Finally – energy efficiency regulations emerge un-pickled

Finally, stumbling over the line six weeks or so before pre-election purdah puts everything into mothballs, the regulations requiring landlords, by 2018,  to ensure their rented properties exceed a very basic test of energy-worthiness before they can be rented out have been laid before Parliament. Now lest that first sentence sound a bit churlish, let’s be clear: hooray. The regulations themselves are sound. OK it’s only energy efficiency band ‘E’  (the bands go from G – meaning your house, energy efficiency-wise, is more like a gazebo than a property, to A – which envisages homes that are so efficient they don’t use much energy at all to heat and power, and may anyway create their own energy to do so) so it’s not that far up the scale. But since private rented homes are among the least energy efficient properties as a group it represents a real step forward for tenants warmth and property efficiency across the country. And the penalties for non-compliance are proportionate to the cost of actually doing something – i.e. more than it is likely to cost landlords to do up their homes to conform (which as the Association for the Conservation of Energy and others have shown is, in most cases, a pretty modest sum – perhaps £1500 or so).

The regulations don’t of course cover a large part of the private rented scene, which is where parts of properties in which people are living jointly are let out on individual tenancies: Houses in Multiple Occupation or HMOs. This remains a real gap in provision, since it means that thousands of properties in most large towns and cities will simply be exempt. This raises the not entirely fanciful prospect of some landlords straying into letting properties out as HMOs and not single tenancies over the next few years so that they do not have to improve their properties to let them.  I shall certainly continue to pursue this gap in the regulations, which surely, a future government more interested in energy efficiency across the piece will have to fill…which brings me to the slightly more churlish bit of the piece.

The Energy Act 2011, from which these regulations derive, received its Royal Assent on 10th November 2011. That’s a piece of legislation passed by Parliament, supported generally all-round, although there were moves during its passage to move the qualifying date for landlords to comply forward to 2016. No, we were told, 2018 is a better forward date, because after the regulations are in, that gives five to six years to move towards compliance, instead of about three if the date is met at 2016.

So, a mere three years and three months later, regulations (which were probably written and ready to go by early 2012) finally emerge, giving landlords, yes, about three years to move to compliance.  So why the inordinate and otherwise inexplicable delay?

Introducing the measure yesterday, Ed Davey gave it away, although when he was in undifferentiated mode as Secretary of State, he played a straight bat when I enquired, repeatedly about the non-appearance of the regulations. ‘Well’ he said, ‘’I wish the regulations had been brought in earlier.’  Battles within the coalition had apparently delayed them. ‘Not everyone in this government wants more regulation. But in energy efficiency regulation plays a crucial role’. Quite so Ed.

So who might it be that the battles were with? Not the Ministry of Defence obviously – the finger very rapidly and accurately points at our not very green at all friend in DCLG, Mr Pickles. Quite scandalously, in fact, that a modest follow on measure from an Act agreed by Parliament which would make a big difference on housing fitness and tenant welfare at small cost, and even endorsed by the National Landlords Association, has been blocked. Blocked by the head of the department that is supposed to be all about housing and standards therein, and only eventually unstitched because, I understand No. 10 very belatedly told them to stop messing around.  In another system someone ought to be accountable for that kind of attempted extended sabotage on a measure agreed by Parliament. Not in this one though.

On Pyhrrus and his campaigns

Well that went well, didn’t it? At least Ed Davey thinks so. I’m referring here to the results of the first capacity auction, the final results of which were posted earlier in the month. Here’s Ed responding to an intervention on the subject that I made during the recent Energy Prices debate in the house:

 

‘The results of the capacity auction were far better than we had predicted. The closing price – the clearing price – was significantly lower than we predicted, so there will be a lower impact on consumer bills.’

Hmm I’m not sure crowing about the low clearing price of the auction as a mechanism for protecting consumer bills (when that was nowhere in the specification of the auction) is a wise, long-term line to take. A bit like a general reporting that ‘our invasion force failed to land on the beaches and we were repulsed with huge losses. But we only sent ten ships, a far lower number than we had anticipated, so there’s a considerable saving to the taxpayer to take into account in evaluating the success of the operation’.

So were the results any good overall? Let’s start with what DECC thought the auctions were about when they set them up. Here’s what they say in the capacity auctions section of their website:

‘The Capacity Market will ensure security of electricity supply by providing a payment for reliable sources of capacity, alongside their electricity revenues, to ensure they deliver energy when needed. This will encourage the investment we need to replace older power stations and provide backup for more intermittent and inflexible low carbon generation sources.’

And we also need to know that the idea of launching an auction for implementation in 2019 was primarily so that new power stations would have some investment security when they come on stream.

Well, yes, payments have gone out in the first auction to some generators, which one supposes will mean that they don’t switch off their generating capacity when it might be needed. Except to say that almost a fifth of the cleared capacity is coal plant which DECC is supposed to be running off the system in a few years, and extraordinarily, 7.8GW of nuclear power (which can’t be switched off without long term consequences even if the owners (EDF) go into a sulk) so that aspect of the ‘auction’ most certainly is free money with no gain in supply security. Most of the rest is money to existing gas plants, some of which arguably might have decided to mothball themselves if they hadn’t got a payment from the auction.  On the other hand, almost 4GW of gas plant didn’t succeed in clearing the auction, being displaced both by coal and (haha) nuclear. One might think that this will now INCREASE the likelihood that this plant will be mothballed in the not too distant future, decreasing overall energy security rather than making it more robust.

But leaving that all aside, what about the other aspect of what DECC thought they were doing with the auction – ‘encouraging the investment we need to replace older power stations etc.’? Well here the news is uniformly bad. Let’s remember that the same Department projects in its gas strategy that some 26GW of new capacity will be needed to provide that backup by about 2030. One power station (Trafford) that appeared to be in the process of commissioning anyway got a fifteen year capacity contract. The other station being currently commissioned (Carrington) did not.

So, to sum up, nuclear and coal did well, existing gas got shedloads of money, new gas got virtually nothing – oh, and demand side response measures got about 1% of share out. More fiasco then triumph, I think.

 But it is the central aspect of investment in new plant that is squarely in the ‘fiasco’ bracket. Let’s suppose, as they are scheduled to do, the Department tries again next year with another auction, which may procure some more I year contracts. Where does that leave new plant? It is, I concede, something of a paradox that the Government is bringing forward mechanisms to pay developers of gas fired power stations to run at relatively low levels of output, in order to balance the system that, by 2030, will be predominantly populated by non-gas generation. This is for the very good reason that if it does not, then we will forever be locked not just into high carbon generation, but generation at levels that by themselves will bust any targets on overall CO2 emissions we might set for the country.  We will need this backup, but it is beginning to be evident that capacity auctions are perhaps not the best method of ensuring that it is there. Maybe the drop in oil prices and the following (partial) drop in gas prices will come to the rescue of new development, in which case capacity auctions aren’t likely to be needed.

I wonder if longer term, new gas plant will need to be publicly built and then rented out to operators. At least then we’d know the plants were there, and by the way, that when we didn’t need them, they could be removed in an orderly fashion. Or we could (heaven forefend) revisit the idea of a strategic reserve of gas plants.

As for doing things in the present way the phrase ‘one more victory such as this and I am ruined’ springs to mind. He lost in the end (Pyhrrus, that is.)

Renewable energy targets: how Goldilocks got eaten by a bear

Goldilocks

Goldilocks

The bear

The bear

So how are we doing with that all important target of 15% of final energy use to be provided by renewables by 2020? It is a target agreed with our EU partners and I suppose some will say it doesn’t matter if we aren’t going to be in the EU come 2020. But even then there is the small issue of keeping the UK’s energy carbon output on a trajectory that makes a low carbon energy landscape possible by 2030, and we are of course in the EU right now. So for legal reasons and for reasons of keeping the planet in one piece answering the above question does currently matter.

Last Spring the misleadingly titled Renewable Energy Foundation (REF) (which, we should note, does not seem to be in favour of many renewables, and most notably onshore wind) published and widely trailed a claim that Britain was already well on the way to meeting its EU 2020 renewables target. The organisation therefore concluded that all outstanding onshore wind applications were, in reality, surplus to requirements.

Ed Davey, responding to a letter from Mary Creagh MP about those claims, advised that there isn’t actually a surplus hanging around. He pointed out that REF had assumed that everything in the planning pipeline gets built (he suggested that for example 50% of proposed onshore wind gets planning permission, and of that, 70% actually gets completed). However, despite the above, he did imply that the existence of the ‘pipeline’ means that ‘we remain on course to meet our…2020 renewable energy targets cost effectively’.

So who’s right on this? Remember that the 2020 target is an overall agreed EU target for 15% of final energy use to be met by renewables – which implies a far higher proportion of our electricity to be made up of renewables than that in order to meet the overall goal. It is generally accepted that about 35 – 40 % of our electricity by then should be from renewable sources, which, so the REF tells us, equates to about 33 gigawatts of installed power at average renewable capacity values.

Sorry, I was asking who was right…Well clearly Ed Davey is right to pull REF up on its assumptions about how much ‘in the pipeline’ will actually get built. But he is, I am afraid, now increasingly finding himself guilty of exactly the same assumption: that is that are enough renewable projects ‘in the pipeline’ to come good regardless of the various vicissitudes that the technologies are going through.

Ed’s most recent go at projecting the mix of technologies which would generate the installed capacity we need to deliver the 2020 target line was contained in the December 2013 Electricity Market Delivery Plan, which he helpfully pointed Mary Creagh to in his letter. This report (p.40) lists the range of projected capacity of the various renewables that the Department expects to fill the bill – overall from a minimum of 27.2 installed GW to 40 GW at the most optimistic. And there it sits, in the middle, the ‘goldilocks’ figure of about 33.3 GW. Thank god for ‘the pipeline’.

Well, except that is, if you turn to what DECC told the National Audit Office (NAO) this spring about what actually IS in that pipeline, and what its status is. You can check it out here on p.31 of their report ‘Early Contracts for Renewable Electricity’. At first sight this chart looks like case proven for the Renewable Energy Foundation. No less than 44GW of capacity in onshore wind, offshore wind and biomass listed, and that’s without the 4GW or so of large solar already installed or on its way. But the NAO have helpfully divided the overall figures into what is operational, being built, consented to and what awaits planning permission, and of all the plants in development, which have or don’t have an early investment contract agreed.

If we apply this helpful division into the events of the past few months, then the reality starts to look substantially less rosy.

The government has essentially stopped field solar installations because of Levy Control Framework (LCF) worries. So it is likely that the installed total of large solar installations by 2020 will stay around where it is.

But there’s still onshore, offshore and biomass in the pipeline? Well, Mr Pickles has decided to can onshore wind applications by calling them all in and refusing them, so it is probable that consented onshore will get built at about the rate Ed Davey suggests, but not otherwise.

But what about biomass and offshore? For this we have to turn to the LCF, also inter alia, the subject of the NAO’s report. DECC’s latest figures on the LCF, set out in the Annual Energy Statement in September show that the LCF is essentially bust. Projects that do not already have an investment contract (five offshore wind farms and three biomass plants…oh and of course a whacking great big nuclear power plant which doesn’t count as renewable even though it has scooped up shedloads of CfDs) are very unlikely to get anything now before 2020. Even if one is very generous with assumptions about the knock on the impact of the cumulative total of CfDs from other years, in the figures forward to 2020, it is hard to see anything more than one medium-sized, offshore windfarm getting a CfD, and even then, not before about 2018, by which time it will be too late for 2020. And of course the same goes for biomass. So on these figures, probably best to discount anything that does not now have the prospect of getting a CfD before 2020. Unless you believe that suddenly un-CfD supported projects will rise up and get built – highly unlikely.

And all this means that (and you’ll have to trust my maths on this, but I’ll happily send you a working sheet of the calculations), taking everything into account, we miss the magic figure of installed capacity by about 3GW or 10%. Granted, a good effort compared to where we were a little while ago but way short of where we need to be, way short of where Ed Davey seems to believe, despite the best efforts of his own government, that we will be, and miles off REF’s rambling.

Unless, of course, the LCF is recast to iron out its manifest faults, and/or Mr Pickles is taken away in a van and held somewhere until it’s all over, or of course we leave the EU in 2017. After that we won’t need to worry about the renewables target and the implications of not meeting it, but we might worry that we didn’t have much of an energy economy left, renewable or otherwise.