Select Committee on Environmental Audit Appendices to the Minutes of Evidence


APPENDIX 14

Memorandum from the Department for Environment, Food and Rural Affairs (DEFRA)[8]

INTRODUCTION

  DEFRA welcomes the Environmental Audit Committee's decision to conduct an enquiry into renewable energy and the future development of a sustainable energy strategy.

  This Memorandum provides information about DEFRA's contribution to policies relating to renewables and sustainable energy issues. In addition, it provides some indication of how we intend to consider the outcome of the PIU Energy Review in developing future policies and strategies.

  The Government has placed the environment at the heart of policy making and is committed to combining environmental sustainability with economic and social progress. Prudent use of resources, including energy, is a key part of the UK's sustainable development strategy. The Government is committed to moving the UK down a more sustainable energy path, including by harnessing the major potential that renewables and energy efficiency offer to reduce carbon emissions and other environmental impacts.

  This approach to energy policy contributes to the Government's social and environmental objectives—it can help to reduce fuel poverty and makes a key contribution to the achievement of climate change objectives—and it helps to increase the diversity of our energy supplies and technologies, contributing to our economic development and security of supply.

  DEFRA welcomes the fact that PIU Energy Review has initiated a wide-ranging public debate on the future of the UK's energy systems. We therefore welcome the EAC's timely contribution to this debate.

  The Government will consider the findings of the Review and will respond in the form of a White Paper, to be jointly produced by DTI and DEFRA, towards the end of the year.

ROLE AND RESPONSIBILITIES

1.  What responsibilities does DEFRA have with regard to achieving the Government's targets for renewable energy? To what extent are you responsible for the Government's sustainable energy strategy? Do you have any plans to produce such a strategy?

  The Secretary of State for Environment, Food and Rural Affairs has overall responsibility for policy on sustainable development, climate change and environmental protection, as well as energy efficiency, including combined heat and power, and fuel poverty. DTI and DEFRA work very closely together on issues relating to the environmental and social impacts of energy supply and demand, especially on energy efficiency, renewable energy, CHP and fuel poverty.

  DEFRA also has specific targets for particular sustainable energy measures and related issues. These include:

    —  Improve the environment and the sustainable use of natural resources, including by reducing greenhouse gas emissions by 12.5 per cent from 1990 levels moving towards a 20 per cent reduction in carbon dioxide emissions by 2010 (PSA TARGET).

    —  Reduce fuel poverty among vulnerable households by improving the energy efficiency of 600,000 homes between 2001 and 2004 (PSA TARGET).

    —  To stimulate business energy savings of £200 million per year, saving about 1 million tonnes of carbon by 2003-04 (SDA TARGET).

    —  To increase domestic energy benefits by £305 million per year by 2003-04 for the lifetime of the energy efficiency measures (SDA TARGET).

    —  To stimulate savings to industry of £200 million per year by 2003-04 through waste minimisation (SDA TARGET).

    —  20-22,000 hectares of energy crops to be planted under the Energy Crops Scheme (SDA TARGET).

  Part of the Government's consideration of PIU's Energy Review will be to address the extent to which environmental, social and economic goals are properly aligned to ensure that the UK's future energy system is sustainable. This will lead to a White Paper towards the end of the year.

2.  Does DEFRA consider that the current split of responsibilities for energy between departments is rational?

  A split of responsibilities between departments is not unusual, especially for policies which have a broad sustainable development focus, such as energy. The current arrangements reflect the strong links between renewable energy, energy policy and markets as a whole, and the wider business competitiveness agenda of the DTI, and between energy efficiency, climate change and the wider environmental agenda of DEFRA.

  Links with other key players, such as DTLR are also maintained. Whilst alternative division of responsibilities could be envisaged, there is a risk that the current linkages into wider policy areas may be diluted or lost altogether.

  The current division of responsibilities is therefore rational and logical in achieving the Government's objectives in these areas. An example of the interdepartmental approach to energy is the establishment of a cross-departmental working group, with representatives from Her Majesty's Treasury, DEFRA, DTI, DTLR, the National Assembly for Wales, the Scottish Executive, the PIU and Ofgem, to develop the Renewables Obligation.

3.  A key recommendation of the PIU Energy Review is that the Government should aspire in the long term to bring together in one department responsibilities for climate change, energy policy and transport policy. What view do you take on this recommendation? If implemented, would DEFRA any longer be able to play a central role in promoting sustainable development?

  The Government recognises that energy policy needs to incorporate a wide range of policy interests. The Government will be consulting on the PIU Energy Review. DEFRA and the DTI will then co-ordinate the Government's response in preparation for the publication of a White Paper later this year. As part of this work the Government will be considering whether any changes are needed to the present institutional arrangements.

  The critical functional aim is for policy integration, leading to coherent and efficient policy development and reliable policy outcomes. That is not automatically achieved by re-organising or centralising policy responsibility, nor indeed, by creating new institutions.

  Policy integration across Government is essential to the achievement of sustainable development. We do not believe that the organisation of policy functions for climate change, energy and transport have any necessary bearing on DEFRA's ability to play its central role in promoting sustainable development.

STRATEGY AND POLICY INSTRUMENTS

4.  What key steps and initiatives do you consider need to be taken immediately in the light of the PIU report? Is there a need, for example, for any alterations to existing policy instruments?

  The Government welcomes the PIU report as a valuable contribution to the debate on how best to meet Britain's future energy requirements. It provides a good basis to stimulate the public consultation we intend to hold leading to an Energy White Paper later in the year. This process will permit full consideration of the PIU's recommendations and their implications for future energy policy, initiating the need for new policy instruments.

5.  What view does DEFRA take on the balance between techology push (in the form of R&D support) and market pull (eg the RO, EEC, ECAs etc)? Is the current balance right, and do market pull incentives currently provide a sufficiently direct mechanism to stimulate the longer term investment which is required?

  This question requires some discussion of basic market transformation strategy in order to address the question of the balance of policy measures. The first issue is whether or not any intervention or market correction (push or pull) is required at all and whether that is required in the short term or the longer term. Longer term, non-speculative investment in energy and resource-efficient technologies, products and services depends on investors being able to make a favourable assessment of the likely returns and risks.

  The more uncertain the future outcome of policy, the less likely is the investment on which those outcomes depend. In some areas, as illustrated by the specific scenarios that are being produced by the Market Transformation Programme, it is clear that there is only a weak consensus on what Government policy means for projected volume sales of goods and services. In those areas, it is unlikely that the necessary investment will occur to secure the desired outcome. A crucial Government role therefore is to establish the information that investors need and to maintain confidence in the projected market outcome. That is not achieved by exhortation or pressure but by ensuring the pre-requisites for investment—establishing competitive environments, regulation or other incentives to bring forward new products and to support volume sales. The existing measures are required to meet 2010 targets. In the longer term, a sustainable policy may aspire to a self-sustaining market in which confidence in market development and growth is sufficient, in itself, to ensure innovation.

6.  Please summarise briefly the outcome of the work DEFRA has been undertaking on carbon pricing (PIU Energy Review, page 48 footnote). How will this work be reflected in the development of policy instruments?

  A DEFRA officials' working paper titled "Estimating the Social Cost of Carbon Emissions" was published as a Government Economic Services working paper in January this year. This paper is available at http://www.treasury.gov.uk/documents/taxation work and welfare/taxation and the environment/tax env geswp140.cfm. This paper is a thorough review of the literature produced on the social cost of carbon emissions. The paper suggests that a point estimate of £70/tC, increasing by £1 per year in real terms (to reflect the increasing value of damage costs over time) and a sensitivity range of between £35/tC and £140/tC be used in policy appraisals as an illustrative value for the social cost of carbon emissions. This range does not take into account the full uncertainty associated with estimating the social cost of carbon emissions, but it does provide a useful sensitivity analysis that reflects the disproportionate upside risk associated with climate change damages. Qualitative analysis should be used for those impacts, such as socially contingent effects, that are currently too uncertain to be valued.

  The government will consider how to further incorporate these shadow prices into the development of policy instruments in due course, as part of its response to the PIU energy review. In the meantime, guidance is available from DEFRA for anyone wanting to incorporate these illustrative values into policy appraisals.

7.  The PIU review suggests that DEFRA and HMT should give early consideration to carbon pricing through taxes or tradable permits to cover as much of the energy market as possible. What approach do you intend to adopt in response to this recommendation? How would any initiative be integrated with existing policy instruments? To what extent will carbon pricing incentivise energy efficiency measures rather than the development of renewables?

  The Government's approach is based on the recommendations of the Marshall Report of 1998. Lord Marshall recommended a mixed policy approach based on both a tax and a trading scheme if businesses of all sizes and from all sectors were to contribute from an early stage to meeting the UK's targets. The Government accepted this recommendation, recognising that emissions trading in greenhouse gases was not yet a tried and tested policy instrument. In addition, the administrative costs for small and medium-sized enterprises entering into a trading scheme are not yet known.

  To this end, the UK has introduced the climate change levy to encourage businesses of all sizes to be more efficient in their use of energy, and has also set up the voluntary UK Emissions Trading Scheme (ETS) to help deliver greenhouse gas emissions reductions in a cost-effective way. Thirty-four organisations of varying sizes have entered into the trading scheme, and the experience gained through implementing this policy will benefit not only policymakers, but also businesses in preparation for international emissions trading from 2008 onwards. To extend the same carbon dioxide pricing signal across as wide a market as possible, the climate change levy and the emissions trading scheme have been integrated. The just under 6,000 operators which have taken on Climate Change Agreements will be able to trade with each other, as well as with organisations joining the scheme through other routes, in order to meet their agreed target.

  Emissions trading allow participating organisations to implement the most cost effective measures in order to meet their target at least cost. The market will therefore determine which energy efficiency measures are most effective in terms of value for money. However, the development of renewables will take place irrespective of the implementation of energy efficiency measures through the trading scheme, since energy suppliers with a renewables target under the Renewables Obligation cannot use the trading scheme to meet their target, and are restricted to only being able to use the market to sell any over-achievement of their target.

8.  Is DEFRA concerned about the number of different policy instruments in the energy area (CCL, RO, UKETS, a possible carbon tax)? In the longer term is there scope to rationalise the number of policy instruments?

  The number of existing policy instruments reflects the number of co-ordinated and complementary objectives that the Government has in the area of energy. For example, the Climate Change Levy covers all energy inputs used by business, the Renewables Obligation focuses on increasing the take-up of renewable energy, and the emissions trading scheme is an innovative new policy which has been designed to allow any cost effective emission reductions to be made by participating organisations at least cost.

  However, there may well be scope to rationalise policy instruments over time. Any rationalisation would need to balance the differing policy objectives across the different strands of climate change policy against the efficiency gains from reducing emissions at least cost.

9.  Figure 8.1 of the PIU report sets out the main bodies involved in delivering energy efficiency (cf para 8.29). Is this table complete? Are there any other relevant sources of funding such as, perhaps, the National Lottery? Does DEFRA consider that the present multiplicity of funding sources creates any difficulties for business? What difficulties would there be in creating a single funding agency for energy efficiency?

  We believe that the identifies the main stakeholders involved in delivery of energy efficiency measures and programmes.

  The National Lottery also contributes to various aspects of sustainable energy delivery. For example, the New Opportunities Fund is working with DEFRA and DTI on the co-ordination of funding for biomass-fuelled CHP schemes and community heating projects.

  We do not believe that the perceived multiplicity of funding sources gives rise to any specific problems for business. There is ongoing dialogue with key stakeholders, including trade organisations and individual businesses to ensure that the funding sources are readily accessible and deliver policy objectives.

10.  Has DEFRA analysed the impact of recent developments—including the effects of NETA on renewable energy sources, the fall-off of investment in CHP, possible reductions in the expected contribution to be provided by energy from waste, and the non-realisation of NFFO 4 and 5 projects—on greenhouse gas emissions? What impact will such changes have on the UK climate change projections?

  The carbon savings figures included in the UK's climate change programme were reviewed in 2001 during preparation of the UK's Third National Communication to the United Nations Framework Convention on Climate Change that was published on 31 October 2001. At that time, the analysis showed that the issues identified by the Committee would not affect emission projections to 2010. However, the Government plans to keep the programme and its emission projections under close review. DEFRA plans to carry out an interim review of the programme and its implementation in 2003 and a formal evaluation in 2004-05. As part of this work, data will be compiled and analysed, in liaison with DTI, to assess the impacts of developments in the energy supply sector, including the effects of NETA on the UK's actual and projected greenhouse gas emissions. Updated emission projections will also be produced in 2003-04.

ENERGY EFFICIENCY

11.  The Energy Review recommends that DEFRA should develop energy efficiency indicators, targets, and monitoring mechanisms for each sector of the economy by the end of 2003. To what extent is DEFRA already doing so in developing resource productivity indicators and targets? When does DEFRA expect to produce the latter?

  In November 2001 the Government's Performance and Innovation Unit (PIU) published a report on resource productivity and its role in the achievement of sustainable development (Resource productivity: making more with less). DEFRA has overall responsibility for taking forward the report, with other Departments leading on some of the individual recommendations.

  Key recommendations for DEFRA in the PIU report include:

    —  assessing the case for long term targets and indicators of environmental and resource productivity;

    —  encouraging sustainable procurement practices throughout Government;

    —  leading on a programme to improve understanding of the role of natural resources in the economy.

  DEFRA will also be working closely with other Departments on key recommendations on promoting innovation and helping small businesses.

  We have already started work in response to the PIU's recommendations, and a summary of Government action on the recommendations will be prepared by the end of 2002.

  For energy efficiency, each of the relevant programmes, including Climate Change Agreements, Enhanced Capital Allowances, Energy Efficiency Best Practice Programme, Energy Efficiency Commitment, will monitor and report on progress—some annually, some every two to three years. There are several indicators already available but possibly not well publicised or widely used. DEFRA will be developing these and others if necessary over the next few months to show the contribution of energy efficiency to climate change targets.

  The Government, meanwhile, has already set a number of energy efficiency targets or indicators for the public sector, which should take a lead in cutting emissions, both from its activities and its buildings. Specific commitments to action were set out in the UK's Climate Change Programme, published in November 2000. Key targets and activities for the Government Estate are also set out in the Green Minister's Second and Third Annual Reports, published in November 2000 and November 2001. Progress towards achieving all of these targets is kept under review.

  Key targets in the Climate Change Programme for the public sector are:

    —  Government estate—an interim target to achieve a one per cent CO2 reduction per annum on 1999-2000 levels. We plan to develop new targets for reducing energy consumption based on an assessment of the estate's performance against national standards during the course of this financial year, with a longer-term view to setting new energy saving targets.

    —  All departments will ensure that, by 31 March 2003, at least five per cent of their electricity comes from renewable sources that are exempt from the climate change levy, or from self generation, provided this does not entail excessive cost. This will rise to at least 10 per cent supply from such sources by 31 March 2008, but will be reviewed after 31 March 2003 to take account of market conditions following the introduction of the Renewables Obligation.

    —  Hospitals—benchmark over the next three years and then for all hospitals to meet the average benchmark by 2010.

    —  Schools—benchmark over the next three years; improve performance over the next five years; and aim to reduce energy consumption by 10 per cent by 2010.

  NHS Estates have since set mandatory energy targets for Trusts:

    —  To reduce primary energy consumption by 15 per cent on 2000 levels by 2010.

    —  For all new capital developments and major refurbishments to meet prescribed energy performance standards.

12.  What specific targets and delivery mechanisms will be required to achieve the energy efficiency targets recommended by the PIU? Where will responsibilities lie in terms of key departments and non-departmental organisations? Can we expect any DEFRA/DTLR and/or DEFRA/DTI shared targets within SR2002 PSAs relating to energy efficiency? What is the baseline against which progress on the energy efficiency targets recommended by the PIU will be assessed?

  The Government recognises that the cross cutting nature of energy policy needs to bring key players together and underpin policy making with analysis. Recent developments, such as the Interdepartmental Analysts Group's report on long term reduction in greenhouse gas emissions, provide clear examples of increased cross-departmental working. The wide nature of the PIU Energy Review means that taking the issues it raised forward to a White Paper will necessitate further close interdepartmental working.

  DEFRA and DTI are aware of the benefits of joint targets as a useful way of underpinning our shared interests. However, work is needed to sort out the technical details and to ensure that robust data is available to enable us to monitor progress. Hence we are unlikely to be able to proceed with a joint target for SR2002.

13.  What view does DEFRA now take on the long-term prospects for supporting CHP, in the light of the reduced commercial incentives to invest in this technology and the drive for big increases in space heating efficiency? What justification would there be for providing specific support to one particular energy efficiency technology such as CHP (perhaps through a CHP obligation) and not others?

  The CHP industry is currently under pressure due to energy market conditions, especially high gas prices and reduced electricity prices. This will make achievement of the Governments 10,000 MWe target more challenging. Nonetheless, CHP remains one of the most cost-effective options for reducing carbon emissions in the Governments Climate Change Programme. It also helps to reduce fuel costs. We remain committed to and confident in our UK target of at least 10,000 MWe of good quality CHP capacity by 2010 and to the delivery of policy measures to support that target and lay the foundation for CHP beyond 2010. The Government's Strategy for CHP to 2010 (to be published shortly) will set out these measures.

  The Chancellor has announced the completion of exemption of exports of electricity from Good Quality CHP from the climate change levy. Electricity generated from combined heat and power stations that is within the Qualifying Power Output limit is to be fully exempt ie the "direct" supply condition is removed. We very much welcome the Chancellor's announcement. This is a key measure which will help improve the economics of CHP in order to meet the Government's target of at least 10,000 MWe of Good Quality CHP capacity by 2010. At present fuel inputs to Good Quality CHP are levy exempt, as is electricity used on site or sold direct to other users. The Budget announcement ensures that good quality CHP used on site, sold direct and sold indirect will be exempt from the climate change levy.

  The Community Energy Programme, managed jointly by the Energy Saving Trust and the Carbon Trust, with funding of £50 million in 2002-04, will help reduce carbon emissions, tackle fuel poverty and provide low cost heating and electricity. The Carbon Trust can also help fund feasibility studies for market development of CHP.

14.  To what extent are existing targets in Climate Change Levy negotiated agreements predicated on the implementation of CHP schemes? What effect will the reduced incentive to invest in CHP have on both the achievement of existing negotiated agreement targets and the renegotiation of those targets by the end of 2004?

  The targets for 28 sectors take account of the feasibility of introducing CHP in the sector processes. Of these 28 sectors, the targets for two (paper and chemicals) are more dependent than others on increased CHP deployment. The remaining 16 sectors are in the process of assessing the contribution that CHP can make to their energy efficiency. When this assessment is complete, their targets will be re-considered.

  We do not expect the impact of the current economic climate for CHP to have a significant impact at sector level for the first two milestones. Renegotiation of the targets following the second milestone will of course take into account the prevailing economic conditions for CHP at the time.

15.  Can DEFRA describe the likely contribution that micro-CHP can make to reductions in energy demand? What barriers need to be overcome to promote the take-up of this technology, and what steps now need to be taken?

  Micro-CHP is a new technology, defined as all schemes below 5-kWe capacity. It is basically a gas-fired central heating system which also generates electricity to meet the basic household needs. By doing so it offers the potential to reduce household energy bills by £150 to £200 a year, thus helping many fuel poor households out of difficulty. Manufacturers claim up to half a tonne of carbon savings in the average household's annual emissions as well as an overall energy efficiency level of 85 per cent.

  Connecting micro-CHP units to public electricity networks is probably the single most important issue to be resolved before the technology can significantly penetrate the domestic market. Access to gas and electricity networks is key for micro-CHP developers. To ensure fair and equal access to electricity networks, the recommendations of the Embedded Generation Working Group (EGWG) are being taken forward by the Office of Gas and Electricity Markets (Ofgem).

  Ofgem have recently proposed a package of both short and long term measures for a fair and transparent regulatory regime for distributed generation, which will play an increasing role in meeting the Government's environmental targets.

  The proposals for immediate action include:

    —  allowing generators the option of spreading the cost of connecting to the distribution network;

    —  making it easier for domestic CHP customers, who have a heating system which can generate its own electricity, to connect to the networks by establishing a standard set of procedures;

    —  providing full and comprehensible information for prospective distributed generators.

  A key issue is to ensure micro-CHP units make energy and environmental savings compared to conventional means of satisfying energy requirements. The Government is working with industry to facilitate the certification of micro-CHP based Schemes under the CHP Quality Assurance programme (CHPQA).

  The Government announced in the UK Fuel Poverty Strategy that it intends to invite micro-CHP manufacturers to take part in a large-scale pilot to test the suitability of the technology for fuel poor households. In total up to 6,000 installations are expected to be carried out over a three-year period beginning later this year. If successful, the intention is to offer micro-CHP through the Home Energy Efficiency Scheme (now marketed as the Warm Front Team) from 2005. The Chancellor's announcement in his recent Budget of a 5 per cent rate of VAT for grant-funded installations of micro-CHP will provide a helpful boost to this pilot.

RENEWABLE ENERGY

16.  What is your understanding of the relationship between the long-standing UK 10 per cent target, the RO 10.4 per cent target, and the EU indicative target of 10 per cent. It would be helpful, in particular, to clarify the treatment of energy from waste under each target.

  The Government's target is that 10 per cent of licensed electricity sales in Great Britain should come from renewable sources eligible for the Renewables Obligation. The Renewables Obligation target for 2009-10 is 9.7 per cent and for 2010-11 10.4 per cent, thereby averaging 10 per cent for the calendar year 2010. The UK indicative target under the EU Directive on the promotion of electricity produced from renewable energy sources in the internal electricity market will be 10 per cent of gross domestic electricity consumption. Gross domestic consumption equates to domestic production, plus any imports, minus any exports from the UK, and is estimated to be 380TWh in 2010. The EU target, therefore, will be 38TWh, compared to a Renewables Obligation target of 33.6TWh.

  There are two essential differences between the EU target and the national target:

    —  Large hydro (over 20MW) counts towards the EU target but not the domestic target.

    —  The non-fossil derived element of energy from mixed waste incineration can also be counted towards the EU target.

  The Government believes that the development of new Energy for Waste technologies such as pyrolysis, gasification and anaerobic digestion should be encouraged. All energy from waste is excluded from the Renewables Obligation (including the mass burn incineration of waste) unless the waste is biomass (ie at least 98 per cent non-fossil derived) or advanced conversion technologies are used. "Advanced conversion technologies," means gasification, pyrolysis, anaerobic digestion, or any combination of these.

17.  Does DEFRA have any views on the development of regional targets for renewable energy and on how more positive incentives to promote renewable energy can be incorporated within the planning system?

  Planning policies and guidance can impact upon renewable energy schemes. We are therefore working closely with DTLR and DTI to improve planning guidance. In our view guidance needs to have a broad sustainable development focus and a more positive, proactive approach. Projects should be evaluated in the context of the national/global environmental benefit that the project delivers, as well as on local impacts.

  DEFRA has already been working with DTLR on the development of new guidance Planning for Climate Change which pulls together a range of sustainable energy issues in a more strategic approach.

  DEFRA is of the view that local planning authorities should identify the local renewable potential and encourage the development of the full range of renewable energy technologies that are appropriate to their area. Where possible they should identify locations where the development of particular technologies will be welcomed and the local impacts that will be material to any planning decision.

  Regional assessments have been undertaken in all parts of the UK to establish regional and local targets for the development of renewable energy and these are available from the Scottish Executive, Government Offices in England, and the Welsh Assembly. Some of these have included the creation of GIS map based databases of renewable resources.

18.  Please describe the current position on the extent of biomass energy production, and provide information on support schemes for land managers/farmers including financial expenditure (budget and outturn) and extent of uptake (area, applicants).

  The Energy Crops Scheme (ECS), part of the England Rural Development Programme, was introduced in October 2000. The ECS provides planting grants for growers of short rotation coppice (SRC) and miscanthus, the crops considered closest to commercial development. Grant rates for SRC are £1,000 or £1,600 per hectare depending on land type and for miscanthus £920 per hectare. The Scheme also supports the setting up of producer groups for SRC growers with grants of 50 per cent of eligible costs. The total funding for the Scheme is £29 million over the life of the ERDP. Limited support for energy crops had previously been available through the Forestry Commission Woodland Grant Scheme. New support to encourage active management of existing woodlands, which would include biomass production for energy uses, is being considered by the Forestry Commission.

  Currently around 1,500 ha of energy crops have been planted. There have been 61 applications under the ECS. 234 ha of energy crops have been planted under this Scheme and a further 268 ha will be planted in Spring 2002. In addition, there are 1.1m ha of woodland in England.

  Uptake under the Scheme has been disappointing due to slow progress with projects approved under the Non Fossil Fuel Obligation. The Government has now allocated £70 million of funding from the New Opportunities Fund and following the PIU review of renewables. This is expected to stimulate end markets in the heat, combined heat and power and electricity generation sectors.

  There are also a number of other schemes under development. The Countryside Agency's Community Renewables Initiative will help local support teams facilitate market development.

19.  The PIU Energy Review suggests that the cost of electricity generated from biomass is currently about 8 p/kWh and that the scope for future cost reductions is difficult to assess but may be in the order of 2.5-four p/kWh. Does DEFRA agree with these cost estimates? Could you clarify whether or not such cost estimates (either the PIU's or DEFRA's own) include any subsidy payments which might be available to farmers? Do you have any data on the costs of biomass energy in other EU states?

  The PIU Energy Review estimates of the cost of electricity generation from biomass are consistent with average figures provided to DEFRA by industry. Potential cost reductions are difficult to assess. The type of generating technology will affect the figures. For purpose grown energy crops the yields achieved will be a significant factor. These figures include the cost of the fuel supply, which takes account of agricultural subsidies paid to farmers. The use of energy crops in Europe is limited and cost data for other EU states are not available. In the absence of cost data from established industry across the EU, a benchmark figure of 50 Euro/t biomass (ca £30) is widely regarded as the minimum price to producers required to deliver significant quantities of biomass from crop residues and purpose grown energy crops. Other Member States primarily use biomass from woodlands rather than purpose grown energy crops. There are good links between industry in the UK and in Sweden although the latter did suffer from speculative planting some years ago.

  Dedicated heat production is an important end use not considered in depth by the PIU Energy Review even though around 40 per cent of electricity is used to create heat. Use of biomass to generate heat can be extremely efficient. Modern systems installed for small-scale district heating are achieving over 85 per cent conversion efficiency; minimal energy is necessary to pre-dry fuel.

20.  What technological and other obstacles need to be overcome to make biomass competitive and increase the rate of uptake? Do you consider that present policy mechanisms offer sufficient incentives to overcome these obstacles? What contribution do you anticipate biomass will now make to the achievement of the 2010 target?

  The biomass sector is at an early stage of development. Demonstration plant needs to move towards commercial deployment. The energy crops sector has yet to achieve critical mass, the point at which costs will begin to fall. There is significant potential for utilising material from existing forests given that developers will require diversity in fuel supplies in order to secure project finance and that it can be delivered at a cost comparable to coppice. There is increasing concern that the support available through the Renewables Obligation and capital grant support will not be sufficient to ensure deployment of biomass electricity generation. This is being kept under review. The market development funding now available should see around 20-22,000 ha of energy crops planted which will provide about half of the fuel supply for individual projects, with the remainder sourced from existing woodlands.

  There is no target for biomass within the Renewables Obligation and we expect to see only a small contribution, about 100MW of capacity from the new market development funding, to the 2010 target. This will be in addition to capacity developed through the Non-Fossil Fuel Obligation.

21.  How much land is required for biomass energy production? Have you carried out any overall assessment of the maximum contribution which biomass could make to renewable energy production by 2050?

  Market development through New Opportunities Fund/PIU Capital Grant funding will require about 20,000 hectares of energy crops plus material from existing woodlands. Availability of land for biomass energy production is not seen to be a problem.

  There has been no assessment of the contribution biomass might make by 2050.

22.  Can DEFRA confirm that biomass energy is neutral in terms of greenhouse gas emissions? What appraisals or evaluations have been carried out of the impact of the total cycle? What controls are necessary in order to ensure that production is truly sustainable?

  Biomass is carbon neutral as these sources give out, when used, only the carbon dioxide they took in to grow. Biomass crops are fast growing and few chemical inputs are needed. A wide range of life-cycle studies conducted in the UK and elsewhere in the EU show that net energy yields are high over the whole system. It is important to minimise emissions within the system from sources such as transport. The ECS aims to ensure crops are grown as near to the end use as possible.

23.  What are the likely environmental impacts of promoting biomass on a larger scale?

  Studies indicate that the cultivation of biomass is environmentally beneficial and that species diversity increases. Ongoing studies on impacts on specific species indicate no negative impacts on biodiversity compared with the cropping systems replaced. The ECS, developed in consultation with the environmental organisations, incorporates a thorough assessment of environmental impacts. The main environmental impacts of energy crops relate to land use, particularly in respect of landscapes and archaeology. Biomass energy crops may also affect hydrology, both positively (flood protection) and, if inappropriately sited, negatively in terms of aquifer recharge. Environmental assessments are carried out on an application-by-application basis. Comments are invited from statutory bodies and from interested individuals before decisions on applications are made.

24.  Energy from waste is not eligible under the Renewables Obligation (except for advanced techniques such as pyrolysis and gasification). What impact will this have on the extent of electricity available from this source, compared to the amount originally envisaged in forward projections?

  Energy for Waste is eligible under the Renewables Obligation only if the fuel is at least 98 per cent (non-fossil derived) biomass or uses any combination of the advanced conversion technologies defined as gasification, pyrolysis and anaerobic digestion. These advanced conversion technologies are not yet considered to be fully commercially established in the UK. For this reason it is not possible to estimate what proportion of the UK's renewable energy may come from these sources.

April 2002



8   The Committee asked a number of questions to the Department and these are in italics. Back


 
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