Swansea barrage represents a key opportunity

Charles Hendry's report into the exciting Swansea Lagoon has given it the thumbs up.

The former energy minister concludes:

"I started this process with interest but sceptical. The more evidence I have seen, the more persuaded I have become that tidal lagoons do have an important role to play and there should be a government strategy in place to help this happen."

But it is not a cheap source of power. It has enemies. Among them is Jonathan Ford, writing yesterday in the FT,

Strangely, he quotes John Constable of the so-called Renewable Energy Foundation (REF), who lambasts it. The REF is a bogus organisation that does the opposite of what its name suggests. A simple Google search will reveal this, such as this piece. 

That aside, it is important to factor into any calculation about this investment that the lagoon will last 3-4 times longer than Hinkley or any other nuclear power station, and so its costs should be factored over around 100 years.

Hydroelectric power dams last for a at least this length of time. Admittedly the conditions for the barrage are slightly more stressful, being in salt water, but the area of Swansea Bay to be occupied by the barrage is a doubly sheltered one – both by the Bristol Channel and the horseshoe shape of the Bay itself.

Let's recall nuclear power's toxic legacy, and EDF's abysmal record, and nuclear power stations' own unreliability (often offline for weeks at a time for maintenance and safety), which should also should be factored in. 

Balance this against the modular nature of the turbines in the barrage (if one fails the others will keep working) and the predictability of the electricity (from the predictability of the tides).

Ford argues that nuclear is continuous source of power and the barrage is not, but the barrage has the ability to store energy (as water) within itself. The imminent availability of cheap electricity storage technologies will also help match supply with demand.

Tidal barrage and lagoon schemes are a new technology. Backing them will position the UK well as a world expert, leading to further lucrative business for UK plc.  China is already utilising it.

We have delayed long enough and let China get ahead. Let's get on with it.

Is the UK about to support weaker energy efficiency measures?

Tory Energy Minister Charles Hendry has appeared to indicate support for a weaker European law on energy efficiency than former Lib-Dem Energy Secretary Chris Huhne had suggested Britain would hope to achieve.

A draft text of the Energy Efficiency Directive, produced by Denmark and released yesterday, has no binding targets, nor any “meaningful review” in 2014 which could have triggered legal action.

It does contain a voluntary imperative on member states to force their energy companies to make a total of 1.5% energy savings each year.

The Danish presidency is steering through the legislation and has made it the top priority of its six month tenure.

The issue will be on the agenda of the European Energy Council in Brussels on 14 February, which is to consider the contribution of energy efficiency and renewable energy to growth and jobs.

At this meeting, the Presidency will report on progress of negotiations over the draft Directive, and during lunch Ministers will discuss potential areas of concern in terms of scope, requirements and implementation, and how they can be best addressed, before negotiations begin with the European Parliament.

In advance of the meeting, Energy Minister Charles Hendry has issued a statement saying, "We support the general level of ambition in the draft Directive although we have concerns over the level of prescription. We are pleased with the direction of discussions in Council, which reflects these concerns."

If "prescriptive" is an interpretation of "legally binding", then this stance is in contrast to former Energy Secretary Chris Huhne's previous line, which indicated support for the Directive's target to be enshrined in law.

As Ed Davey's energy efficiency team gets down to work, getting the correct wording of the Directive is likely to be high on his agenda, as UK industry will have concerns over any unilateral investments in energy saving it would have to make that could give it competitive disadvantage in Europe as a whole.

The timing is tight, since, following next week's meeting, the Parliament committee on Industry, Research and Energy (ITRE) votes on the Energy Efficiency Directive on 28 February, with the whole European Parliament plenary vote taking place a month later.

Cumulative savings

The draft text says that the 1.5% savings would have to accumulate each year, in contrast to existing legislation, such as the Energy Service Directive (2006), which allows member states to count savings from the previous decade towards their annual targets.

However, the text includes an option for member states to count savings from the energy transformation sector towards the target.

This point was criticised by the campaign group Climate Action Network-Europe. “This particular target was meant to trigger savings at the end use, not in the transformation sector,” said spokeswoman Erica Hope.

"Europe's GDP will be higher if the 20% savings target is met, according to the Commission's Impact Assessment accompanying the EED," she continued. "This is besides the other benefits listed in the energy efficiency plan such as, for example, two million new jobs and €1,000 annual savings on energy bills."

The European Commission had asked for a 2014 review to be built into the Energy Efficiency Directive, at which point, if certain criteria had not be met, mandatory national targets would be introduced.

The Danish text fails to include this, instead introducing weaker assessment points in 2013 and 2015 deadline, which would simply determine whether the European Union is on track to achieve its 20% by 2020 energy efficiency target.

The Danish draft takes account of the previous, Polish presidency’s concerns, that a directive would be costly to their coal-dependent energy regime, by curbing industry interference over how member states' individual targets are distributed.

The draft represents a victory for the lobbying power of conservatives such as Business Europe and German Liberal members of the European Parliament, who oppose binding targets and argue that market forces, rather than regulators, should dictate policies.

A grouping of Conservative politicians had called for the 20% target to be achieved either through a cut in primary energy use of 368 million tonnes of oil equivalent (Mtoe) or by a cut in EU energy intensity.

But this would be unacceptable to Europe's more coal-dependent, less rich nations, while richer ones like Germany are already closer to the target.

"An energy intensity target is a lose-lose situation," said Brook Riley, climate justice and energy campaigner for Friends of the Earth. "It might not provide an adequate incentive to improve further."

The UK is well placed to meet the concerns of the EED already. Buildings consume 40% of total final energy in the EU, and improvements in their performance will form a core part of the Directive.

The Green Deal and consequent expansion of the use of Energy Performance Certificates will be crucial to achieving reductions.

Financing the measures

On the issue of financing the Directive's measures, an amendment to the draft Energy Efficiency Directive being considered would mandate the set aside of 1.4 billion emission allowances (EUAs).

This would, according to a submission by oil company Shell, push up the EU-ETS carbon price to around €23/tCO2.

Since this could also generate extra revenues for governments, which could be invested in low-carbon technology, the extra value created by the increase in price is expected to be more than the value of the allowances that would be set aside.

The amendment is intended "to restore the price mechanism to levels envisaged in the impact assessment on which basis [the energy efficiency directive] was agreed".

Fifteen companies and lobby groups, including Dong Energy, Alstom, Vestas and Shell, wrote to the president of the EU Commission in support of the amendment.

The Commission has so far shied away from interfering in the carbon credits market, although policymakers said yesterday that carbon prices should rise to no higher than 30 euros through a one-off market intervention, while another coalition of industrial high carbon emitters urged European Parliamentarians to reject any proposal to give the European Commission the power to slash the supply of carbon permits.

The Green Deal will fail under current arrangements

The Green Deal, flagship of the Government's Energy Bill and intended to help the housing sector contribute to cutting UK carbon emissions by 80% by 2050, is likely to be underfinanced and will fail by not attracting enough support from residents.

That was the message from MPs as the House of Commons debated the Energy Bill again on Wednesday, before it moves back for the final time to the Lords.

But they were unable to obtain any guarantees from Energy Minster Charles Hendry, of the value or interest charged on loans to residents or the degree of support that may come from the Green Investment Bank, factors that will have a massive effect on the degree of take-up of the scheme.

The green deal is the “pay as you save” scheme for retrofitting energy efficiency measures to every one of the 28m homes in the country.

A new amendment was passed to force the Secretary of State submit proposals on the ways in which the Green Investment Bank could maximise its take-up and to enable the consumer to compare recommendations and estimated costs and savings.

This is in effect limited by the 'golden rule' that the cumulative cost of the rate of interest and the cost of the installation should not exceed the amount that people are currently paying on their energy bills.

The percentage game

It's the interest rate of the loan repayments that is one of the crucial factors.

The Great British Refurb campaign's survey of about 2,000 people found that whereas 56% saw the green deal as attractive, only 7% said that they would be prepared to take it up if a 6% interest rate applied; if it were set at 2% per annum, they would be “very” or “fairly” likely to take it up.

MPs said they wanted the scheme to have a single interest rate in order to provide clarity, fairness, stimulate mass demand and, crucially, force green deal providers to "compete for customers on the cost and quality of the energy efficiency measures and installation, rather than on the headline interest rate of the finance".

Green MP Caroline Lucas (this week voted MP of the Year in the Scottish Widows & Dods Women in Public Life Awards) wanted the Green Investment Bank to be able to ensure a common and low interest rate - below 2% if possible - pointing out that a (very) different scheme in Germany offers publicly subsidised interest rates of 2.65% and has achieved 100,000 residential retrofits in a year - and the Government must achieve 145,000 every month to have a hope of meeting the required targets.

But Barker said the legislation will not place restrictions on the level of interest charged, instead relying on the market to decide.

Nor could he guarantee that the Green Investment Bank could support the interest rate, although its priorities are to address market failure.

Barker said that it is up to the market to set the interest rate, however, although there will be some protection for the fuel poor, and in order to prevent subsequent owners of a property being penalised for the fact that the previous residents were not considered credit-worthy.

The Government has yet to undertake consultation on the secondary legislation that will bring in the regulations, and this is what will determine the degree of willingness of financial backers to climb on board.

Barker added that the Government's own consumer research showed that the biggest factor in their taking up the green deal would be "a desire to make their home nicer".

The Energy Company Obligation and fuel poverty

The Energy Company Obligation (ECO) for energy companies is supposed to target the needs of vulnerable consumers, and the green deal is supposed to tackle the issue of fuel poverty, but with an unprecedented 1.9 million people in arrears with their energy bills in this country and 5.5 million living in fuel poverty - both numbers rising by the day - it is unclear whether any financier is going to want to touch them.

Barker admitted as much, saying "I cannot give a universal commitment" that they will all have access to the deal.

Barker tried to provide reassurance by saying "Many of the families and individuals [in arrears or fuel poverty] will be captured by community roll-out and street-by-street roll-out of energy efficiency improvement schemes."

ECO is expected to offer insulation and home improvements to whole streets, regardless of income, to ensure improvements are made at scale - which is far more cost-effective than house-to-house, especially where external insulation is required.

But the crucial question is how much finance it will have available.

Lucas certainly doesn't believe that as things stand there will be enough cash available to make the green deal work.

"Yes, we have the ECO £1 - 2bn," she said, "but this is a small proportion of what will be required".

In fact, as MP Barry Gardiner pointed out, the Committee on Climate Change estimates that up to £17 billion of support will be required through the ECO to insulate 2.3 million solid walls alone by 2022.

Similarly, he said "we cannot keep pushing up the ECO" because of its impact on every energy bill payer.

In addition, it is unclear whether the Treasury levy cap on DECC's spending will cover the ECO, and limit the support it can give to tackle fuel poverty still further. The two departments are still locked in negotiations over that one.

All Barker would say at this point is that DECC will publish in the autumn its expectations of how DECC policies, taken together, will impact on consumers through to 2020.

Regulation

The green deal, as MP Andrea Leadsom pointed out is, essentially, a financial services product. As such it is regulated by the Office of Fair Trading, which will be expected to ensure that any mis-selling is stamped out at the outset and full compensation is paid to any victims.

However, MPs raised concerns over whether the OFT will have sufficient resources to undertake this extra work, which could be considerable.

Market research has shown that customers would welcome and are therefore more likely to trust the involvement of local authorities, community groups and third sector organisations when thinking about entering into a green deal.

The legislation will allow for this and contain "a clear enforceable framework within the green deal code of practice" to ensure impartiality of advice and prohibit high-pressure sales tactics, as used infamously by energy companies recently.

Greg Barker said, "one of the most exciting things about the green deal is its potential to give rise to new third sector involvement in delivering energy efficiency services."

DECC is now setting up a new workshop to look specifically at how the provisions can best work with older buildings and for service family accommodation, particularly older historic buildings.

Contrary to MPs demands that it makes more sense for repayments of the loans to come from a gas bill (used more for heating than electricity), Barker said it will not be possible to specify whether the instalments will be paid via the customer's electricity bill or gas bill, as this would double the cost of administering the scheme.

He also said that liability for green deal payments should sit on the balance sheet not of energy companies, but of the green deal provider, such as B & Q, Marks & Spencer or John Lewis.

The amendments include one, brought by Luciana Berger, Lab/Co-op MP for Wavertree, Liverpool, to clarify and encourage green deal installation apprenticeships to create the necessary skilled workforce.

However, there was no discussion of standards of insulation and energy efficiency that will be required. That, too, will have to wait until the secondary legislation.

With the implementation date 12 months away for the green deal, there is still plenty of work to do before stakeholders will even be able to estimate how effective it may turn out to be, but there is certainly much concern that it will not be as attractive as it needs to be.