homes would be kitted out with smart meters to give us by-the-minute updates on our energy use and carbon footprint.
The vision was there. What was missing was the detail, and it was up to Miliband and his team at the cutting-edge energy department to provide it.
Last week, he revealed the fruits of that labour. The documents comprising the latest iteration of the government’s plan for a green future weighed in at more than 1,000 pages.
They contained a few firsts. The government finally admitted in stark terms that energy bills will have to rise – by 17% for business and 8% for households – to decarbonise the economy.
It broadly laid out how the £150 billion investment required over the next 20 years will be distributed (offshore wind looks like the biggest winner).
Every government department was given a carbon budget. More than 400,000 “green jobs” are expected to be created and no fewer than half a dozen quangos will be set up to oversee the transition to deliver an 18% cut in carbon emissions from present levels by 2020.
Industry, however, was sceptical. It has seen targets come and go before. This is Labour’s fourth energy white paper since Creating a Low Carbon Economy was published in 2003. It is by far the most comprehensive but many of the hardest questions remain unanswered.
How does the government propose to kickstart investment that has plummeted by a third in the past year? Will it step in with a new mechanism if the carbon price remains low? And no new details were given on how the byzantine planning process, the bane of the stuttering revolution, will be reformed.
New Energy Finance, the alternative-energy research firm, described the white paper as “old wine in new bottles” containing “hardly any . . . strikingly new measures to support the industry”.
Instead of a bold, detailed plan, what was produced was a repackaging of previously published programmes. “There isn’t a lot new here,” said Paul Golby, chief executive of Eon UK, the gas and electricity provider. “Policy papers are great but there isn’t a sufficient sense of urgency. Without the details and timetables showing how they are going to reach these targets, policy papers become aspirations,” he said.
Over the next 11 years, the heaviest burden will fall on the power companies. Britain’s power stations, most of which burn coal or gas, produce more pollution than any other source, accounting for about a third of UK carbon emissions.
Today only 6% of our power comes from renewable sources. By 2020, the government envisages a fivefold increase to 30%.
David Porter, head of the Association of Electricity Producers, said: “Both in money terms and in the number of projects, this is the biggest undertaking the electricity industry has ever had to make.”
Wind and nuclear power will be the biggest components of the change. It is estimated that 7,000 wind turbines, both offshore and onshore, will need to be built. Today there are 2,357.
Few think this will happen. Most new wind power sources are envisaged as enormous farms out at sea. This will require even more back-up plants to be built so that power can be provided when the wind isn’t blowing. What is more, laying the hundreds of miles of cables to connect them to the grid will be a hugely complex task. And Britain has virtually no domestic capability to build turbines.
The scale of the challenge facing the wind industry is typical of all “green” sectors. The government has portrayed our scant domestic know-how as a huge opportunity. There is nowhere to go but up, the argument goes, hence the 400,000 promised “green” jobs.
However, Britain simply doesn’t have the cash to emulate America, where the government has earmarked tens of billions of dollars in public funds to kickstart the sector. Instead, it is hoping that it can create a regulatory environment attractive enough to motivate the private sector to put up the billions that are needed.
Golby at Eon, which plans to build up to three nuclear reactors and the largest wind farm in the world, the Thames Array, is not convinced.
He said: “If there is not a clear path to payback on a new plant, we won’t build it.
It’s unclear whether the current market mechanisms will deliver that.”
Tom Murley, head of renewable-energy investment at HG Capital, was more blunt. “The UK is just a hard place to do business,” he said. “America is clearing the decks so people can do this stuff, but Britain doesn’t have that kind of money. They spent it all on bailing out the banks.
“Planning is a big issue and because of the recession the capital isn’t there. This will permeate the market for the next five to ten years.”
Miliband set aside £120m to help establish a wind industry manufacturing base in Britain but it is unclear how that money will be distributed.The government also extended a subsidy called renewable obligation certificates (ROC), meant to make wind power competitive with cheaper, dirtier forms of power by 2027 to 2037. Other low-carbon technologies, like waste-to-energy and biomass (see panel at top right), will also benefit from the extension.
The critical technologies, however, are farther off in the distance. The first of a new generation of nuclear stations is, by most estimates, a decade away. These won’t do much to help cut Britain’s carbon footprint because they will be replacing old nuclear stations going offline.
Clean coal technology, which strips carbon dioxide from the chimney exhaust of coal and gas power stations and stores it underground, could take just as long to be developed.
Recognising the size of the task, the government has relaxed a previously recommended timeline for achieving the transformation. The independent advisory Committee on Climate Change said this year that the power sector should remove virtually all emissions by 2030. This has now been pushed to 2050.
The other two main areas of focus are energy efficiency and transport. The government has extended a £3.2 billion programme, funded by the utilities, to insulate homes. It is also pushing ahead with a £7 billion process to fit the UK’s 26m homes with “smart meters” that provide real-time data on energy usage. The hope is that such measures will cut demand, thereby reducing the need for new power plants.
Transport is the area over which the government has the least control. The development of low-carbon cars will be driven not by Whitehall but carmakers responding to international fuel-efficiency standards.
The government is doing its best to encourage them but the value of a pilot scheme testing 340 electric and low-emission vehicles – “the largest in the world” – is unclear. As is a £5m project to increase bicycle parking at train stations.
What is certain is that it is all going to be very expensive – and we will be footing a big chunk of the bill, either through public subsidies or higher energy bills. The government predicts an 8% rise in household energy bills, and 17% for industry.
“None of this is going to be free,” said Garry Felgate, chief executive of the Energy Retail Association. “It’s good that the government is now being honest about it.”
Yet for all the government’s soaring aspirations, the two biggest obstacles to our green future remain money and planning.
In 2007, the top three banks lending money for renewable projects were Lehman Brothers, Morgan Stanley and Gold-man Sachs. Lehman no longer exists, and the other two are directing their shrunken resources elsewhere.
“None of these guys is doing much any-more and nobody has really stepped into the breach,” said Fraser McLachlan, chief executive of G-Cube, an insurer of green-energy projects. “Despite the push from government, we have seen a real drop in investment.”
According to figures from New Energy Finance, funding for renewables in Britain fell from £6.8 billion in 2007 to £4.5 billion in 2008 – far below the £7.5 billion a year the CBI says is needed, on average, over the next 20 years.
The other big worry is planning reform. It is not unusual for a wind farm, for example, to spend five years in planning – and to then get rejected. The government last year proposed the formation of an Infrastructure Planning Commission, to decide on projects of “national importance” that might otherwise be bogged down for years by local councils.
Steve Holliday, chief executive of National Grid, said: “Getting planning reform through is the next crucial step and we are very concerned that the new planning act is not yet finalised.” He added: “It’s running late and the situation will be critical if it doesn’t happen in the very near future.” The energy white paper is a commendable piece of policy, if for no other reason than the blizzard of acronyms, statistics, targets and quangos it produced. There is a danger, however, that the government is spreading its stretched resources too thinly, funding an array of initiatives so vast that no one sector gets the support that it truly needs.
“This transition is going to be a 20-to 30-year process and what we need to do now is focus on what can get us the biggest gains now,” said Murley.
“This is very scattershot. It’s like Frederick the Great said: ‘If you defend everything, you defend nothing’.”
Turbine tariffs
THE government’s green energy boost could do Proven Energy, a small wind-turbine maker, a power of good,writes Tricia Holly Davis.
Based in East Kilbride, Proven, which employs 70 people, makes turbines for homes and businesses. To date, it has installed 2,500 around the world and will have sales of about £9m this year. Steve Mahon of Low Carbon Accelerator, the renewable-energy fund and main shareholder in Proven, said sales will soar thanks to a new feed-in tariff regime taking effect in April.
Small-scale wind power has remained a niche market because of the questionable economics and planning constraints. Feed-in tariffs guarantee the price at which utilities buy power from generators and allow individuals and businesses that generate all their own power to sell any excess to the grid.
Mahon said: “We will see an explosion in the growth of small-scale turbines.”
Pine beetle’s creative destruction
DEEP in the pine forests of western Canada, an army of mountain pine beetles is doing its part for Britain’s green-energy plans.
Last week, the government gave the green light to a 295MW wood-fired power station on Teesside. The plant, proposed by the MGT power company, will be one of the largest biomass-fuelled stations in the world, incinerating 2.4m tonnes of wood a year to power more than 600,000 homes.
Within the past few months, companies have applied or received planning consent for biomass power stations that would generate 2.5GW of electricity – a tenfold increase over today’s level.
The quantity of wood needed to feed them is simply not available in Britain – nearly all of it will be shipped in from abroad. The MGT plant alone will need one shipload of wood chips or pellets a week to keep the fires burning. Drax, owner of Europe’s biggest coal-fired station, plans to build three MGT-sized biomass plants.
The plants, considered carbon-neutral because the organic materials they burn release carbon, were highlighted as a central component of the government’s energy white paper. And that’s where the mountain pine beetle comes in. Traditionally, the population of the tiny bark-eating pest is culled each year by the brutal winter in the mountains of North America. In the past couple of years, though, the winters have been milder, resulting in an explosion of the beetle population. Their appetite is so voracious that they are rendering useless huge tracts of forest normally logged for the building industry, but it is perfect to be used in biomass plants.
Securing a steady stream of fuel for power stations is the biggest challenge in making them work. Chris Moore, the managing director of MGT, said wood from the beetle-infested area is too far away to be of use to his project, but it is understood that other British developers are looking at importing it.
The irony is impossible to miss: a situation created by rising temperatures could help to get Britain going with its planned biomass plants, whose purpose is to curtail those temperature rises.
The winners of the review...
WIND With £120m in investment, the wind sector, both offshore and onshore, is by far the biggest technology winner, writes Tricia Holly Davis .It is further helped by the extension of the renewables obligation certificate (ROC) scheme, which will force utilities to buy green energy until 2037. The likely increase in payment from 1.5 to 2 ROCs per MWh of offshore electricity produced will provide a further boost.
Analysts said the measures clear the path for the development of the wind sector over the next 20 years. This should stimulate investment across the supply chain, providing opportunities for backers of grid infrastructure, manufacturing capacity and players such as port operators that will service the offshore wind industry. Funding remains a big obstacle, however.
BIOMASS The sector will really take off as a renewable-heat incentive is introduced in April 2011. “With biomass as the primary fuel for renewable heat (followed by heat pumps), those in the agricultural and forestry sectors can expect to see much higher demand for biomass crops,” said Ronan O’Regan of Price Waterhouse Coopers. Biomass projects have suffered significantly in Britain during the past 12 to 18 months because finance has not been available during the credit crunch. The projects being installed from this month will benefit from the introduction of the incentives and this will help with capital investment.
Some say the government could have gone a bit further by introducing a front-loaded tariff for new projects. This would have provided additional support at the beginning of the operation, giving some crumb of comfort on repayment for those whose funds are needed if these projects are to succeed.
WASTE-TO-ENERGY The process by which ordinary household and commercial waste is converted into energy that can be used for heating or to generate electricity features high on the agenda. The main technology winner is anaerobic digestion. “Developers, installers and operators will all be winners, provided they go with commercially proven technologies,” said Mark Wilson of Catalyst Corporate Finance. “It will remain extremely difficult for unproven technologies to get funding unless project sponsors have large balance sheets and will provide all the equity.”
... and the losers
SOLAR At a micro level, payments to homeowners to feed power into the grid could stimulate investment in solar photovoltaic (PV) panels, but Jeremy Leggett of Solar Century said the scheme was not nearly generous enough. “It might stimulate the market but it’s not going to push it toward the explosive growth rates seen in countries like Germany,” said Leggett.
With solar PV, the UK could be generating 5% of its electricity needs by 2020. The EU intends to generate 12% of all its electricity from PV by 2020. The government’s Renewable Energy Strategy, by contrast, assumes that solar PV will contribute only about 2% of the UK’s renewable electricity by that date.
TIDAL Half of Europe’s tidal capacity – and 15% of the entire world’s – is in Britain. Yet the sector secured only £60m for short-term development. The money will be distributed among a number of intermediaries across Britain, not providing any single region with enough capital to significantly increase the sector’s share of renewable power, according to Michelle Thomas, partner at Eversheds, the law firm. As a result, she said that energy from marine sources will meet only a fraction of Britain’s target to receive 15% of its power from renewables over the next 10 years, though its contribution to the government’s 2050 target should be more significant.
CONSUMERS Ultimately, the level of investment in the move to a low-carbon economy comes at a cost that will fall squarely on consumers. The government estimates gas prices will rise by 23% and electricity bills by 15% by 2020, in the absence of offsetting benefits such as energy-efficiency improvements. Price Waterhouse Cooper’s Ronan O’Regan observes: “One of the government’s biggest challenges will be to ensure that the costs and benefits of the proposals will be spread fairly.”
Over the longer term, however, new energy-efficiency products such as smart meters should help consumers to cut their consumption and bills.