Government’s renewables target unlikely to be met until 2015

Cambridge Econometrics, which provides the most detailed long-term economic and industrial forecasts available for the United Kingdom, issued its warning in the latest edition of its report, UK Energy and the Environment, containing detailed forecasts of energy demand and carbon dioxide and sulphur dioxide emissions by fuel user and fuel type to the year 2010.

The reason for this failure, Cambridge Econometrics says, is the adverse impact of the New Electricity Trading Arrangements (NETA) (see related story) on the prospects for renewables and CHP. Problems have been caused for renewables generators by the balancing mechanism in NETA, and by the technical, regulatory and financial constraints to local network connections that currently exist. It is particularly difficult for small renewables generators with a weather-dependant energy source to balance their contractual positions, and it is particularly important for renewable energy plants to have easy low-cost access to regional electricity distribution networks if projects are to be viable, the company says.

In addition to these problems, it is unclear how effective the new Renewables Obligation (see related story) will be, says Cambridge Econometrics. Although the Government has promised an additional £100 million for renewables (see related story), it is unknown as yet how the money will be spent and how much new renewables capacity it will support.

Although it does not expect the commitment to be met, Cambridge Econometrics, does however, add that following the announcement of grant options to develop a substantial amount of offshore wind capacity (see related story), total renewables generation is expected to be somewhat higher than previously assumed, and its share of total generation is forecast to reach 8% by 2010 and 10% by 2015.

Yet given the right incentives, and addressing the problems associated by NETA, another study carried out by Cambridge Econometrics in the same report demonstrates the positive contribution that could be made from a much larger renewables programme. In the ‘Low Carbon Scenario’, which combines plans to increase electricity generation from renewable sources, to increase use of Combined Heat and Power (CHP) and for more efficient use of energy in the household sector. The scenario shows that such investments are not expensive, and actually lead to a modest increase in economic output and employment, while at the same time reducing emissions beyond 2010.

These investments, in particular the bold renewables programme, could put the UK on a path towards meeting a 60% cut in emissions by 2050 as recommended by the Royal Commission on Environmental Pollution.

In the scenario, renewables supply 13% of total electricity generation by 2010 and 30% by 2020. Funding for these renewables is achieved by passing the increased costs of generation on to consumers, but up to a maximum price of only 4.3p/kWh, as proposed in an early consultation on the Government’s Renewables Obligation. This level of renewables generation is therefore achieved at a price below the current ceiling set in the actual Obligation.

The company bases its forecasts on the ‘Cambridge model’, known as the Multisectoral Dynamic Model of the UK economy (MDM), a large computerised system with some 5,000 variables and nearly 16,000 behavioural parameters and other coefficients. In the energy and environment aspects of the system, demand for 11 fuel types by 13 fuel users is modelled, and a capacity-based sub-model of the electricity supply industry is included.

UK Energy and the Environment is published twice a year, in January and July. The report is available to companies and government departments by subscription to Cambridge Econometrics’ Energy-Environment-Economy Service (E3), which combines CE’s energy and environment forecasts with detailed projections for the whole UK economy.