Imperial College study makes case for targeted support for renewables

October 22nd, 2012 by WWF

(please click on the report cover to download it to your computer)

With the UK’s DECC and HM Treasury apparently divided over energy policy, a paper, ‘On picking winners: The need for targeted support for renewable energy’, published on 23 October 2012 and funded by WWF-UK, highlights the importance of targeting policies to promote emerging clean energy solutions and cautions against simplistic solutions to policy.

The report comes at a turbulent time in UK energy policy with three major investors having shelved their planned investments in UK offshore wind factories over the last six months alone citing “lack of political certainty” and “sapping market confidence”.

In February 2012, General Electric put on hold its decision to go ahead with its €110 million planned investment in a UK offshore manufacturing plant, citing the lack of clarity in the UK’s renewable energy policy.

In April 2012, Korean company Doosan Power Systems, which was planning the development of an offshore wind research and manufacturing arm in the UK that would have employed up to 1,700 people, cancelled its planned investment citing “sapping market confidence” in the UK’s offshore wind market.

In June 2012, Vestas, which was planning an offshore turbine factory in Sheerness that could have employed up to 2,000 people, also cancelled its plans.

Other major manufacturers, including Siemens, Alstom UK, and Mitsubishi Power Systems, with substantial investment plans in the UK, also recently threatened to quit Britain in the absence of the UK Government providing them with clear investment signals in the near future.

On picking winners: The need for targeted support for renewable energy’, written by Dr Rob Gross of Imperial College London, argues that ‘technology neutral’ energy policy is a long way off and urges the UK government to make sure that the Energy Bill targets support effectively at a range of renewable technologies.

The report notes that several commentators have argued that a single, economy-wide carbon price is the most effective way of addressing the climate change challenge. However, although carbon pricing has an important role to play, it is far from sufficient on its own to bring forward investment and accelerate cost reductions in emerging renewable technologies, or to avoid lock-in to high carbon infrastructure.

The report concludes that targeted financial support policies, such as feed-in tariffs and the Renewables Obligation, create certainty for renewable energy investors and play a critical role in accelerating the deployment of renewable energy technologies.

Dr Rob Gross, Director of the Imperial College Centre for Energy Policy and Technology, said “there is a notion, popular amongst some energy economists, that carbon pricing is the only policy we need in order to save the planet.”

“This is so simplistic it is absurd. Renewable energy in particular needs the policies that are investment grade. Only then will we get costs down and create a cleaner and more secure energy system,” he said.

“Investing in large-scale wind is not the same as investing in small-scale wind or solar and neither is it the same as investing in gas.”

“We need horses for courses in our energy policy. The UK government understands this but is often being urged to take a different approach in order to simplify energy policy.”

“I am all in favour of simplicity, but we must not lose sight of what drives investment, and what investors need. Targeted policies are essential. If the UK government relies too heavily on carbon pricing the result will simply be higher bills and higher carbon.”

The report highlights a number of limitations which could arise if carbon pricing was the only policy driver to support investment in renewables:

  • A carbon price will rarely be set at the level necessary to attract investment in newer clean technologies like renewables. Instead, it is more likely to drive investment from coal to gas.
  • A carbon price set high enough to drive investment in emerging technologies which cannot yet compete with established fossil fuel generation would risk a windfall for operators of existing low carbon plant and higher prices for consumers. Targeted financial support policies combined with a lower carbon price provides an effective way of providing certainty to renewable energy developers whilst driving investment away from high carbon technologies across all sectors.
  • At the global level, fossil fuels are more often subsidised than taxed, which also undermines carbon pricing. The effect of fossil fuel subsidies is therefore to create, in effect a ‘negative carbon price’. The International Energy Agency (IEA) estimates that global fossil fuel end-use subsidies were about $409 billion in 2010.
  • Carbon pricing does not do enough to overcome the non-financial barriers that hinder the deployment of emerging technologies such as compatibility with existing infrastructure, incumbent lobby interests and skill shortages. These barriers are better addressed through targeted policies that are designed to address the challenges facing specific technologies.

David Nussbaum, Chief Executive of WWF-UK said “Dr Gross’ report exposes the deep flaws in the argument that carbon pricing can do it all. Whilst the simplicity of this argument may sound appealing, in practice relying on carbon pricing alone is likely to lead to carbon-intensive gas plants continuing to dominate our energy mix – preventing newer and cleaner technologies from realising their potential and locking us in to a risky reliance on largely imported fossil fuels.”

The Committee on Climate Change provides advice to the UK government on how to meet its 2050 Climate Change Act commitments. This includes recommendations on future UK carbon budgets, the most recent of which was the 4th budget covering the mid 2020s and indicative targets for 2030.

The 4th Carbon Budget report included the recommendation that the UK power sector should be almost completely decarbonised by 2030 with average emissions intensity just under 50gCO2/kWh by that date. This is in contrast to approximately 500gCO2/kWh today.

“Without targeted and proportionate policies supporting our renewables industry, we will miss out on the opportunity rapidly to reduce the costs of emerging renewable technologies and on the promising economic growth opportunities that the sector has to offer the UK,” Mr. Nussbaum said.

“This would be a huge missed opportunity given the UK’s current industrial leadership in offshore wind and marine renewable technologies,” he said.

 

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