LIST OF RECOMMENDATIONS
What is the problem?
1. With the decommissioning of nuclear
power stations and of older coal and gas plant, it has been estimated
that some 60 per cent of current generation capacity will need
to be replaced in the next 25 years. Current energy policy is
therefore at a historical turning point. Decisions made now will
influence developments over the next half century (para 8).
2. There is little doubt that the UK, along
with other developed nations, is likely to face far greater emission
reduction targets for greenhouse gases after the current commitment
period under the Kyoto agreement expires in 2012 (para 9).
What contribution can renewables make?
3. The UK's theoretical potential for
generating renewable energy is well in excess of its entire electricity
consumption (para 12).
4. The overall EU target set out in the 2001
Renewables Directive is far more demanding than the UK indicative
target 22 per cent by 2010 as against 10 per cent for the
UKreflecting the fact that many other EU countries are
considerably more advanced than the UK in terms of the percentage
of renewable energy generated (para 18).
5. Given the priority accorded to the promotion
of renewables, we find it extraordinary that the DTI has not carried
out a more recent and thorough analysis of economic and cost potentials.
We recommend that it should do so as a matter of urgency, and
subsequently update it on a regular basis (para 25).
6. The costs to the consumer of meeting renewables
targets is relatively limited. Moreover, the cost of meeting a
longterm 60 per cent carbon reduction target by 2050 is
likely to be only 0.02 per cent of GDP per annum. This is equivalent
to a reduction of 1 per cent in GDP over half a centurya
very small price to pay for the environmental benefits it would
bring (para 27).
7. While it is very difficult to forecast
future price movements, there seems widespread agreement at present
that UK energy prices are currently at an unsustainably low level.
Increases in the costs of nonrenewable generation appear
likely, making renewable energy increasingly competitive (para
8. We therefore see renewables, together with
the need for radical improvements in energy efficiency, as being
the primary tool to fulfil the UK's climate change commitments.
The Government must provide commitment and leadership here, and
should not allow itself to drift into a position in which nuclear
appears to be the only alternativeas a result of a failure
to maximise the potential which renewables have to offer (para
Achieving the targets
9. It is already certain that we shall
miss the 2003 target probably by as much as 2 per centas
the Energy Minister confirmed in his evidence to us. On the present
rate of progress we will achieve only just over 5 per cent against
the 2010 target of 10 per cent (para 51).
10. Achieving the 10.4 per cent Renewable
Obligation target by 2010 represents an even greater challenge.
Eligible generation, which has only increased from 0.3 per cent
to 1.5 per cent over the last 10 years, would need to increase
from 1.5 per cent to 10.4 per cent in 8 years (para 52).
What are the barriers to progress?
11. Obtaining planning permission remains
a major obstacle to increased deployment of renewables (para 58).
12. It seems clear to us that the scale of
opposition from the MoD to wind farm developments is such that
it may seriously jeopardise the achievement of the Government's
targets for renewables and the promotion of wind power. We urge
the Government to set out publicly how it proposes to resolve
this conflict (para 62).
13. We are concerned about the lack of a consistent
basis for the DTI's regional renewable energy assessments, and
the resulting anomalies in the results. We are puzzled as to how
the DTI are intending to take forward its work in setting regional
targets and would urge the department to clarify its plans (para
14. If the DTI's regional renewable energy
assessments are intended to influence planning, then they need
to be incorporated in regional plans and Regional Development
Agencies need to be held to targets. We also consider that the
Office of the Deputy Prime Minister need to incorporate in new
guidance a presumption in favour of renewables (para 66).
NETA and the Renewables Obligation
15. The failure to carry out a thorough
environmental appraisal of the proposals at the very start of
the process was a material factor in the Government's failure
to achieve its environmental objectives for the New Electricity
Trading Arrangements. It also dramatically exemplifies the effect
of the failure to incorporate the promotion of sustainable development
as one of Ofgem's key objectives (para 71).
16. It is practically inconceivable that a
transition to an environmentally benign energy system could be
achieved on the basis of 'cheap' energy, as the Prime Minister's
Foreword to the Performance and Innovation Unit report indicates
is a priority (para 77).
17. In view of the fact that electricity sector
emissions are rising rather than falling, in direct contradiction
to the DTI predictions, there is an urgent need to examine the
environmental impact of The New Electricity Trading Arrangement
and recent market changes. We are concerned that the DTI and Ofgem
appear to have done nothing in this respect; and that DEFRA are
not planning to carry out a formal review of emissions until 2005,
while their interim 2003 review will be too late for it to influence
the White Paper (para 82).
18. We hope the Renewables Obligation will
be successful, but are concerned that it represents a rather indirect
policy mechanism when compared to the very direct incentives which
'feedin' instruments, such as those which have been used
in Germany and Denmark, provide (para 83).
19. The amounts of funding available for certain
technologies do not seem to correlate to their potential generation
capacity. The total increase in Government funding since 1999
is far less than might initially appear. We are also concerned
over the ad hoc nature of capital funding announcements and the
plethora of funding bodies now involved (para 91).
Embedded generation, networks, and the role of
20. There is a significant inconsistency
in the way in which Ofgem treats embedded generators compared
to network generators. We questioned the regulator on this topic,
and he was visibly surprised when our understanding of the situation
was confirmed (para 97).
21. We were told by Ofgem that it issues about
a 100 documents a yearroughly an equal mix of consultations
and decisions. We are at a loss as to how smaller independent
generating firms can assimilate and comment on, where appropriate,
such a large volume of material (para 103).
22. The Performance and Innovation Unit Review
recommends a new DTI objective which, if adopted, will place overriding
importance on environmental objectives. It is difficult to see
how Ofgem can accommodate such an approach given its present statutory
remit. Ofgem's duties under the Utilities Act should therefore
be amended to incorporate as a primary objective the need to promote
sustainable development (para 106).
The Performance and Innovation Unit Energy Review
23. The Performance and Innovation Unit
review fails to provide an assessment of current policy instruments,
even though this was an aim of the initial energy work begun in
January 2001. We are therefore concerned that the Performance
and Innovation Unit review may not adequately reflect the scale
of the challenge, and that there now needs to be a specific process
for translating its recommendations into specific policy commitments,
so that the White Paper forms an action plan (para 112).
24. We are concerned that the DTI's consultation
on energy may fail to take forward the debate on the basis of
the PIU recommendations, and is in danger of simply revisiting
all the issues which the PIU themselves covered (para 115).
What should the Government do now?
25. The key conclusions we would highlight
from our inquiry are these:
- Britain has the greatest potential for
renewable energy of any country in Europe.
- It currently produces less than 3 per cent of
its energy from renewables a tiny proportion which compares
very unfavourably with almost all other European countries.
- The Government has set a number of targets for
renewable production. We will certainly not meet the interim target
of 5 per cent of electricity from renewables by 2003. On the basis
of present trends, we are unlikely to achieve much more than half
the 10 per cent target for 2010 (para 116).
26. We therefore believe that there is
an urgent need for the Government to show leadership and:
- address the difficulties in gaining
- indicate tried and tested technologies which
will deliver over the next decade; and
- address the conflicting priorities of market
liberalisation and cheap electricity as against our Kyoto obligations
27. There are, however, a number of other
actions which the Government need to carry out as a matter of
urgency, before the White Paper is issued.
- The Government must ensure that Ofgem's
terms of reference for the review of New Electricity Trading Arrangement
in its first full year place primary importance on environmental
- The DTI should review options for incentivising
the development of renewables under New Electricity Trading Arrangement,
so that the playing field so far from being tilted against
renewables as at present should favour them.
- The DTI should prepare legislation to amend
the statutory duties of Ofgem in order to incorporate the promotion
of sustainable development as a primary duty.
- The Office of the Deputy Prime Minister should
revise planning guidance for renewables as a matter of urgency,
and incorporate a presumption in favour of renewables (para 120).
28. In our view, a crosscutting
unit for sustainable energy policyas recommended by the
Performance and Innovation Unitis unlikely to be sufficient,
and we recommend that the Government should set up a Sustainable
Energy Policy Agency (para 121).