Memorandum from British Energy Plc
1. British Energy welcomes the opportunity
to contribute to the Environment Audit Committee's renewable energy
2. British Energy is the largest power generator
in the UK, supplying about a fifth of UK electricity demand. It
is currently the only major source of carbon free generation,
avoiding the emissions of around 40Mt CO2 (equivalent
to around half of all cars on UK roads).
3. As a company with a keen interest in
developing renewable energy as a growing part of our UK and international
portfolio, we welcome government support for renewable energy
development. British Energy is currently engaged in a project
to create Europe's largest wind farm on Lewis off the West coast
of Scotland with partners AMEC. The development would ultimately
see the construction of 300 wind turbines delivering at least
600 MW of electrical power via a cable link to the UK mainland.
Other projects in prospect include an offshore windfarm at Skegness
and an on-land windfarm in Canada by Lake Huron.
4. Given the major challenges in delivering
secure low carbon electricity in the UK, government support is
justifiedhowever, we believe it should be extended to all
carbon-free technologies including nuclear power.
5. Developing renewables to reduce overall
carbon emissions will eventually lead to an increase in electricity
prices to the consumer as a result of the renewables obligation.
In principle carbon savings from replacement nuclear plant could
be achieved at a third of the cost.
6. The level of the renewables obligation
is expected to be sufficient to encourage the rapid growth of
renewables generation in the UK market. However, the resulting
cost to consumers is significant at about £1 billion by 2010.
As far as emissions reductions are concerned the costs of the
obligation equate to about £310/tC which is substantially
more expensive than other low carbon alternatives. Carbon savings
from nuclear could be secured at about a third of the £30/MWh
of the renewable obligation. It is important that the cost of
supplying carbon free generation remains acceptable to the consumer.
7. The RO will, however, not be enough to
bring about the development of all renewable technologies, the
more expensive of which will not be commercially viable even with
the obligation. In the near future, this is likely to lead to
a response based largely on wind generation. The Government will
need to consider whether there is a case for R&D support to
enable these other technologies to reach market at a later date.
8. Excluding large hydro and ineligible
waste generation leaves the UK with a tiny proportion of "new"
renewables as a baseline. Whilst the RO will provide a significant
incentive to generators and developers the government targets
are very demanding in terms of required rate of commissioning.
9. The required rate of growth in building
and commissioning renewables in order to meet the 10 per cent
target will place a significant strain on UK industry, although
with appropriate policy and incentives this challenge could be
met. However, given the ongoing difficulties with planning and
infrastructure this will be far from easy. To extend the target
at this time to a higher percentage in the following decade as
proposed by the PIU Energy Review would seem premature. There
should be no rush to set firm targets beyond 2010.
10. The existing UK Climate Change Programme
mechanisms, to reduce emissions and promote generation from renewables
are complex, ineffective and inconsistent. Energy policy needs
to embrace simple and effective carbon valuation mechanisms if
it is to succeed in the abatement of emissions and the promotion
of carbon free carriers.
11. Capital grants for renewables are focused
on those technologies (other than onshore wind) that are closest
to market, with a view to accelerating the development of offshore
wind and biomass plant development. At the levels available the
capital grants will help the development of a handful of projects,
but in British Energy's view, are unlikely to go far in the push
towards meeting the renewables target.
12. We agree that as a carbon free generation
source renewables should be exempted from the Climate Change Levy.
However, we believe that since the Levy is aimed at achieving
carbon reductions through penalising the business use of energy,
all sources of carbon free generation should be made exempt.
13. Publicly funded R&D for renewables
has been growing in recent years and should continue to do so
to stimulate innovation and the development of new and existing
technologies. We believe research should now focus on the technologies
that cannot currently compete in the market even with the RO.
14. It is important that there is a level
playing field and that any support arrangements for particular
technologies are explicit and do not distort the market.
15. With a variety of often conflicting
energy policy objectives and the need for a robust approach to
the integration of renewables into the UK energy supply industry,
it is critical that government departments, regulators and other
stakeholders work in a coherent and consistent manner.
16. Mechanisms need to be simple and focused
in order to achieve the desired goal, reduce conflicts and minimise
cost to the taxpayer. If mechanisms are to be effective in tackling
the UK's greenhouse gas emissions they need to focus on carbon
valuation. Care also needs to be taken to ensure undue cost or
burden is not placed on particular sectors.
THE PIU ENERGY
17. We recognise that the Energy Review
marks an important step by government. In recent times, the conventional
wisdom has, broadly, been to leave energy decisions to the market
and regulators, with Government minimising its direct intervention.
However, political pressures to address the decline of certain
sectors including coal, to promote renewable technologies, and
to act on concerns about the environment have prompted a gradual
shift in government attitude.
18. British Energy believes the PIU Report
and the Government's forthcoming consultation must lead to decisions
about how the UK should prioritise important yet often conflicting
objectives like security of supply, competitiveness, response
to climate change, and sustainable development. Compromise seems
inevitable, but BE believes the first priority must be security
of supply. The PIU report was remarkably complacent on this issue,
however we believe there will be a strong message to the Government
that this remains an area of great concern.
19. The report proposed the expansion of
the current 10 per cent by 2010 target for renewables to 20 per
cent by 2020. Whilst we fully support the need to make progress
with renewables build, we believe that targets beyond 2010 should
be set on the basis of sound practical experience. It seems hard
to justify extending the target even before the Renewables Obligation
has come into effect. Through manufacture, installation and operation
of large amounts of renewables, the UK will learn what is practically
possible over the coming years.
20. British Energy believes that the targets
for renewables will be extremely challenging and impose significant
additional costs on consumers. There are a large number of serious
technical and non technical barriers that will need to be overcome
if renewables are to be installed on the scale required to meet
the target, not least very significant investment in infrastructure
and standby generation to compensate for a large amount of intermittent
21. In terms of carbon emissions mitigation,
there has been a tendency to see renewable sources and energy
efficiency as providing an alternative to the carbon-free energy
from nuclear. However, in our view it is more logical to treat
nuclear and renewables as complementary carbon-free energy sources
and in the campaign to meet increasingly tough climate change
targets beyond Kyoto both will be required.