Friday, July 29, 2011

The Government must end this crazy split over financing the low carbon revolution - or it will fail

DECC has just released figures showing that renewable sources generated just 6.8% of UK electricity in 2010, an increase of only 0.3% on the previous year.

The amount of installed electrical generating capacity from renewable sources did rise by 15% in 2010, mainly as a result of a 42% increase in offshore wind capacity, a 16% increase in onshore wind capacity and a 9% increase in the capacity of sites fuelled by biomass and wastes.

Despite low wind speeds during 2010 generation from wind increased by 9.6%, due to this increased capacity; however the lowest rainfall since 2003 reduced hydro generation by 31.5%. Generation from all forms of biomass was 12.4% higher.

But the good news masks a deep problem.

Under the targets set by the Renewable Energy Directive, the UK must, by 2020, supply 15% of final energy consumption – calculated on a net calorific basis, and with a cap on fuel used for air transport – from renewable sources.

In 2010, however, just 3.3% of final energy consumption was from renewable sources; this is up from 3.0% in 2009, and 2.4% in 2008.
UK will miss its renewable energy targets at this rate
At this rate of increase we will not even achieve half of the target by 2020 (see graph).

Although the UK is beginning to accelerate the installation of renewables, big questions remain over the reliability and steadfastness of government policy in this area.

DECC is currently fast-tracking yet another consultation on solar Feed-in Tariffs to deal with an overlooked consequence of its last widely-criticised fast-track consultation.

It didn't notice at the time that under sections 15 and 16 of the ‘Feed-in Tariffs (Specified Maximum Capacity and Functions) Order 2010’ document, developers are currently able to install a system over the microgeneration amount (50kW) before the August 1 deadline – thereby receiving the higher FiT rate – and then install an extended capacity within 12 months, which would also benefit from the higher rate.

The closing date for responses this time is 31 August.

Coming on top of the reduction of up to 70% in Feed-in Tariffs for large solar installations completed after 1st August, this is causing dismay to those who had been relying on the extension mechanism and despair amongst the solar PV industry generally.

The dark hand of the Treasury is detected here.

As a result of the Spending Review, the Treasury has control over DECC’s spending. But DECC creates many of the policies.

This schizophrenic chaos is the result of the drastic measures which George Osborne's Treasury is employing to bring down the budget deficit.

It is threatening the UK's progress to move towards a low-carbon economy and meet its international obligations, as well as creating an increased risk of electricity supply failures for industry and domestic consumers.

Many of the recent electricity market reform White Paper's proposals, that are intended to stimulate new investment in low carbon generation and maintain security of electricity supply, are dependent on subsidies and financial incentives determined by Government.

These include carbon taxes, a new Feed-in Tariffs system for nuclear and large-scale renewable energy generation, and capacity payments to finance reserve plant which is held back to generate at times of peak demand.

Sudden changes in existing incentive schemes which reduce payments has the effect of undermining confidence in the whole electricity market reform project, even if some of these are ultimately financed through energy bills, not general taxation.

The Treasury's own proposal, the Carbon Price Floor system, is estimated to be going to provide a £1 billion windfall for nuclear power developers and renewable energy development up to 2020.

This will be financed by the climate change levy and fuel duty being levied on all fossil fuels used in the UK to generate electricity.

The proceeds of the Levy were originally intended to be returned to the participants in the scheme who performed the best for them to invest in further energy and fuel-bill saving and carbon-reducing measures.

Now it will go to increase supply rather than reduce demand. This was another policy shift announced by Osborne which was received with much dismay at the time.

The fuel duty will be raised by extending the Levy to the fossil fuels used to generate electricity. In another badly-thought out policy move, this includes those fuels burnt in CHP stations "regardless of their rating through the CHP Quality Assurance (CHPQA) programme", which is a kick in the backside to highly efficient gas-powered CHP.

Any person who supplies gas, solid fuels or LPG will need to register with HMRC for CCL and account for the levy.

It's good if green taxes are directly channeled into further reductions in carbon emissions. But energy efficiency should be prioritised, and those making an effort to reduce emissions should be directly rewarded.

DECC itself should be permitted to control these mechanisms, not the Treasury, especially when they are not directly related to the cutting the original budget deficit but instead are channeling funds from new increases on everyone's electricity bills.

This arrangement, where one Department is responsible for developing and implementing policy, but another, with very different priorities and objectives, has control over the level of cost to the public, is over-complicated, open to abuse in relation to its policy intentions, and does not inspire confidence.

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