UK Draft Energy Bill: chill wind blowing for renewables?

The Institution of Engineering and Technology’s energy expert Robert Sansom comments on the UK’s draft energy bill and how it impacts the wind sector.

Interview by Rikki Stancich, Editor

The UK government this week unveiled its draft Energy Bill in Parliament in response to growing concerns over the UK's energy security. Energy demand in the UK is forecast to double by 2050. With roughly one-fifth of existing capacity to come offstream by 2020, Britain must find investment worth £110bn in order to meet the shortfall and secure the UK’s future energy supply.

Central to the Bill is the long-awaited Electricity Market Reform (EMR). Originally designed to ensure that low-carbon energy generation is sufficiently incentivised to ensure new plants are built, observers are concerned that in its current form the EMR favours nuclear and gas over renewables. This is because the complex new feed in tariff appears to be weighted in favour of multi-gigawatt nuclear and gas energy projects.

Wind Energy Update speaks to energy expert Robert Sansom, on behalf of the UK’s Institution of Engineering and Technology (IET) to get industry’s take on the draft Bill, and to find out what it means - in its current form - for the wind energy sector.

Wind Energy Update: Compared to other EU member states, the UK’s renewables target is fairly low. Roughly what will the UK’s 2030 energy mix look like under the new regime?

Robert Sansom: The UK has taken a market-based approach to the energy system’s design and the government’s aim is to substantially decarbonise electricity by 2030 to ensure we are on track to meet the 2050 carbon reduction target.

Aside from renewable energy, nuclear is the only other commercially available low carbon technology, given that carbon capture and sequestration (CCS) has yet to be proven.

By 2030, there would be a mix of renewable energy and new nuclear, probably with coal and gas with CCS.

There is not a single view for the UK but the government has published a 2050 Pathways report that covers all the energy sectors with a range of projections or pathways. For electricity generation renewables, in particular wind, and nuclear have an important influence on the mix and will determine how much carbon emitting plant remains on the system, most if not all of which will be gas.

Coal and gas with CCS is not expected to be significant by 2030, mainly because the technology has yet to be commercialised. Possibly the greatest uncertainty rests with nuclear. Although EDF remains committed to its nuclear investment proposals, the recent announcement by Eon and RWE that they will not invest in nuclear has raised questions over the prospects for nuclear.

Wind Energy Update: How key a role does wind energy play in the UK’s future energy mix?

Robert Sansom: The government expects wind will have very large role to play but as the UK’s Electricity Market Reform (EMR) takes a market-based approach, the extent of its role will come down to its competitiveness with other low carbon technologies.

Wind Energy Update: Global warming is the result of market failure. How confident is the IET that the carbon pricing mechanism will adequately reflect environmental and health costs, and in doing so ensure adequate deployment of sustainable, clean, renewable energy technologies?

Robert Sansom: I wouldn’t attribute global warming to market failure. However, the European Union Emission Trading Scheme (EU ETS) was introduced as a market based approach to cap carbon emissions within the EU.

Unfortunately for a number of reason the traded price of carbon has been much lower than expected and investors in low carbon generation technology have argued that it does not provide the necessary long term confidence for such investment to be made.

The carbon price support mechanism seeks to address this and provided it is compatible with the EMR then we would expect it would be helpful to renewables along with other lower carbon technologies.

Wind Energy Update: According to the IET, a main short-term requirement for the UK is to enable the build significant amounts of low cost peaking generation to provide cover for renewables shortfalls and exceptional demand peaks. What form of energy would this likely be?

Robert Sansom: More than likely it will be gas-based technologies, given that it is the only energy that can be cycled up and down quickly to meet demand requirements. There is concern among certain groups who say the EMR will, in this respect, create a ‘dash for gas’ and adversely impact investment in low carbon technologies.

The point of the reforms, however, is also to diversify the UK’s energy portfolio away from heavily carbon-based technologies to a mix of low-carbon technologies. From an energy security point-of-view it is very helpful, given that there will be a lot more diversity in the UK’s energy sources with less dependence on imports and exposure to volatile prices.

Wind Energy Update: How crucial is it that UK increased investment in energy storage and inter-connectors?

Robert Sansom: One of the challenges is that, in terms of energy storage, gas provides massive storage capability that can help manage changes in energy consumption due to weather for example. Reducing the amount of gas in the UK’s energy portfolio (to be fully de-carbonised, we would need to largely phase out gas by 2050) requires that we replace the storage capability with something else, particularly with increased amounts of intermittent plant such as wind and inflexible plant such as nuclear.

Storage, in the form of pumped hydro (which the UK has a lot of) is important. Interconnectors can also provide back up and storage. There is likely to be a need for other forms of storage using other technologies such as battery-based systems for unexpected events. Demand side management also has an important part to play here and this is a crucial component of the EMR we believe.

Wind Energy Update: To what extent will Feed-in Tariffs with Contracts for differences (FiT CfD) improve on FIT schemes elsewhere, such as Spain and Germany?

Robert Sansom: One of the benefits of publishing a draft bill is to provide an opportunity for organizations to contribute directly and to incorporate lessons from other mechanisms around the world.

One thing [the UK government] doesn’t want to do is get it wrong. Therefore, it is granting both the public and the private sectors a period of time to examine and provide feedback on the bill in order to ensure that the mechanism is optimally designed.

An important difference with the FIT CfD is that unlike other schemes that are designed to support domestic and renewable energy installations, the UK’s FIT is also designed to cover large-scale multi-billion pound thermal power station projects, such as EDF’s nuclear proposals at Hinkley and Sizewell, which could cost in excess of £20bn.

Another important point is the FIT length, which has yet to be agreed upon. A combined cycle gas plant has a financing term of 10-15 years. Large thermal energy, such as nuclear power, may require a longer period, possibly more then 20 years. For renewable energy, the financing regime is typically 10 -15 years. Critical to the success of the EMR is that it enables low carbon projects to be financed and deliver good value to consumers.

Wind Energy Update: The new feed-in tariff system was designed to allay investor concerns related to short-term support mechanisms. However, the Renewable Obligations Certificate (ROC) system has worked well until now. Will this new system deliver the level of investor confidence required?

Robert Sansom: The ROC was designed to expire in 2027, which was great for projects built in 2002, but not for those being planned in 2010. However, if you have a mechanism that works and that people are comfortable with (such as the ROC), it is a challenge as to whether you can transition smoothly to the new regime, and indeed, whether it will work as well.

To respond to this article, please write to the Editor: Rikki Stancich