How green for how long?

A mixture of austerity and soaring energy bills is putting politicians under pressure to find savings. Nigel Hawkins wonders how committed the government is to maintaining renewable subsidies.

During the economic boom, the Conservative Party embraced green generation with a vengeance – it was the era of “hug a husky”. Indeed, many Conservative MPs actively endorsed such policies brought in by the previous Labour government.
The onset of the recession in 2008 has dramatically changed the energy landscape. Most recently, the Ed Miliband 20-month price freeze pledge has refocused political minds on ever-soaring energy bills – and the reasons why they seem to keep rising.
Against that background, what is the outlook for the success of the raft of green generation incentives provided by successive governments?
In recent years, green generation has been driven by onshore wind, although large wind turbines are becoming increasingly controversial in parts of rural England. Total onshore UK wind capacity now exceeds 6,300MWs.
Several major windfarms have been developed in Scotland by Scottish Power and SSE. The former’s Whitelee development is the largest in the UK, with 215 turbines providing 539MW of capacity. However, the output from most onshore wind plants remains disappointing, especially in England, where many turbines generate for below 30 per cent of the time. The average percentage in Scotland is higher.
Given the increasing antagonism towards onshore wind, especially from environmentalists, the government has been keen to promote offshore wind. The hope is that average offshore wind costs can fall from around £150/MWh currently to £100/MWh by 2020.
The economics of such plants are different from their onshore counterparts. Larger – and more robust – turbines are required and siting them on the ocean bed can be a complex business. Furthermore, power links to the shore and the mainland grid have to be built, while the task of maintenance is challenging in heavy seas.
For many years, the government has sought to kick-start the biomass sector, partly because of its ability to deal with various waste products that might otherwise need burial in landfill.
Some years ago, the high-profile Arbre project collapsed, but a few others have succeeded in raising the necessary finance and reaching the commissioning stage. They include a power station at Eye using chicken litter, and the straw-based plants at Ely and Sleaford.
The government’s biomass strategy received a major setback when RWE recently decided not to convert its Tilbury plant from coal-firing to biomass. By contrast, Drax Power has raised funds – partly through the Green Investment Bank – to convert some of the units at its eponymous plant, which will now be fuelled by imported wood.
In devising this strategy, Drax has committed itself to long supply lines, which could be disrupted, and to reliance on government renewable generation subsidies, which may not be sacrosanct.
While some progress has been made in harnessing wave-generated power, development has been slow. Furthermore, none of the various permutations of the Severn Barrage marine scheme seem likely to proceed for the foreseeable future.
Solar power has taken off in parts of the Mediterranean, notably in Spain, but it was fuelled by attractive subsidies, some of which have now been controversially withdrawn. Solar’s progress in the UK has stuttered. Nonetheless, many roofs now boast solar panels and, in time, solar power may become more established.
However, government policy on solar subsidies has been erratic, with embarrassing U-turns, which has deterred potential investors.
Advocates of fuel cell generation will also be dismayed by the slow progress of recent years. After all, they were used on the Apollo moon-landings back in 1969. Despite much effort, a workable, commercial fuel cell model has failed to emerge.
While pedants will continue to debate whether nuclear power is green – it does not produce carbon dioxide but it did give rise to the environmental nightmare of Chernobyl and, more recently, Fukushima – the UK recently announced significant progress in its quest to build Hinkley Point C.
An inflation-linked £92.50/MWh price has been agreed with EDF, which offers some prospect of nuclear new-build being delivered – the first since Sizewell B was commissioned in 1995.
More generally, it is unlikely that the base £110 billion electricity sector investment programme will be met by the early 2020s. Significantly, the green-tinged version of that bill is far costlier. To date, the lion’s share of renewable generation investment has been undertaken by the big six integrated supply companies, some of whom are struggling, notably RWE and Iberdrola, both of which may be reassessing their long-term UK commitment.
Outside the big six, disappointingly few sizeable projects have moved to commissioning.
Many have found the task of raising the necessary funds both difficult and dispiriting. They face scepticism from investors about future revenue streams, many of which will be subsidy-based – and inevitably subject to change.
Delays in building energy projects remain an inherent risk, magnified by the complexities of UK planning law. As such, the cost of capital, which reflects a wide range of potential risks, often becomes too high to justify financial closure for many projects that are in the pipeline – the biomass queue provides a telling example.
So, despite the sound and fury of political activity, the reality is that the UK may well miss some of its long-term green targets.
Various factors, including the recession, have held back the UK’s move towards renewable generation, whose aspirations were always well ahead of reality – and the long-term targets were, of course, agreed during the pre-recession glory days of a booming economy.
Nigel Hawkins (nigelhawkins1010@aol.com) is a director of Nigel Hawkins Associates, which undertakes investment and policy research