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.

 

 

No Michelin stars for the fat dud

historic-michelin-guide

The Financial Times ran a piece yesterday, regrettably behind a paywall, that featured the findings of Aurora Energy Research. As the FT quaintly put it, ‘the pot of money ministers have set aside to subsidise UK renewable power is likely to run out much more quickly than previously thought, according to research, placing green energy projects in jeopardy’.

Apparently, the hitherto solid looking pot may turn out to be more like a collapsing bag as uncertainties about just what the pot’s contents may buy burgeon. This is because the sums that will be expended on Contracts for Difference (CfD) will change as the price of energy changes, which the government might have exacerbated anyway by freezing the carbon price floor. DECC doesn’t seem to have taken much of this into account.

To which the correct response should be, I think ‘blimey, you don’t say’ or perhaps more colloquially something like ‘no s*** Sherlock’.

It is good that a research company has now told us that, as an instrument to facilitate and plan investment in renewables, the Levy Control Framework (LCF) is a fat dud, regardless of its efficacy as a method of stopping anyone spending more than a set amount of ‘levy money’ whether what you get for that spend is worth having or not. But a number of people (me included) have been making this point for a long time now. It is perhaps only now that Contracts for Difference are upon us, that the true fat dud-ness of the device can be uncovered.

The point is that the LCF was perhaps not such a fully fat dud when it first came out. After all, it controlled the amount of Renewable Obligation Certificates (ROCs) and feed in tariff (FiTs) payments that could be made. Since both were in fixed sum form you could fairly accurately find out what you might get for what, and importantly, how much you would have in any one year for new entrants based on what you had already committed as fixed amounts. ROCs trading allowed renewables operators additional money from their activities to invest outside the process.

But now, with the more ‘market efficient’ CfD you never quite know what the ‘cost’ of a CfD in any one year will be, since it depends on the relationship over that year between the agreed strike price and the varying ‘reference price’ it seeks to make up the difference between. If you deliberately depress the likely reference price having set a strike price in the first place by, for example, taking some of the increase in carbon floor price out of the equation, then inevitably existing providers will get more money from the ‘pot’ each year. There will then be less from the same pot each year for new entrants.

And worse, as you keep doing that year by year based on a pre-agreed static strike price against a varying reference price, then the margin for new entrants gets smaller and smaller each year.  So that the ability to plan anything new that needs a CfD at a certain time (and contracts specify ‘windows’ within which your CfDs must start, otherwise you lose them, except if you are a nuclear power station) eventually and inevitably, melts away entirely. And to be fair to DECC, who didn’t design the system in the first place, there is nothing you can do about it, once a fixed out turn figure has been set against an inherently variable cost base in the years running up to that agreed figure.

So in terms of planning for renewables to come on stream on the basis of a known underwriting, or as the FT puts it, the sum ‘set aside to subsidise UK renewable investment ‘ the LCF is a complete turkey and has been ever since CfD were invented. If, on the other hand, you don’t care whether much in the way of renewables gets built or that what is built is good value, and you just want to stop whatever it is at the point at which the money stops in 2020, then it looks a bit better.

Except, of course, that come the early 2020’s when new nuclear finally gets off the ground and decides to cash in the monumentally bloated CfD allocation achieved under the ‘investment instrument’ mechanism, the whole edifice will almost certainly come crashing down under the weight of its own contradictions. Which is why, I guess, no-one has attempted to sketch in what might be thought of as some necessary reassurance of what a levy control envelope might look like after 2020.

There, that didn’t need a research report to get straight now did it?

 

Why field solar might need Michael Gove

I know, it’s rooftop solar, but it is Michael Gove...

I know, it’s rooftop solar, but it is Michael Gove…

The solar trade world is rightly up in arms about the latest lurch in solar PV funding policy from DECC. This time it is set to tip field solar deployment off a cliff. Policy lurches are always a bad idea in the development of new forms of energy production, where the need to have a calm and measured forward regime for development, investment and deployment is central to the prospects of a technology gaining sustainable momentum. And solar in the UK has suffered more than most from a lack of such certainty but it has (just about) been possible to excuse changes in feed in tariff, or limits to eligibility as constituting a response to the escalating competitiveness of newer solar installations. However, this latest change in policy, on any reckoning, just looks plain daft.

Firstly, it rips up an assumed eligibility and timeline for medium sized PV to access Renewable Obligation support, and makes what must be a virtue of medium scale PV – namely that it can be deployed over a far faster time scale than many of its comparators – an assumed drawback of. All those people who started to bed down lines of investment, and development BECAUSE it now is investable and relatively quick in maturing must now, presumably turn their attention to less clear investment planning.

Secondly, the claimed plan of a transition from field solar to medium sized rooftops when existing funding for rooftop deployment has barely been touched doesn’t bear scrutiny for more than a few nano-seconds. Field solar stands or falls already by local planning decisions, and indeed, part of its development drive derives from the ability it offers local energy providers to proceed with community level generation, with planning and local reward working together. If you want to shoot community energy through the head, this is not a bad way to start, but more of that shortly. It is frankly not likely that community schemes will be able to easily source the roofs of ASDA distribution centres as an alternative to free standing schemes – this may be why medium size roof solar is not taking off.

Thirdly, I write at a time when there is a national debate emerging about what capacity we will need for electricity generation over the next few years.  Pulling the plug on nailed on capacity that can be deployed at speed, and not at some undefined, distant period in the future like much of the proposed capacity increases seem to pencilled in for, looks to be just plain perverse. We are, after all, (according to the DECC RO closure impact assessment) looking at likely forward new capacity of up to SIX GIGAWATTS by 2017. Even when we take account of differential capacity margins between solar and, say…gas, this amount of capacity represents the equivalent availability of at least a couple of gas fired power stations.

But of course, this decision/consultation is not about energy logic. It is (as the consultation document and the impact assessment makes clear) about the increasing probability that larger scale solar, and solar as a whole, is proving to be a success. This means it is now eminently capable of contributing far more to the nation’s capacity requirement than envisaged even a few years ago, and particularly at the time DECC signed up to the infamous, and I am afraid, soon to be unworkable, Levy Control Framework. Breaching the bounds of this framework, regardless of energy logic, is now to be the starting and finishing point for all renewable energy policy, it seems. Except, of course, that when the Levy Control Framework was agreed with the Treasury, it was done so on the basis that there should be a 20% ‘leeway’ for spending as the framework rolled forward. It now appears, this leeway is gone and that the tightest interpretation of the framework is the ‘central case’.

And in case there is any doubt about the centrality now of this new logic, we need look no further than the other consultation launched by DECC on the same day, on a very good scheme to raise the ceiling for the eligibility of community-based projects for FiTS from 5MW to 10MW. That is community wind, PV, hydro and anaerobic digestion.  Really welcome, one might think; medium size community schemes, now eligible for FITs. Much more user-friendly and likely to drive greater renewable deployment…

Ah sorry have to stop you there – look at the impact assessment for this consultation.

Here is, transposed in its entirety and with no editing by me, the content of the box on the impact assessment headed ‘what are the policy objectives and the intended effects?’

‘The objective is to increase deployment of 5-10mw community onshore wind, solar PV, hydro and anaerobic digestion. There is, however, no new funding available to support any additional net renewable electricity generation that might come forward between 2015 and 2020 as a result of the proposed policy change. Affordability will therefore be an important consideration before deciding whether or not we could proceed with implementing the proposal’.

And all this in a week when over in another department, a Secretary of State has just, with impunity, apparently switched £400 million from one budget heading to support the budget of his pet Free School project which, he explains, has to be treated this way because it is ‘demand led’.

Hmmmm…Michael Gove for Energy Secretary anyone?