What now for renewable energy?

Over the summer we documented the policy changes of the UK government regarding renewable energy; the Renewable Obligation, Contract for Difference, the Feed-in Tariff, and pre-accreditation have all either been scrapped or reduced so vastly that is unlikely they will have any further positive effect on the industry.

Primarily this will mean a lack of clean renewable energy for the country plus an uphill battle to reach our decarbonisation targets in 2020. In addition there are several other ways in which these changes will affect the industry in particular and the country in general.

Investor confidence in the industry is now at an all time low after a major new survey ascertained that lending to key green projects was now being withheld. The survey run by EY and commissioned by Scottish Renewables confirmed that banks were now reluctant to finance renewable energy projects.

Senior Policy Manager for Scottish Renewables Michael Rieley said: “The UK Government’s decision to remove financial support for some onshore wind farms a year earlier than planned has had a clear and negative impact on the ability of developers to attract finance to their projects.

“Our members have already expressed concern that they were entering an investment hiatus and this survey of lenders would indicate their suspicions are well founded.

“With the decision to end support a year earlier than planned, around two gigawatts of onshore wind projects in Scotland have been put at risk. These are projects that could bring around £3 billion pounds of investment and provide enough generation to meet the equivalent electricity demand of 1.2 million Scottish homes.

“If we are to avoid losing the benefits of this scale of development in Scotland, the UK Government must allow those developers that have already made significant progress with their projects to continue them as part of the Renewable Obligation scheme.”

Matthew Yard, Assistant Director at EY, said: “The results of the survey indicate that raising project finance for UK onshore wind RO projects has become more complex, more expensive and increasingly difficult since the announcement of the early closure of the RO. Those banks that have indicated they are considering lending to UK onshore wind RO projects are now seeking better terms and some form of mitigation against a situation with no RO revenue.

“As we move closer to the RO accreditation end date, the ongoing uncertainty makes it harder for projects and sponsors to raise senior finance.”

WWF Scotland director Lang Banks added: “This survey provides further evidence that the UK Government’s energy plans are damaging investor confidence in the cheapest form of renewable technology.

“And, it’s not just investment and jobs that are at risk by their reckless policies, but our ability to cut carbon emissions. Even the Government’s own analysis shows that an early ending of support for onshore wind could drive up power sector emissions in the UK by up to 63 million tonnes.

“If the UK wants to be able to claim to be any kind of leader at the forthcoming UN climate talks, then it urgently needs to start setting out how it will meet its climate and renewables targets.”

In turn this will leave a number of companies within the industry with no option other than to shut down putting as many as 5,500 jobs at risk in Scotland alone.

Jenny Hogan, director of policy at Scottish Renewable said: “Scottish Renewables is deeply concerned that the UK Government’s recent announcements will have a disproportionate impact here, both on jobs and investment, as well as our ability to meet our climate change target,” Hogan said.

“Is the industry safe and secure? I think the short answer is no. The reason why we believe that is because of the way this is being done. To completely take the support scheme away so quickly is avoiding the chance for the industry to continue on its trajectory of reducing costs. This is really just pulling the rug from under the industry’s feet.

“On a regular basis our members and other companies are telling us that they are having to make redundancies, some are even at risk of shutting up shop altogether.”

A DECC spokesperson said: “We are still on track to deliver at least 30% of our electricity from renewable sources by 2020. Government support has driven down the cost of renewable energy significantly and, as costs continue to fall and we move towards sustainable electricity investment, it becomes easier for parts of the renewables industry to survive without subsidies.

“Our priority is to get the best deal for hardworking bill payers and our policies aim to keep energy bills as low as possible.”

However the government has since admitted that abandonment of the subsidy support could add as much as 63 million tonnes of CO2 in emissions and save just 30p on consumers’ annual electricity bill.

An impact assessment from the DECC, published as part of a package of documents for the new Energy Bill, show that lifetime CO2 emissions could be up to 63MtCO2e higher than they would otherwise have been, the estimated total lost benefit to communities will be around £1m a year, and there will be around a £0.30 (0.05%) reduction on the average annual household electricity bill.

Senior Policy Manager at Scottish Renewables Michael Rieley said: “We have consistently argued that this policy can only hinder the UK’s efforts to meet binding climate change targets, and the government has now admitted their decision could increase the UK’s carbon emissions by 63 million tonnes.

“The decision to close support for onshore wind has caused a ripple effect of uncertainty throughout the renewables industry, removes one million pounds a year from local communities and may only end up saving 30 pence on the annual household electricity bill.

“What we need now is for the UK Government to set out fair and reasonable grace periods as soon as possible for those projects that will fall out with the scope of this decision.”

Dr Richard Dixon, Director of Friends of the Earth Scotland, added: “These figures show that the UK Government’s ideological crusade against wind farms will increase carbon emissions by considerably more than Scotland’s annual total emissions and cost communities a million pounds in lost payments, all to cut just 30p off consumers’ bills. It is hard to see how the UK will avoid the dunce’s corner at the UN climate conference in Paris in December.”

Finally, according to the Renewable Energy Association, removing the Feed-in Tariff could result in a net loss to the Treasury compared to the proposed budget for the scheme over the next three years.

They conclude that if the proposed cuts result in the loss of 15,000 jobs then the net loss to the Treasury would be £94m which is approximately the same as the budget cap for the project. They added that this does not include loss of business rates for local councils and VAT and corporation tax income to the Treasury.

James Court, REA head of policy & external affairs said: “The 15,000 job loss assumption is conservative given the projected 25,000 job losses expected by some in the sector.”

They also stated that they agree with the government that the UK solar industry should be able to continue without subsidy in the long term however are concerned that support is needed in the short term.

Mr. Court added: “The REA is disappointed however that after a decade of government support leading to dramatic technological improvement and cost reduction, the solar industry is now in danger of being tripped at the last hurdle when it is so close to standing independently.

“The government’s sudden reversal of support for solar and other emerging renewables technologies ignores the substantial benefits that a healthy renewables industry provide to UK employment and the public purse.”

The fallout from the government’s policy changes on renewable energy will be felt for years to come. So much so that it would not surprise us if at some point in the future, when we are so far behind on our decarbonisation targets, and the price of gas imports so high that we return to subsidise renewable energy.

However by then we will be so far behind it will take several more years to make up the lost ground, bring our carbon output down to safe levels and create a secure clean energy future for all.  The decision to switch off renewable energy now makes no environmental or economical sense, it is purely political and has no bearing on public opinion.

Over the next few weeks we expect a raft of challenges to these policy changes from the industry and other organisations. Whether they have any success will remain to be seen however it is our hope that this will help strengthen pro-renewable public opinion giving the government an opportunity to see the bigger picture and reverse their decisions.

 

Feed-in Tariff Pre-accreditation

As part of the UK government’s continued policy overhaul on renewable energy it was announced last week by the Department of Energy and Climate Change (DECC) that pre-accreditation would be removed from the feed-in tariff.

Pre-accreditation allows developers to lock in the tariff for wind and solar projects above 50kW and all hydro and anaerobic digestion projects once they secure a grid connection and planning permission.

In 2012, two years after the launch of the Feed-in Tariff, it was announced that the digression would start as a result of that year’s consultation on the tariff. However to assure investors that the income per unit for the project would remain stable during the often long development phase they could pre-accredit a project if they had the necessary components of planning permission and a grid connection.

Last week however it was announced on the back of a four week consultation into removing pre-accreditation that it would be scrapped essentially removing the capability of guaranteeing a project tariff. The response document (which can be read in full here) stated that abolishing tariff guarantees is “of critical importance” in ensuring the overall value for money of the policy and “limiting the impact of rising policy costs on consumer bills.”

Energy and Climate Change Secretary Amber Rudd said the changes would keep bills “as low as possible for hardworking families and businesses while reducing our emissions in the most cost-effective way.”

“Our support has already driven down the cost of renewable energy significantly,” she added. “As costs continue to fall it becomes easier for parts of the renewables industry to survive without subsidies, which is why we’re taking action to protect consumers, whilst also protecting existing investment.”

Pre-accreditation is especially important to community and corporate projects. As the ability to lock in tariff would be removed developers would be reluctant to enter development phases due to the risk of the final tariff not being enough to cover capital costs.

The proposal to end pre-accreditation was initially put forward in July with a consultation period that followed. Shortly after a wider range review of the entire tariff was announced proposing deep cuts to the levels of support for medium sized renewable energy projects from 2016 in a bid to reduce the overall government spending on the projects over the next two years.

The DECC has stated that if can achieve its reduction targets it will consider reinstating pre-accreditation for at least some of the technologies. They have said that this may provide long term investor confidence in the long term however also acknowledging that it would create “considerable uncertainty in the short term.”

It is thought that the government wishes to lessen the amount of t#new medium scale renewable energy projects as it is feared the Levy Control Framework (LCF) clean energy subsidy budget may overshoot its target by £1.5 billion by 2020 and the Feed-in Tariff spending alone could double from £1 billion to £2 billion by 2020.

Over the four week consultation period the DECC confirmed they received nearly 2,400 responses with only 16 backing the removal of pre-accreditation. Of those who opposed the changes, many warned that it would undermine investor confidence and that DECC had failed to provide enough evidence to back up its claims of tariff overspending as detailed above.

The government were also criticised for not producing an impact assessment alongside its proposal and for the relatively short consultation period which was claimed to be unfair as it did not comply with Whitehall best practices. However the government counter argued that it had provided adequate information in its proposals.

Already there have been calls from the industry for the consultation period to be extended by twelve weeks. Also trade bodies RenewableUK and the Renewable Energy Association sent a joint letter to DECC complaining that the consultation lacked an accompanying impact assessment, which made it impossible for respondents to answer the consultation questions appropriately.

On the back of this as well as the other renewable energy subsidy cuts announced this summer a coalition of British investors have written to Chancellor George Osborne, urging him to increase support for the UK’s renewable industry.

The letter co-ordinated by the UK Sustainable Investment and Finance Association (UKSIF) and signed by thirteen investors highlights concern over recent policy changes affecting the renewables sector, including aggressive cuts to solar and onshore wind subsidies.

Focussing on the benefits renewable energy brings to the UK the letter asks for a stable policy framework to help create a low risk environment for investment. Also it argues that several of the recent policy changes have a retrospective aspect that risks ongoing energy investment in the UK.

“As long-term investors, we believe the government needs to set out clearly how it intends to continue down the path of decarbonisation,” the letter says. “We urge you to introduce measures that bring greater security to the UK energy network and increase clarity and consistency to boost investor confidence in the future.”

With the Paris climate summit upcoming later this year and the likelihood of new decarbonisation targets the letter argues that a low risk environment is crucial in enabling the UK to reduce its carbon output whilst keeping development costs low.

UKSIF chief executive Simon Howard said “The UK already has its own commitments under the Climate Change Act and it is very likely there will be agreement on a new package of measures to tackle climate change in December.”

“In meeting those commitments the government will need to rely on the private sector to finance low-carbon energy infrastructure. These changes will highlight the short-term nature of the policy regime and will do nothing to install confidence towards future investment.”

This letter is one of several that have reached the government this year regarding their environmental policy changes. The National Trust and RSPB were amongst a number of environmental groups that expressed major concern over government plans to abandon key policies in July and the following month more than two hundred companies and bodies called on the government to reconsider its decision the cancel the long in planning zero carbon homes standards.

Later that month Scottish and Welsh ministers jointly wrote to the government to warn that discarding the Feed-in Tariff pre-accreditation would threaten the future of community based energy schemes.

The impact on such schemes was also highlighted by those within the industry as well. Howard Johns, author of Energy Revolution and former managing director of Southern Solar, said the proposals would do “irreparable damage” to Britain’s rapidly expanding renewable energy industry.

“In particular, many groups of hard working people striving with their neighbours and friends to develop and build local renewable energy systems will be stopped in their tracks at the eleventh hour by these careless proposals,” he said.

Emma Bridge, chief executive of Community Energy England, said the plans could undermine the government’s community energy strategy launched in January.

“Government must retain workable incentives that support the community energy sector,” she said.

The policy changes announced by the government over the summer have all but halted the growth of the most advanced and least expensive methods of renewable energy generation in the UK, solar and onshore wind. With decarbonisation targets to be met along with a new raft expected to be announced at Paris it is hoped that our government has a contingency plan in order for us to achieve these.

However at present we are not aware of any. Plans for carbon capture plants look too far behind the curve to  make a significant impact in time and the proposed Hinckley C nuclear plant has again been subjected to delays with developer EDF now hinting that it may not go ahead at all unless a new pricing plan can be agreed. The current subsidy proposed for Hinckley C is double that which wind and solar used to receive.

This will mean our reliance on imported fossil fuels will continue to grow. As well as doing nothing for our decarbonisation targets it places our energy future in unstable foreign markets. It is our government’s responsibility to create a safe and secure energy future for its civilians. At present ours seem to be doing the complete opposite.

 

Central Heating Districts in Scotland

A new report by Scottish Enterprise has found that central heating districts throughout Scotland offer major commercial benefits to the local business communities.

At present Scotland has 9,886 properties connected to district heating projects which provide heat from a single source via an insulated pipe network. By 2020 the Scottish Government has set a target of 40,000 properties receiving its heat via this method highlighting major opportunities for local businesses including civil works on roads and buildings, internal infrastructure work, and developing the required technology.

The commercial benefits add to the environmental and financial gains district heating can bring as entire systems can be based on renewable energy technology including biomass boilers.

Scottish Renewables policy manager Stephanie Clark said: “Scotland’s ambitious climate targets mean we must drastically reduce the amount of carbon emitted by our society. District heating schemes offer an opportunity to do that, and also to reduce energy bills – particularly relevant when more than one in three Scottish households are living in fuel poverty.”

The Glasgow Commonwealth Games Athlete’s village, since remodelled into a combination of social and affordable housing is one of several new build residential projects to implement the idea. Other projects currently in productions or soon to commence include some of Scotland’s most prominent universities Glasgow, Strathclyde, Glasgow Caledonian, and St. Andrews and well as many of the country’s housing associations.

Ms Clark added: “Glasgow already leads the way in district heating, with schemes at the Commonwealth Games Athletes’ Village and several housing developments, as well as projects underway at the city’s universities.

“That experience means the city, and the wider Scottish heat sector, could benefit from the work that must be done in the next five years if we are to hit our district heating target.”

As many of the current heat networks are based on gas heat and power Ms Clark reiterated the importance the basing all future districts on renewable energy.

“As heating accounts for 55 per cent of our energy demand, we really need to move to renewable and to low-carbon sources of heat to achieve our heat target, which is 11 per cent. The more district heating projects that come further that are renewably sourced the better.”

For example a new housing project in Banchory, Aberdeenshire is hoping to power a district heating network via a biomass boiler or if possible, a geo-thermal source.

The Scottish Enterprise report confirms that 103 new projects are currently in the planning stage and will require 190km of heat network piping at a potential cost of between £85m and £190m.

The report acknowledges that the district heating schemes do involve a “high initial capital expenditure” however also states that this will be offset by “secure and stable long-term profitable operations for multiple decades.”

In related news a new study published by the UK Green Building Council (UK-GBC) and the UCL Energy Institute at University College London has stated that energy efficient homes could increase in value if banks, building societies and other mortgage providers used more accurate estimates of household energy bills in the affordability checks which underpin their mortgage calculations.

The study called “The role of energy bill modelling in mortgage affordability calculations” found that mortgage lenders could significantly improve upon the current estimated energy costs used in their affordability calculations if they switched and used readily available data including the Energy Performance Certificate (EPC) rating of the property.

The report claims that lenders current approach for estimating energy costs could be out be out by as much as £45,000 over the duration of a twenty five year mortgage for a modern efficient household. The difference for a typical Victorian property was found to be approximately £11,500.

However the report showed that if lenders made a more detailed assessment that accounted for key property characteristics the estimates would be much more accurate. In turn this would reduce lender’s risk as they would be better at tailoring their lending to reflect the true cost of living in the property. Also as more efficient properties would be able to attract more mortgage finance the value of these would increase relatively compared to those less efficient.

Richard Griffiths, Senior Policy Advisor at UK-GBC, who co-authored the study, said: “Government wants lenders to be more responsible, yet this work shows that they are currently failing to account for the likely energy costs faced by would-be borrowers. As a result lenders are potentially lending more money than buyers of inefficient properties can truly afford, and vice-versa for efficient properties.

“If banks took some quite straightforward steps to address this – by including data on properties’ energy efficiency and making more accurate estimates of their likely energy bills – they would reduce the risks associated with their lending, while helping to create the conditions that would see energy efficient properties rise in value compared to their inefficient counterparts.

“One important consequence of that is that would-be purchasers would be incentivised to buy efficient properties, and existing homeowners would see the value of their homes increase if they took steps to retrofit them. In the context of Government having recently cut support for the Green Deal in the face of low demand, this could be an important development for the industry and policy-makers.”

Ian Hamilton, Lecturer and Senior Researcher at UCL Energy Institute, who also co-authored the report, added: “Having high-quality data on housing energy performance is incredibly valuable. This research illustrates how energy performance information can be used to inform very important purchasing and lending decisions for businesses and households.

“Providing evidence that can be used by Government, industry and households to make decisions on their energy use is essential to bring about a more sustainable demand for energy.”

The implementation of the central heating districts is a positive step in reaching our carbon output reduction targets. With heat accounting for 55% of our total energy use modern efficient technologies will aid us in reducing our carbon emissions. However with the inevitable stagnation of the wind and solar industries we must continue to do more to ensure the energy used to supply these projects comes from renewable sources. The technology of the central heating districts is useful but without a clean renewable energy source the difference they will make to our carbon output is negligible.

The UK Feed-in-Tariff

Last week the UK government announced it was to reduce the Feed-in-Tariff subsidy as part of a comprehensive review of the scheme which has been in operation in the UK since 2010 and covers small and medium scale renewable energy projects.

These reductions will see at least a 60% cut from wind power and up to 86% for solar. The cuts could also bring an end to Scotland’s hydro-sector and will potentially close the scheme to all new projects from 2016.

Joss Blamire, Senior Policy Manager at Scottish Renewables, which represents more than 300 green energy businesses, said: “The proposals in the Comprehensive Feed-in Tariff Review are, quite simply, terrible news for homeowners, businesses, communities and those local authorities which have plans in place to develop renewable energy schemes.

“The levels of reduction in support announced today will severely curtail development of small-scale onshore wind and solar projects and endanger jobs and investments across the country.

“The cuts could also spell the end for much of the hydro industry, which has enjoyed a recent renaissance but relies more heavily on Government support because of the length of time taken to develop projects and the sector’s high capital costs.

“Support for small-scale renewable energy has enabled the public to share in the recent success of the green energy industry, saving on their energy bills and doing their bit to mitigate carbon emissions from our power sector.

“FiT-scale renewables have allowed both rural and urban businesses to grow by taking control of their own energy use and insulating them from the volatile, uncertain costs of imported fossil fuels. Reducing that support so far, and so quickly, could be hugely damaging.”

Juliet Davenport, chief executive of Good Energy, one of the largest feed-in-tariff administrators in the country said: “The proposed cuts mean that installing solar panels at home will no longer be attractive to British families.”

“The Feed in Tariff has transformed the way the UK generates its power over the last 3 years, with over 22% of the UK’s power coming from renewables in the early part of 2015, and over 700,000 homes generating their own power. It’s helped to take us away from the old-fashioned fossil fuel companies to a cleaner, local, more democratic system.”

“We hope the Government will re-think the value that renewables bring to the market, if you do the calculations you’ll see that solar actually brings down wholesale prices of energy. China and Germany are leading the way in investing in renewables, and we hope that the recent announcements by Government don’t see the UK fall behind again.”

“It’s also going to put the brakes on innovation in the battery storage market, a game-changing technology which would enable households to store their own electricity.”

The proposals from the UK government reduce support across the industry and set a cap on the amount of projects that can benefit from it each year. However these limits will be hard to judge in advance increasing the risk that funding may not be achieved and in turn making investors wary of getting involved.

RenewableUK for example is warning that complex rules would in the long term scare away many of the people who could most benefit from this scheme, and in the short term create market chaos.

Also the wind power market is mainly supplied by UK turbine manufacturers who also export to Europe and beyond. For each turbine sold in the UK, one is sold abroad. A strong domestic market is vital for these manufacturers however a reduction in this market will hurt UK   manufacturing and encourage relocation overseas.

RenewableUK’s Deputy Chief Executive, Maf Smith, said: “It’s important that we all work to manage costs, but it looks as if the long term vision has been lost.

“The small and medium wind sectors are at one with Government in their desire to cut carbon at lowest cost to the consumer. But they can’t do this when Government makes sudden and damaging changes which undermine investment.

“What we needed in this Review was a clear vision for how we get to a point where cost effective, small-scale renewables are common-place, with all homes and businesses able to be part of a productive, vibrant low carbon economy. This Review is not about how we build that prosperous future but simply about short term politics and accounting.”

RenewableUK is also expressing concern about the speed at which Government is making these changes. Maf Smith continued: “We’re also concerned about the timing of this review. Only last month Government consulted on ending pre-accreditation.

“Now they are consulting on reducing tariff rates, and capping deployment. But such significant changes can’t be introduced within the proposed January 2016 deadline without hurting many businesses and individuals who have been investing in new projects. The next four months will turn the British energy market into a wild-west market with energy consumers stuck in the middle.”

Over the past five years the UK Feed-in-Tariff has help developed numerous instillations throughout the UKbringing much needed revenue to a struggling farm industry as well as benefitting the local communities via additional contributions.  It has brought investment into the country in general and the renewable energy industry in particular, creating jobs and aiding in the development of new more efficient technology.

And over those five years as the technology has progressed, the tariff has reduced accordingly. Up until now the system has worked well and if it was to carry on in a similar pattern would continue to do so. The industry would have remained on track to go subsidy free whilst benefitting both the local and national economies.

Although the announcement from the government is not surprising it is still disappointing.  The UK has legally binding carbon emission reductions to be met by 2020 and currently we are not on target to do so. However it is about more than just meeting targets. It is about creating a safe clean environment to live in and an efficient secure energy future for all. Our hope is that future governments will see the value in all forms of renewable energy and make its growth and sustainability a priority.