The Economics of Renewable Energy - Economic Affairs Committee Contents


Memorandum by the John Muir Trust

WHY JOHN MUIR TRUST IS GIVING EVIDENCE

  1.  The John Muir Trust is a Scottish based, UK charity whose aim is to conserve and protect wild places with their indigenous animals, plants and soils for the benefit of present and future generations, and to increase awareness and understanding of the value of such places. The John Muir Trust is concerned about the effects of climate change and the implications of global warming for people, the environment and wild land. The John Muir Trust supports calls for a strong UK Climate Change Bill, incorporating targets of 80% greenhouse gas (GHG) reductions by 2050—using the IPCC conclusions in its 2007 reports that, in a global context, 50% cut in emissions from a 1990 baseline by 2050 and, for industrialised countries like the UK at least 80% cut by 2050, are required to try and prevent average global warming exceeding 2°C.

  2.  These reductions should be achieved by a combination of measures—including increasing the proportion of energy produced by a broad range of renewable energy sources, but also, crucially and as the preferred choice, by reducing energy consumption. Within that context, renewable developments need to take place with due respect to the local and national importance of one of the UK's key assets—its natural heritage. Our natural heritage is increasingly recognised as being of major economic importance, as well as of social and environmental benefit. The John Muir Trust has been represented as an objector at the Beauly Denny 400kV transmission line Public Local Inquiry and at the Muaitheabhal wind development application Public Local Inquiry. The latter application, concerning a site in South Lewis, is the first major proposed wind development in a National Scenic Area to come forward.

  3.  It is within that context that the Trust makes this submission. The John Muir Trust welcomes the House of Lords inquiry into the economics of renewable energy as an opportunity for the strategic issues involved in energy and climate change decision making, and the success so far, to be considered. Lessons learned can then be used to achieve the Government's key aims.

KEY GOVERNMENT AIMS

  4.  The following key aims of the UK Government should be borne in mind at all times when making decisions on energy issues, if a sustainable and holistic approach is to be achieved.

  5.  The Government's top priority in this context is to limit greenhouse gases as much as possible, to make the UK's contribution to global efforts to minimise global warming.

  6.  The Requirements of the Electricity Act 1989 section 3A (as amended), need to be met. "The Regulator must carry out the ... functions in the manner which he or it considers is best calculated:

    (i)  to secure that all reasonable demands for electricity are met;

    (ii)  to promote efficiency and economy on the part of the Applicants;

    (iii)  to contribute to the achievement of sustainable development; and

    (iv)  to pay adequate regard to its effect on the environment".

  7.  So it is welcome and essential that the inquiry is not limiting itself to considering renewable energy generation in isolation but is also looking at how renewable energy fits into Britain's overall energy generation and transmission policy. The inquiry aims to set out the costs and benefits of renewable energy and establish how they compare with other sources of energy. However, the most efficient energy is that which is not used—energy which would have had to be produced but was saved because of energy conservation or efficiency measures.

ENERGY CONSERVATION AND EFFICIENCY

  8.  It is well recognised that energy conservation measures in business and homes could have a very significant effect on demand, whilst addressing fuel poverty—increasingly a major issue. The Scottish Parliament in its 2005 Report into Climate Change found that "approximately 40% of energy could be saved, and half of the 60% CO2 reduction target for 2050 could be achieved cost-effectively by improved energy efficiency. Energy efficiency measures have struggled to gain a high priority for individuals and businesses. A range of radical additional policy instruments is required.

  The Executive's planned Scottish energy efficiency strategy should include targets for:

    —  different sectors at individual, public sector and business level;

    —  the development of small-scale renewable energy projects; and

    —  an overall reduction in demand for energy, as rising demand threatens to undermine all other measures.

  Large reductions in Scottish emissions require change towards lower-emission methods of electricity generation. The Executive must work urgently with the UK Government to produce an energy strategy that provides a clear vision of the energy generation mix required to meet emissions reduction targets, and a clear route map towards achieving that mix".

  9.  Unfortunately, three years on, the urgency of the situation has not led, in either Scotland or the UK, to speedy implementation of major programmes for energy conservation or to "joined-up thinking" throughout the UK governments and, within those governments, across departments to produce that much-needed energy strategy. It seems inexplicable, given the relative costs of energy conservation versus any kind of electricity generation, that the focus is not squarely on conservation. So it is vital that this inquiry focuses on what is the maximum that can be achieved, throughout the UK, towards the key aims set out above, and how to make it happen. Decision-making should not be focused on exceeding secondary targets (renewable energy) if there are better, more cost-effective, less environmentally-damaging options to achieve the primary aims of reduced GHG emissions and also ensuring an adequate energy supply (easier to achieve if consumption is reduced).

ENERGY HIERARCHY MODEL

  10.  UK governments and local authorities should be using an "energy hierarchy" model, see below, whereby every decision, in whatever department, is considered against the model to see which option is the most sustainable in order to rationalise the policy approach. The hierarchy sets out different options for delivering carbon reduction, with those at the top having least risk of adverse social and environmental impact. All elements of the hierarchy must be pursued but capacity should be taken up in the top elements to prevent environmental conflicts when setting targets for those elements lower down the hierarchy.

Table 1

ENERGY MEASURE

Conservation and avoidance energy management systems to control lighting, heating etc
  
Energy efficiency (including insulation, efficient building design, energy efficient appliances)
  
Micro-renewables and micro-CHP Household/development scale incl CHP boilers, rooftop turbines, heatpumps, pv, solar thermal etc
Heat
Electricity
  
Macro-renewables, Community scale wind, biomass, hydro etc
Heat
Electricity
  
Macro renewables and Carbon Capture & Storage, Commercial scale
wind, wave, tidal, biomass—avoiding areas of environmental sensitivity
Distributed Generation
Grid based Generation
  
Non-renewable generation
CHP
Electricity generation only


  11.  Comparative costs, which are indicative only, using Energy Saving Trust statistics for conservation measures, are of the order below:

(i)Cavity Wall Insulation £8.64/MWh
(ii)Loft Insulation 0-270mm £7.07/MWh
(iii)Loft Insulation 50-270mm £25.92/MWh
(iv)Draught Proofing £15.55/MWh


  12.  Compared with the costs for new power stations, using government source statistics,

(i)Nuclear£38/MWh
(ii)Coal (including carbon cost) £44/MWh
(iii)Gas (including carbon cost) £44/MWh
(iv)Onshore wind£55/MWh
(v)Offshore wind£84/MWh


  13.  A key problem, when considering the relative costs of any kind of energy provision and what we might call "climate change" costs, is the fact that most additional costs associated with renewable energy production and increased transmission costs are met by the consumer ultimately, whilst provision to encourage energy conservation measures generally comes from taxation. In essence, the government pays out to increase energy conservation measures, through grants, whilst the consumer pays for the Renewable Obligation Certificate Scheme (ROCs) and for increased transmission costs through electricity charging.

  14.  Add to this the fact that these activities often involve different UK governments and it is easy to see why, so far, there seems to be no move to look at what the returns are, in each case, for the various "subsidised" initiatives—far less any attempt to rationalise the overall approach to gain the most per pound spent. Consideration should include gains in both GHG reductions and energy equivalent—either by production or saving measures. In terms of real problems and real solutions, it should not matter whether that pound is from the consumer directly or from the government, from taxes. But in political acceptability, it matters a great deal.

PROPOSED MODEL FOR INCREASING CONSERVATION MEASURES

  15.  As it is desirable to shift emphasis from energy production to conservation, one way which might be politically achievable would be for energy conservation measures to be installed at no immediate cost to the householder/business who would continue to pay the same amount for their energy per year, as if there was no energy saving—with the surplus paid paying off the costs of the installation. Once this "debt to the government" had been paid off, the householder would then pay the true cost of his/her current energy consumption and gain from the savings. Whilst possibly cumbersome in administration, such a scheme could get round the political difficulty of moving away from the current system of consumers picking up the costs of ROCs and increased transmission costs, towards conservation measures.

RENEWABLE ENERGY COSTS—ECONOMIC AND ENVIRONMENTAL

  16.  There are very major problems with a market which is called a competitive market but which is heavily subsidised in a number of ways which skew decision-making. The Renewable Obligation encourages speculative applications for very large onshore wind power developments in sensitive, remote, environmental areas for the following reasons.

  17.  There is no national energy generation and transmission strategy, for the UK or for devolved nations. So there is no presumption of "good" or "bad" sites. It is a free-for-all, with the early bird catching the bigger percentage of ROCs subsidy. The planning system in Scotland (the John Muir Trust has not had the capacity to engage with the other UK countries' planning system) cannot prioritise when considering an application. Each must be considered in isolation.

  18.  There is no requirement that the proposed power development might, at some time in the future, become economic as the subsidies are the main reason the scheme is proposed. The original rationale for ROCs was to kickstart the renewable sector, not as a permanent prop.

  19.  There is no requirement for all aspects of a development to be considered in relation to assessment of carbon emissions from that development. Whilst Environmental Statements for developments might refer to "payback time", these generally only consider the carbon emissions associated with construction of turbines. There are major concerns regarding sites on peatland, over the release of carbon from the peat. Peat bogs in the UK, the majority of which are in Scotland, store the equivalent of Britain's output of carbon dioxide for the next 21 years. There is great uncertainty about how much carbon might be released from wind developments on peat sites. This needs further work, urgently, and a moratorium on building on deep peat until sufficient understanding allows rational choices.

  20.  Transmission costs are not picked up by the developer but by consumers throughout the UK, who are paying most of the additional transmission costs. There is, therefore, a perverse incentive to go to cheap sites, far from the market for electricity. This is a completely separate incentive from the much-quoted argument about wind speeds. In fact, with regard to the perceived advantage of the increased wind speed in the Western Isles, Professor Andrew Bain, who has submitted evidence to this inquiry, has calculated that the increased wind speeds in the Western Isles do not offset the increased transmission costs of installing a Western Isles interconnector and taking electricity to the market in either central Scotland or into England, for instance. However, it is not in the developer's interest to assess this. Less obviously, it is not in the interests of either the transmission company (who will make a good guaranteed return from consumers and increase their asset holding) or the interests of National Grid to do a true cost/benefit analysis.

OFGEM

  21.  It is Ofgem's duty to consider "efficiency and economy" and "sustainable development" but Ofgem is under considerable pressure to facilitate the perceived need for large amounts of increased transmission capacity. Ofgem have said, in regard to the proposed Beauly-Denny 400kV interconnector, that it is not their job to assess all alternatives when a proposal is brought forward. This is an area which needs looked at. The John Muir Trust would suggest that undertaking such broad balancing duties is properly a government responsibility and that it should be done by developing a national energy strategy. In the meantime, however, Ofgem must take a broader view of its remit than it has with regard to the Beauly-Denny application, for instance.

DECENTRALISED GRID

  22.  The current rush for large-scale onshore wind developments, connected by a hugely centralised grid system shows a poverty of imagination and thinking rooted in the early 20th Century. There is a huge risk of stranded assets if there is not a strategic rethink about how energy is produced, saved and distributed. Others have given evidence to this inquiry about the inappropriateness of the current grid models and security standards being used, when considering wind generated supply. Intermittent supply cannot be treated in the same way as firm supply. One way in which wind power production can be better used is when it is used on a community scale, as part of a mix of power sources and, looking towards the future, using hydrogen storage which requires more Research and Development.

CONCLUSION

  23.  The John Muir Trust believes it is the government's duty to consider all aspects of energy production and conservation carefully, to consult widely and produce a National Energy Strategy to achieve a sustainable, effective energy system and maximise the greenhouse gas emissions reductions. If attention continues to be focused on increasing renewable energy targets, without any requirement for the developments brought forward to have to demonstrate their ability to actually bring about greenhouse gas emissions reductions, we face a possible worst case scenario. This would be where we achieve renewable energy targets through inappropriate developments, at great cost to important environments, only to discover that our greenhouse gas emissions are up, along with our energy consumption, and our energy supply is not secure. Energy conservation measures must be prioritised immediately. They can bring about the most effective results, most quickly with most environmental gain. They will also have most social benefit, with regard to jobs and fuel poverty. It is only lack of political will, possibly due to extensive industry lobbying, which prevents this happening.

Helen McDade

Head of Policy, John Muir Trust

13 June 2008



 
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