Why is renewable energy use penalised?

The Government wants 10% of electricity to come from renewable sources by 2010. But any business that installs a renewable-energy system on its property faces increased rates. The British Retail Consoritum asks why

As industry ponders the future of Britain's energy supply, political pressure is mounting on the Government from a range of disparate voices. The environmental lobby wants clean and green energy. The private sector is concerned by both rising costs and fears about security of supply, while voters (hit by soaring gas and electricity bills) simply want an energy bill they can afford.

It is against this tense background that the DTI is conducting the major energy review currently under way. Clearly, the nuclear option looms large (an option explored on page 16), but the scale of a nuclear build needed to meet Britain's energy demand may remain an unpalatable political decision for this current Government. But we shall have to wait and see.

In the build-up to Kyoto, and following its implementation last year, the Government has worked hard to secure creditability globally with its commitment to climate change. Only a few months post-Kyoto, Tony Blair lectured his G8 colleagues on the threat of climate change at Gleneagles, calling it "probably, long-term, the single most important issue we face as a global community".

Thus, in recent years, we have seen a range of policy drivers designed to cut carbon dioxide emissions in the property market. These have included regulatory spurs, such as the Energy Performance of Buildings Directive, and changes to the Building Regulations, and incentives via a range of grants and reliefs (for example the Clear Skies programme and business rates relief for good-quality combined heat and power plant).

For the moment, at least, the Government continues to maintain its support for renewable energy and is publicly committing to generating 10% of the UK's electricity supply from renewable energy sources by 2010. Clearly we are still some way off meeting this goal - at present, less than 3% of the UK's electricity supply comes from renewable sources. In order to meet the 10% target, the UK will need to install approximately 10,000MWe of renewable capacity by 2010, an annual build rate of more than 1,250MWe.

Small scale
Until recently, the Government has focused on the potential for large-scale renewable systems - but this is set to change. Small-scale renewable systems have now been developed which can be installed on just about any structure and most locations - including the high street.

Voices within government have recognised the potential for business to drive up the UK's generating capacity from renewable sources and have identified the planning system as one of the best mechanisms. With this end in mind, the Office of the Deputy Prime Minister (ODPM) published a new planning guidance document on renewable energy at the end of 2004 called Planning Policy Statement 22 (PPS22): Renewable Energy.

Although this document is barely 18 months old, there is already talk in some Government circles about whether to begin work revising and presumably extending PPS22. And the ODPM and the DTI have been engaged in an interesting series of exchanges about whether or not there would be a redraft.
A growing number of local authorities are beginning to flex their new planning powers to implement the Government's 10% target. And we are increasingly beginning to see individual wind turbines and solar photovoltaics (PV) appearing in the most unlikely of places - standing alongside a supermarket, a DIY retailer or attached to a petrol station forecourt.

The Mayor of London has taken this further with the introduction of legislation that means all major developments in the Greater London Authority area should generate at least 10% of the site's energy needs from on-site renewable energy. No doubt, as new development schemes designed under this new regime begin to come online, we will witness an explosion of micro-renewables across the Capital.

Despite all these laudable attempts to promote the growth of the fledgling renewables market, the Government is in danger of undermining all its good intentions by penalising private-sector investment in renewable energy. It is a little-known fact that an anomaly in the system of business rates means that any business that installs a small-scale renewable energy system on its property - be it a 30kW wind turbine or a small panel of PV - faces a supplementary increase in their business rates levy. The Valuation Office Agency (VOA), which administers the business rates regime on behalf of the ODPM, fails to make a distinction between fossil fuel burning plant and machinery and renewable plant.

Accordingly, an incongruous situation has emerged where retailers who look to reduce their carbon emissions by investing in renewables are penalised with increased rates liability.

Clearly this small branch of Government has not kept up with the rest of Whitehall thinking on renewable energy and climate change. And, given the already high start-up costs associated with renewable technologies, many leaders in the retail community have voiced the opinion that this practice is a deterrent from taking up these important technologies.

This point is also picked up in Ernst & Young's global renewable energy market report. Although the most recent edition ranks the UK as one of the two most attractive countries in the world for investment in renewable technologies, the UK's position is downgraded for the first time because of the Government's business rates regime.

Iniquitous practice
The retail sector and others in the business community feel they have the potential to go some way in helping the Government meet its ambitious target of generating 10% of the UK's electricity from renewable energy by 2010. However, at the present time it is still more cost effective for retailers to source their energy needs from the national grid.

The rating of micro-renewables further reinforces this situation. The British Retail Consortium is currently campaigning to ensure the Government puts a stop to this iniquitous practice.

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