PART 2: THE CONTEXT|
90. The oil crises of the
1970s were a major shock. For the first time in a generation,
countries had to reassess their energy strategies. However, the
extreme pressure for change was relatively short-lived and European
energy consumption continued the general upward trend.
91. More recently, concerns about climate change
have re-awoken energy concerns. Nevertheless, use of both primary
energy and of electricity in the EU have increased by about 1
per cent per annum since 1990.
Most of the developed world continues to take for granted the
ready availability of energy, particularly in its most convenient
form of electricity.
92. The 1997 Climate Change
Conference in Kyoto was the culmination of several years' national
and international discussions. The Kyoto protocol, agreed in December
1997, set a global target for reducing greenhouse gases by 5 per
cent between 1990 and the target date
window of 2008 - 2012.
93. The European Union has undertaken to reduce emissions
by 8 per cent over that period. In the agreed share-out of targets
amongst Member States, the UK is committed to a 12.5 per cent
reduction. The present UK Government is also committed, in its
for the 1997 General Election, to a reduction of 20 per cent in
carbon dioxide (CO2) emissions by 2010.
For the global targets to be met, all countries need to pursue
similar strategies in parallel. The fact that the planned reductions
in UK and EU-wide emissions will make only a small contribution
to the global reduction required does not mean that the targets
should be pursued with any less vigour. Proper planning for and
delivery of these will give a vital lead.
94. The Kyoto protocol set
the scene for a round of reappraising energy strategies. Part
of that reappraisal means taking a fresh look at the extent to
which our energy needs might be met from alternative sources -
generally referred to as "renewables" - that, particularly
with regard to emissions of greenhouse gases, are more environmentally
benign than traditional fossil-fuel sources.
95. In 1996, EU Member States
consumed over 1,400 million tonnes of oil equivalent (Mtoe) -
16 per cent of the world's total - and generated 878 million tonnes
of energy-related carbon emissions (MtC) - 14.5 per cent of the
world's total. Oil is the dominant fuel, accounting for over 40
per cent of 1996 total energy consumption in the region, followed
by gas and coal. EU members collectively accounted for over 18
per cent of the oil, 16.5 per cent of the natural gas, and nearly
12 per cent of the coal consumed world-wide during 1996.
96. Renewables supply just over 5 per cent
of the EU's primary energy.
Renewable energy use is not evenly spread throughout Europe. This
reflects partly the distribution of renewable resources (particularly
the siting of large-scale hydroelectricity capacity which is the
present main source of European renewable energy) and the amount
of wood and agricultural waste used for heat and electricity production.
It also reflects the present wide variety of national policies.
97. This enquiry has concentrated
on the potential of renewable energy sources, with particular
emphasis on their use in generating electricity and the access
of that energy to the electricity network. The stimulus for this
came from moves within the European Commission to set a framework
for good practice among Member States in such generation and access
matters. We make no apology for studying this particular area:
as our conclusions show, it gives rise to some important issues.
At the same time, we recognise renewable energy as only one part
of a much wider scene.
98. Greater use of renewable energy in place of energy
derived from fossil fuels will certainly reduce CO2
and other greenhouse gas emissions, but it is not the only solution
- nor could it be. Within the wider energy scene, there is a range
of other matters needed to complement the growth of renewable
energy - some of which, indeed, may well be more cost-effective
components of the post-Kyoto agenda.
99. The UK Government's recent
White Paper on sustainable development
made clear the need for an integrated approach. Other areas where
action is essential include better energy efficiency,
not only through conservation measures but also by simply using
100. Within the electricity sector, there is scope
for improvements in generating efficiency; greater use of combined
heat and power; cleaner burning of coal and further switching
from coal to less-polluting gas. Electricity generation accounts
for about a quarter of the UK's CO2 emissions.
Three quarters thus comes from other sources.
The UK's medium-term target for emissions (see paragraph 92) is about equivalent to shifting all electricity generation
101. Important as the present targets are, it seems
likely that the climate change agenda will require further action
over coming years. Moreover, there may be problems ahead as present
nuclear capacity is decommissioned. Replacing it by fossil fuel
generation would add to emissions. To be effective, the energy
policies at national and international levels need to integrate
the handling of all these short, medium and long-term matters
in both formulation and delivery.
EUROPEAN ENERGY POLICY
102. General EU energy policy
was set out in a European Commission White Paper published in
1995. This recognised
that renewable energy sources were an important factor in the
aims of the three key energy policy objectives of improved competitiveness,
security of supply and protection of the environment. The Paper
therefore proposed a strategy for developing renewables.
THE EUROPEAN WHITE PAPER ON RENEWABLES
103. The European Commission
White Paper Energy for the Future: Renewable Sources of Energy
was published in November 1997,
just before the December 1997 Kyoto conference on Climate Change,
and anticipated the introduction of targets for reducing greenhouse
gas emissions. It called for an increase in renewables' contribution
to the EU's primary energy to rise from almost 5.4 per cent in
1995 to 12 per cent by 2010. It also proposed the strengthening
of co-operation between Member States to ensure that national
energy policies included the commitment to increase renewable
energy provision. Provisional targets for different renewable
energy sources within the overall target were also given. Tables
1 and 2 below show, for primary energy and for electricity respectively,
the contribution of different renewable energy sources towards
total EU provision in 1995, their projected contribution in 2010,
and the growth required.
104. The White Paper itself
was not a proposal for legislation although it did envisage a
number of proposals. These included a Directive for "fair
access for renewable energy sources to the electricity market".
The draft of that Directive was the initial basis of this enquiry.
TABLE 1. EU PRIMARY ENERGY:
PROJECTED GROWTH OF RENEWABLES
|2010 as multiple of 1995
| large (10 MW plus)
| small (under 10 MW)
| heat (incl heat pumps)
|Total primary energy use
|Renewables contribution, %
TABLE 2. EU ELECTRICITY: PROJECTED GROWTH
|2010 as multiple of 1995
| large (10 MW plus)
| small (under 10 MW)
|Total electricity use||2366
|Renewables contribution, %
THE DRAFT DIRECTIVE
105. A draft of the Directive foreshadowed
in the 1997 European White Paper was produced by the European
Commission in late 1998.
The general purpose of this draft Directive of the European
Parliament and of the Council on access of electricity from renewable
energy sources to the internal market in electricity was described
"the promotion of electricity from renewable sources of energy
outlined in the White Paper on Renewable Energy Sources, not only
for reasons of environmental protection, but also for reasons
of safety and diversification of supply, and for reasons of social
and economic cohesion"
Promotion of renewables was also seen as:
"an important part of the packages of measures needed to
reduce the emissions of greenhouse gases, as first laid down in
the Kyoto protocol signed by the European Community and its Member
106. The key proposals in the draft Directive
were as follows.
mechanisms for electricity from renewables to allow trading between
Member States on fair terms, with a movement towards competitive
of electricity generated from renewable sources so that, in the
interests of fair trade, it could be properly identified.
levels of consumption requiring each Member State to ensure that
electricity from renewable energy sources (excluding large hydro)
accounted for at least five per cent of annual consumption by
the end of 2005. Member States already at or above that proportion
of electricity from renewable energy were required to increase
the percentage share by at least three points. Unspecified higher
targets were envisaged for later years.
grid connection rules in each Member State setting out the costs
of and arrangements for connecting new renewable energy generators
to grid systems.
107. The proposed requirements
for competitive support systems and, to a lesser extent, the minimum
levels of consumption proved to be controversial. Renewable generators
in some Member States with fixed price support systems lobbied
hard for the retention of such favourable arrangements. It is
believed that this controversy had a bearing on the Commission's
decision not to pursue the draft Directive to publication, leaving
something of a policy vacuum in early 1999.
EC WORKING PAPER
108. Some momentum was regained
by the publication in April 1999 of a European Commission Working
Paper on Electricity from Renewable Sources and the Internal
This was a less formal document, which reviewed the development
of renewable energy policy in Europe and discussed policy options
for the future. It restated the need to move towards price support
mechanisms compatible with the internal market and set out several
options. It noted the need to reward renewable generators if,
due to proximity to final users,
their electricity output had a higher value than centralised generation.
However, it did not endorse payment of grid connection costs by
electricity utilities - except in cases where the system would
benefit from the installation of renewable energy plant. There
was no mention of the national targets for electricity consumption
from renewable energy sources as proposed in the draft Directive.
109. This Working Paper was
discussed at the EU Ministers' Energy Council on 11 May 1999.
It was agreed that work should resume on preparation of a draft
Directive on renewable energy, though without setting national
quantitative targets. (This did not affect the EU-wide target
of 12 per cent of primary energy from renewables by 2010 set in
the 1997 European White Paper.)
"CAMPAIGN FOR TAKE-OFF"
110. In the meantime, the
European Commission launched a "Campaign for Take-off"
for renewable energy in April 1999,
giving more substance to concepts originally discussed in the
1997 European White Paper. It was intended to "kick-start
the implementation of the strategy and is expected to have reached
its goals by 2003".
111. Three key sectors were identified, involving
mature technologies "considered crucial in achieving the
but which need an initial stimulus". The key electricity
sector targets proposed for promotion during the campaign are
listed in Table 3 below.
TABLE 3: "CAMPAIGN FOR
TAKE-OFF": KEY ELECTRICITY SECTOR TARGETS, 1999-2003
||Installed capacity, MW ||Estimated investment, ?M
|Wind energy||Install wind turbines
|| 10,000|| 10,100
|Biomass||Install biomass CHP plant
|| 10,000 (*)|| 5,500
|Solar PV||650,000 systems in EU
350,000 systems exported
| 1,000|| 5,300
|* thermal capacity - electrical output not quoted
112. In addition to the key technologies, it was intended to identify
a hundred communities whose energy needs could be fully met by
renewable energy sources.
113. The Commission recognised that implementation
of the campaign would require partnerships across the spectrum
of local and national governments, planning authorities, utilities,
financial institutions, trade associations and other bodies.
RENEWABLES IN THE UK
114. In 1993, the then UK Government set
a target to secure
1,500 MW dnc of renewable
energy by the year 2000. In 1994, they set out a 10-year strategy
for increasing the use of new and renewable energy sources
in order to contribute to diverse, secure and sustainable energy
supplies, reduction in the emission of pollutants and encouragement
of internationally competitive industries. The aim was to stimulate
the development of new and renewable energy sources wherever they
had prospects of being economically attractive and environmentally
115. To help meet these targets, the market stimulation policies
provided for in the NFFO provisions of the Electricity Act 1989
were used, enabling the Secretary of State to make Orders requiring
the Public Electricity Suppliers to secure a certain amount of
renewable energy capacity.
There have been five orders in England and Wales (NFFOs 1-5),
three in Scotland (Scottish Renewables Orders or SROs 1-3) and
two in Northern Ireland (NI-NFFOs 1 and 2).
116. Support under the NFFO mechanisms
aims to bridge the gap between the cost of renewables and the
market price for electricity. A vital attribute of a NFFO-type
contract is that it guarantees the generator access to the electricity
network. Competition in the allocation of NFFO contracts provide
a stimulus for driving the cost downward, thus helping those renewable
technologies close to becoming competitive to achieve commercial
117. NFFO, SRO and NI-NFFO contracts have
now been let for a total of around 2,400 MW of plant. Around 650
MW had been commissioned by Spring 1999.
118. During its first year in office,
the present UK Government reviewed energy policy. The October
1998 White Paper Energy Sources for Power Generation
confirmed that the central policy objective was "to ensure
secure, diverse and sustainable supplies of energy at competitive
119. The Government recognised that energy
from renewable sources would be an important element in securing
both the diversity and sustainability objectives. To carry matters
forward, the DTI
published in March 1999 a Government consultation document on
renewable energy, New & Renewable Energy: prospects for
the 21st Century.
The consultation period ended just before the publication of this
Report. The document made the following key points.
Government was committed to a new and strong drive to develop
had a key role in contributing to secure, diverse and sustainable
energy supply both now and increasingly into the future.
Government was working towards renewable energy providing 10 per
cent of electricity supplies cost effectively as soon as possible.
It hoped to achieve this by 2010.
Government was already on target to achieve 5 per cent of electricity
from renewables by 2003.
renewables became competitive, they would be able to take their
place alongside fossil-fuelled sources in the open market for
annual DTI budget for the New and Renewable Energy Support Programme
was set to rise from £11.1m to £18m over three years.
Government would use Utilities legislation to ensure that embedded
generation was fairly treated within the regulatory framework
GREENHOUSE GAS EMISSIONS
120. In October 1998, the
Department for the Environment, Transport and the Regions (DETR)
issued a consultation paper on climate change, UK Climate Change
discussed the various ways in which greenhouse gas emissions might
be reduced. This suggested that a 10 per cent contribution to
electricity supplies from renewables might deliver carbon savings
around 7.4 million tonnes (MtC). This represents about 25 per
cent of the carbon savings needed to meet the Government's Manifesto
commitment. A more detailed assessment of renewables' contribution
to emissions savings is in paragraphs 174 to 182 below.
121. The DETR's 1998 consultation paper brought together
most of the key issues relating to the reduction of greenhouse
gas emissions. Other measures which would result in carbon savings
were a new combined heat and power (CHP) target for 2010 (around
6 MtC saving potential), and energy efficiency measures in the
business (3-10 MtC) and the domestic (3-7 MtC) sectors. A discussion
of the accuracy or feasibility of these estimates is outside the
scope of this Report, as is any assessment of the impact of the
closure of the early nuclear power stations. However, the most
recent assessment of trends in emissions
shows UK levels in 2010 ranging from three per cent below to six
per cent above 1990 levels. Given the large expansions in housing
which are planned, it has been suggested that emissions may be
higher than this.
122. Even on the DTI estimates, it is clear that
urgent action is needed to meet the emissions targets. All the
measures listed in the DETR's 1998 climate change consultation
paper, including the development of renewable energy, therefore
need to be implemented.
THE CLIMATE CHANGE LEVY
123. The Climate Change Levy
was announced in the March 1999 Budget. (Consultations
by the Treasury and HM Customs and Excise had just been completed
as we finished our Report.) The proposed levy of 0.6p/kWh on both
fuels and electricity used by business and industry was aimed
at damping down energy use, and hence carbon dioxide emissions.
Although the great bulk of the projected £1.75 billion annual
yield of the Climate Change Levy would be recycled through reduced
employers' National Insurance Contributions, businesses would
also benefit from an additional £50m a year for schemes to
promote energy efficiency and to stimulate the take-up of renewable
sources of energy - though no exemptions had been proposed for
renewable energy itself.
124. When launching the renewable
energy consultation document in March 1999, the Minister for Energy
confirmed the UK's greenhouse gas and CO2 reduction
targets. These are summarised in Table 4 below, together with
related EU targets. While the EU definition of renewable energy
excluded large hydro plant, the UK Government's target included
the 0.8 per cent from this source.
TABLE 4. TARGETS FOR EMISSION
REDUCTIONS AND FOR RENEWABLE ENERGY
|Greenhouse gas reductions 1990-2010||Minus 12.5%
|CO2 target for 2010||Minus 20%
|Primary energy from renewables||None formulated
||12% by 2010 (3)
|Electricity from renewables by 2003||5% (1)
|Electricity from renewables by 2005||5% (2)
|Electricity from renewables by 2010||10% (1)
1. Target set by DTI
2. Target proposed in withdrawn EU Directive
3. Target set in the 1997 European White Paper
4. Estimate of aggregated proposed targets
2 1998 - Annual energy review.
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Electricity is widely perceived as a clean source of energy. While
"clean" at the point of use, however, there is normally
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Energy Information Administration website, US Department of Energy. Back
See Table 1 on p 19 of this Volume. Back
Primary energy is the total energy contained in all the original
fuel sources used. This discounts inefficiencies in converting
those primary sources into electricity, heat or mechanical power. Back
A better quality of life: a strategy for sustainable development
for the UK, Cm 4345. Back
The House of Commons Environmental Audit Committee will shortly
be publishing a Report on energy efficiency (HC 159, 1998-99). Back
Digest of UK Energy Statistics 1998, DTI, The Stationery
Office 1998. Back
Specifically: industry and commerce 38%; transport 20%; and domestic
use 15%. Back
An Energy Policy for the European Union, COM(95) 682. Back
European Commission, COM(97)599. Referred to subsequently as "the
1997 European White Paper". Back
The 1997 European White Paper. Back
The 1997 European White Paper. Back
As noted in paragraph 107, the draft Directive was never formally
published, though the text was made available on the German Wind
Energy Association's web site. Back
Defined, for EU purposes, as installations of at least 10 MW. Back
European Commission, SEC(99)470. Back
Otherwise known as "embedded generation". Back
Campaign for Take-Off, EC Services Paper SEC(99)504, April
That is, 12 per cent of EU primary energy from the renewables
by 2010. Back
The Prospects for Coal - Conclusions of the Government's Coal
Review, Cm 2235, 1993. Back
See the discussion of rating issues in paragraphs 172 and 173. Back
New & Renewable Energy: future prospects in the UK,
Energy Paper 62, DTI 1994. Back
In the case of Northern Ireland, the powers flow from The Electricity
(Northern Ireland) Order 1992. Back
Unless indicated otherwise, references to NFFO in this Report
include the SRO and NI-NFFO arrangements. Back
R-122, ETSU 1999. Back
Cm 4071. Back
Which has lead responsibility for energy generation policy. Back
DTI publication URN 99/744. Referred to subsequently as "the
DTI's 1999 consultation document". Back
In the targets for both 2003 and 2010, the Government includes
all large-scale hydro (defined for UK purposes as installations
of at least 5 MW). As noted in paragraph 106, the proposed EU
target of 5 per cent of electricity from renewables by 2003 excluded
provision from hydro installations over 10 MW. Back
Which has lead responsibility for policies on reducing greenhouse
gas emissions as well as the energy efficiency programme, the
promotion of combined heat and power (CHP) schemes and the planning
DETR publication 98EP0136. Referred to subsequently as "the
DETR's 1998 consultation paper". Back
Energy Projections for the UK: Energy Use and Energy-Related Emissions
of Carbon Dioxide in the UK 1995-2020,
DTI Energy Paper 65, March 1995. Back
Making sense of sustainable development, article by D Helm
in Electrical Power Engineer, April 1999. Back
Consultation on a Climate Change Levy, HM Customs and Excise,
November 1998. Back