Renewing energy policy

A recent speech highlighted how migrating to a low-carbon economy will involve concerted policy initiatives from across all government departments, says John Hutton MP

The interdependent nature of the climate change challenge necessitates an interdependent energy supply strategy. No major economy will be able to stand alone. We need a stable and predictable domestic and international policy framework that can facilitate investment in a range of energy sources, with strong financial incentives towards the production of low-carbon technologies.

As economies continue to grow, particularly in developing nations, so too does demand for energy. It is expected to increase 50% by 2030. This is why energy supply and climate change are two sides of the same coin. If the carbon reduction targets that we set domestically and internationally become the question, then how we manage both the demand for and production of energy will be the answer.

It is right that Britain takes a lead in this critical debate, that we set challenging domestic targets, and that we gain international agreement for our goals. But we will only change to a low-carbon economy if we create policy that incentivises business and consumers to change the way they produce and consume energy.

This transition will not be achieved by government diktat or crude regulation. We need to create a virtuous circle between the competition in our energy markets and the empowerment of consumers to extract maximum value from the reputation impact that companies respond to in a modern, open economy.

This requires evidence-based policy making, the courage to take tough decisions, and the willingness to take action at the personal as well as the collective level. Critically, it requires the government to do everything it can to influence its international partners, and that starts with our neighbours in the EU. Political parties that claim to be environmentally friendly have to first ask themselves whether it can ever amount to more than hot air if they isolate themselves from our EU partners.

And our influence is already delivering results. The goals agreed at this year’s EU Spring Council were a 20% reduction in greenhouse gas emissions increasing to 30% if our international partners join in; and a central role for emissions trading. Also, a 20% sourcing of renewable energy supplies by 2020 was agreed – ambitious and the result of UK leadership.

Regulated markets

Properly structured, well regulated markets will be the foundation of our long-term answer to climate change. But, as in other parts of our economy, well functioning markets do not happen by accident. They require government regulation to build and sustain them. And, in

the EU Emission Trading Scheme, governments have led the way in constructing such a market for reducing global carbon emissions by the most cost-effective means.

So, a priority for UK influence in the EU transition to a low-carbon economy must be the creation of a fully functioning EU energy market. More openness and competition leads to a better deal for consumers and with the right incentives, will help meet our 2020 goals.

Cllimate Change Bill

This summer, the government published a draft Climate Change Bill. It will, for the first time, impose a legal duty on government to reduce the amount of carbon produced, as we work towards our target of achieving at least 60% reduction in carbon emissions by 2050. We are the first country to take this step.

A significant expansion of renewable energy will be critical to meeting our objectives and move towards a low-carbon economy. But we will need to do so in a cost-effective way: one that supports competitiveness. It is not a case of renewable energy versus a competitive economy. During the past ten years, UK GDP has increased by 28%, while UK greenhouse gas emission have reduced by almost 7%. Going green doesn’t mean going slow. But it does mean working to create a level playing field in energy production during the next 20 years.

The government has also introduced the renewables obligation, mandating electricity suppliers to source an increasing percentage of their energy from renewable sources. It means that annual household bills are likely to rise an average of around £11 by 2010/11 to support renewable suppliers.

Government will also shortly be launching the new Energy Technologies Institute (ETI). It will have a minimum budget of around £600M during the next decade for research into low-carbon energy, drawing on private as well as public funding. The ETI and the Environmental Transformation Fund, to be established next year, will bring increased coherence to our energy innovation strategy.

Our best forecast is that around 15% of our electricity supplies will come from renewable sources by about 2015, tripling present levels.

We know that we need to do even more to make our contribution to the EU target. The commission is yet to propose how the target should be met by member states, but whatever arrangement is devised, there is no question that it will pose a major challenge not just for the UK but also for most EU countries. As it should do: the purpose of targets is to challenge, not comfort.

Meeting the target will involve both sustained political will and significant investment. It will also mean reconciling competing aims. How, for example, will the new EU Renewables Directive be compatible with the existing EU Habitats and Birds Directives?

Implementing the EU renewables target will need to be seen as a credible and cost-effective contribution to tackling greenhouse gas emissions if we are truly to act as a global leader. Emissions trading must also be shown to be an effective basis for a global approach. And renewables deployment must be cost-effective. We have no wish to land unnecessary expense falling on consumers, nor threaten EU competitiveness.

Variable generation

We now have three pieces of legislation – the draft Planning, Climate Change and Energy Bills. These are all interwoven, setting legal frameworks for how we will achieve our goals. Taken together, the three bills will give the UK a legislative framework that will put us on a long-term path to tackling climate change and securing energy supplies.

We are making two important changes to help drive increased investment in renewable electricity. First, grid access. Ofgem, National Grid and the network companies have a vital contribution to make in delivering investment in our electricity networks. The last Transmission Price Control saw agreement on £4B of investment during the next five years, in addition to the £500M already committed to connecting renewable projects.

This is good news, but we need to look further ahead to a world where the generation mix has increased amounts of variable generation. This means sharing access to the network and changed approaches to network operation. government has announced a review of transmission access, which will be are carried out with Ofgem, to ensure that renewable projects have better access to the grid in the medium to long term.

Second, banding of the Renewables Obligation. This is a mechanism that aims to recognise that some renewable technologies are more advanced than others. It will allow us to reflect the practical constraints faced by the most mature technologies, such as onshore wind, to give less support to cheaper technologies, such as co-firing, and to give much more support to the next generation of technologies such as offshore wind, wave and tidal. It is an important measure and we welcome the wide range of responses we have received in our recent consultation on it.

Revised planning

As a nation, we must meet both the challenge and the opportunity that a transition to a low-carbon economy provides. We must be open with people about the barriers to a low-carbon economy. And, in my view, there is no greater obstacle to meeting that challenge than reforming our planning system.

If we are serious about renewable energy, about meeting our 2020 goals, then we have to create a planning system that supports and does not hinder that objective. Our strategy for meeting the twin challenges of moving to a low-carbon economy and ensuring our energy supplies was set out in the May energy white paper. It will be the foundation of our economy. And a national energy strategy must be supported by a planning system that is fit for purpose.

Despite progress in renewable energy generation, Britain is not fulfilling its potential. This is because we have a planning system that for important infrastructure projects takes too long, is unpredictable and complex.

There are 56 wind farm projects – with a collective potential for generating 4GW of energy – that have been stuck in the planning system for more than two years. If all these projects had been approved and online, we would have saved up to 2.4Mtonnes of CO2 by now, produced electricity equivalent to that used by 2.1 million homes and we would be 25% closer to our 10% 2010 target.

It is no good saying renewable energy is good in principle but not in practice. It will mean difficult choices. The planning system must be able to give potential developers confidence that important projects will treated fairly, within a time frame that properly balances the need for scrutiny with need for predictability.

The successful delivery of the proposed reforms to our planning system, which the government set out in its planning white paper earlier this year, will be the key determinant in whether we have a realistic chance of meeting our 2020 goals.

Making the planning system work is everyone’s responsibility. This includes developers, who must work with local stakeholders and submit well prepared applications. But as long as we all want energy, we have to accept that it needs to be generated somewhere.

Serious conclusions

Our energy white paper sets out our strategy to tackle climate change and energy security. Markets are at the centre of this strategy, together with the interventions government needs to make sure that markets work well and in ways that meet our energy and climate change goals.

Within this framework, my ambition is to make the UK the best place in the world for investment in renewable technology. During the next 20 years, the world has to adapt to a low-carbon economy. With it will come a massive increase in the demand for low-carbon technologies and for scarce construction and engineering capability, able, with relatively little notice, to move from country to country. Nicholas Stern estimated that the low-carbon energy product market could be worth more than £245B a year by 2050.

Britain will have to compete fiercely for that investment and scarce capacity with other economies. The growth of the new emerging economies and often the sheer size of their domestic markets makes them potentially enormously attractive for that scarce investment.

The transparency, predictability and effectiveness of a country’s planning system will be the key determinant in the decisions those developers make. Get it wrong, and we will drive them away.

If we are serious about climate change, we must be serious about renewables. And if we are serious about renewables we have got to be serious about planning. That is the test for anyone who wants to contribute to the debate about the choices the nation has to make as we push on towards a low-carbon economy.

This article is based on a recent speech given by John Hutton MP, Secretary of State for Business, Enterprise & Regulatory Reform at the Fabian Society

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