Briefing. Electricity Market Reform

Transcription

1 Updated April 2012 Briefing Electricity Market Reform The Government s aspirations for Electricity Market Reform decarbonisation, security and affordability are sound. But the policies proposed in the July 2011 White Paper and subsequent updates are unlikely to deliver these outcomes. Friends of the Earth has five key questions: 1. Will EMR cut carbon fast enough and far enough and in an affordable way? 2. Will EMR back the technologies and British businesses of today and tomorrow? 3. Will EMR say goodbye to the energy technologies of the past? 4. Will EMR demand less, not more? 5. Will EMR open up the market - and boost localism? Friends of the Earth makes life better for people by inspiring solutions to environmental problems. We are: the UK s most influential national environmental campaigning organisation the world s most extensive environmental network, with around 2 million supporters across five continents and more than 76 national organisations worldwide a unique network of campaigning local groups, working in more than 220 communities throughout England, Wales and Northern Ireland dependent on individuals for over 90 per cent of our income To join or make a donation call us on Friends of the Earth, Underwood Street. London N1 7JQ Tel: Fax: Web: Friends of the Earth Limited company number , Trust company number , registered charity number

2 Changing the rules on generation for a generation Britain s energy system is broken. Dominated by just six vertically-integrated companies, who have left us perilously reliant on fossil fuels to generate electricity and heat our homes while achieving record profit levels, it has left up to a quarter of households in fuel poverty, i and power stations alone are responsible for 27% of our greenhouse gas emissions. ii Next year the Government will legislate for its Electricity Market Reform or EMR, designed to bring forward over 100 billion of investment in power infrastructure by Described by Ministers as a once-in-a-generation opportunity to change the rules of Great Britain s electricity system, the Government has set out three goals: decarbonising our power, ensuring security of supply and maintaining affordability for consumers. The stakes are high: the Government s independent advisors, the Committee on Climate Change have said that early decarbonisation of the power sector is essential to meeting the UK s carbon budgets; the UK is increasingly dependent on imports of fossil fuels, subject to extreme price volatility; and, following price hikes from the Big Six suppliers of up to 200 on a dual fuel bill this summer, energy costs are at the top of the political agenda. Friends of the Earth are deeply concerned that the draft EMR proposals set out in the July 2011 White Paper will fall far short of meeting the Government s lofty and welcome ambitions. We believe that the Government s reforms must not simply entrench a highlycentralised electricity system, dominated by a handful of companies keen to keep us dependent on excessive energy consumption, and with plans to build a new generation of dirty fossil fuel power stations but instead meet the stated goals of low carbon, secure, and affordable energy. Below we set out five key questions that must be answered on EMR, if the Government is to meet its ambitions. Friends of the Earth s questions for the Government: 1. Will EMR cut carbon fast enough and far enough and in an affordable way? The Committee on Climate Change (CCC), has said that the power sector needs to decarbonise substantially if the UK is to stay within its carbon budget. The CCC says this means that the electricity system should produce no more than 50g of carbon dioxide for every kilowatt-hour of power by iii Ministers have been deliberately fudging this issue, talking about largely decarbonising the power sector during the 2030s. This could mean a higher target, achieved a lot later. The Chancellor George Osborne announced at last year s Conservative Party conference that he did not want the UK to decarbonise any faster than the rest of the EU, citing the costs for businesses and consumers of doing so. However, reports from both DECC and the CCC show that the combination of investment in low-carbon generation and energy efficiency will lead to lower bills for consumers than would otherwise be the case, if we continue on present trends. In addition, there is limited data to support the contention that the UK faces significant carbon leakage from energy-intensive industries moving overseas. Our briefing at 2

3 discusses this issue in much greater detail. Having signed up to the CCC s fourth carbon budget after a significant disagreement within the Cabinet, Friends of the Earth believes that the Government should now properly commit to 50g CO2 /kwh by To support this, the National Grid should be mandated to set its delivery plans in line with carbon budgets, and the CCC must be given a formal role to advise ministers on whether they do so. 2. Will EMR back the technologies and British businesses of today and tomorrow? Britain has one of the richest sources of renewable energy in the world. Tapping less than a third of the useable offshore wind, wave and tidal resource could cover all our electricity needs allowing us to sell the excess to other countries iv while solar PV alone could meet 30 per cent of our electricity needs. v The renewable energy sector can also generate thousands of jobs 66,000 by 2020, just from offshore wind. vi We re also a world leader in wave and tidal energy companies. To get all these benefits, EMR must create the conditions for massive investment in renewable energy. Yet the recent signals for investors have been highly confusing. The Renewables Obligation banding review consultation, announced on 20 October 2011, was positive news for the emerging technologies of wave and tidal stream, with a proposed increase in the levels of support. It was moderate news for offshore wind with confirmation of existing rates in the immediate term, followed by dropping levels of support. However, the consultation was bad news for the cheap, effective technology of onshore wind, with cuts to support making smaller schemes unviable, and for the fastdeveloping technologies of solar and geothermal, which will receive too little support to push them rapidly down the cost curve. The fast-track reviews of the existing Feed-in Tariff for smaller (sub-5mw) solar PV schemes in 2011, proved damaging for renewables investment certainty in general and for community scale renewables in particular. Friends of the Earth believes that the Government is right to create incentives in the form of feed-in tariffs suited to renewable energy, to deliver transitional support for these emerging technologies. But its proposals for a CfD FIT are overly complex and will discourage new investors and new renewables businesses, as well as different types of business models, such as cooperatives, local authorities and social enterprises, which have proved popular under the feed-in tariff for small-scale renewables. The Government should model its approach on the proven German model of fixed feed-in tariffs, which guarantees a buyer for all renewable energy generated, at a fixed price. It should also set out minimum deployment targets for on- and offshore wind, wave, tidal, solar PV, geothermal, biomass and other technologies for the long term beyond Will EMR say goodbye to the energy technologies of the past? The EMR plans set out in July s White Paper look like a recipe for reliance on old, outdated technologies that have had their day: nuclear and fossil fuels. Nuclear power, 3

4 subsidised for half a century, is on course for more and never-ending public cash. At the same time, post-fukushima, countries like Germany are abandoning their nuclear programmes in favour of a 100 per cent renewable future. vii And they re reaping the reward for their investment in renewable energy to date. Renewables already supply nearly 21% of German power (compared with just 7.9% in the UK) and Deutsche Bank report that this has led to lower wholesale energy prices. viii Meanwhile, the gas industry is trying to position itself as the answer to climate change rather than one of the problems. ix Ending our reliance on this dirty fuel and the volatile price spikes it is prone to is essential to cut carbon and stabilise energy bills. The charts below, from the Parliamentary Office of Science and Technology x, shows how lifetime emissions from gas (even with Carbon Capture and Storage, CCS) are much higher than those from renewable energy and far above the 50g CO2 / kwh target. NB: the different scales on the two charts: every form of low-carbon electricity has a carbon footprint significantly lower than even the lowest estimates for fossil fuels. While long term dependence on unabated gas will ensure we miss our decarbonisation targets and could heighten consumers exposure to price volatility, we do need to guarantee some investment in gas in the short-term to keep the lights on. However, as Parliament s Committee on Energy and Climate Change has noted, there is sufficient new plant already coming through the system to fill the 19 GW gap created by planned plant closures before xi The Government s recent announcement that new gas-fired power stations built before 2015 will be able to emit 450g CO2 / kwh until 2045 places our carbon budgets at significant risk, and places a dangerous burden on incentive mechanisms (rather than regulatory ones) to deliver low-carbon generation. The Committee on Climate Change s recent letter to the Secretary of State for Energy and Climate Change confirms that there is a risk that a greater role for gas-fired generation would be allowed under the announced EPS, and would ensue if there were limited investment in low-carbon generation. For example, if the 30 GW of gas-fired capacity were to generate as baseload plant in 2030, this would raise average emissions to 200 gco2/kwh (i.e. beyond the limits implied by carbon budgets). xii 4

5 Friends of the Earth believes that the Government should keep nuclear out of the proposed feed-in tariff for energy production, and adopt a much tougher Emissions Performance Standard to rule out unabated gas in the 2020s. This would prevent a new dash-for-gas, and stop us locking our energy system in to dirty gas. It is crucial that there is long term visibility of the decreasing level of the EPS for investment certainty, so the Government should set out now how it intends the EPS level to reduce over time, to be consistent with grid average emissions of 50g CO2 / kwh in 2030, rather than pushing the decision into future reviews. 4. Will EMR demand less, not more? The cheapest way to cut carbon and keep the lights on, is simply to use less electricity in the first place. This means ensuring homes, offices and appliances are extremely energy efficient, as well as using smart technologies to smooth peaks in demand. The Government s Green Deal promises to insulate homes, but it will do little to reduce electricity demand (and even on heating it will do too little to help people in fuel poverty or to improve hard-to-treat homes). xiii Friends of the Earth believes that the Government needs to ensure that EMR puts reducing electricity demand on a par with generating more power. It should set an overall demand reduction target, explore feed-in tariffs for cutting energy use, and create the framework needed for smart technologies to shift demand, including through the participation of the demand side in the capacity mechanism. xiv 5. Will EMR open up the market - and boost localism? Just six companies supply 99% domestic energy in Britain. xv They are vertically integrated companies, meaning that they both generate power and sell it on to consumers. Their dominance in the market creates suspicion from consumers and creates a barrier for new businesses trying to enter the market, and creates a lobbying climate which downplays the role of demand reduction and decentralised energy. Between them they have plans for major investments in new nuclear power and fossil fuels. And even though they are big multi-national businesses, it is unlikely that they alone can fund the investment needed in a low-carbon future. Parliament s Select Committee on Energy and Climate Change has recommended that the Government must use the opportunity of EMR to break the stranglehold of the Big Six. xvi Meanwhile, our centralised energy system wastes energy through unused heat from power stations and losses in transmission. Generating power in the communities where it is needed can be more efficient. If it is owned by, or for the benefit of, those communities, it can deliver social and financial returns for them too, helping councils or community groups to fund essential services and warmer homes. The EMR White Paper makes little mention of community energy and outlines even less policy to support the sector. Additionally, EMR is set to only apply to above 5MW installations, on the basis that the feed-in tariff for small scale will cover below 5MW. However, this year s reviews are increasingly restricting the scheme to the domestic sector, leaving a gap in support for community-scale and decentralised or local schemes. 5

6 Following the reviews of feed-in tariffs for small renewable energy installations, the sector is in disarray. xvii Friends of the Earth believes that the Government must have the courage to go beyond Ofgem s limited proposals, xviii to open up the electricity wholesale market and actively encourage new players, including decentralised energy, generated, used and owned by householders, local businesses, community groups, housing associations and councils. A fixed feed-in tariff for all scales of generation would allow this to happen. i ii iii Committee on Climate Change (2010) The Fourth Carbon Budget - Reducing emissions through the 2020s iv The Offshore Valuation Group (2010) The Offshore Valuation: A valuation of the UK s offshore renewable energy resource v Based on utilising the entirety of the UK s practical solar resource, compared with projected electricity demand for 2030, in Committee on Climate Change (2011) The Renewable Energy Review vi Carbon Trust (2011) New Carbon Trust research confirms role of offshore wind in delivering UK's Green Growth vii See and viii ix x Parliamentary Office of Science and Technology (2011) Postnote update Number 383: Carbon footprint of electricity generation xi Energy and Climate Change Select Committee (2011) Energy and Climate Change - Eighth Report: The UK s Energy Supply: Security or Independence? xii xiii See xiv D3 Group (2011) Electricity Market Reform Consultation Response xv xvi Energy and Climate Change Select Committee (2011) Energy and Climate Change - Fourth Report: Electricity Market Reform xvii xviii 6