In part one, Renewable Energy Focus looked at how the UK was performing in its efforts to reach its EU renewable energy targets. And in part two, we examined the main challenges the UK faces in reaching 15% renewables by 2020? In this third and final part we look at what role industry can play...
Government may hold the key to unlocking the renewable industry’s potential, but the UK’s renewables sector has its own role to play.
According to the UK Energy Minister Charles Hendry, renewable energy companies need to work closely together to achieve the UK’s goals, particularly if the industry is to keep costs down – which is key to securing both Government and public support. “We need very strong co-operation between the companies in the sector for where they can use their joint skills to help drive down costs,” he says. “No one company is going to be able to do what it needs to do to bring down the cost of offshore wind by 40%.”
But, he says, industry also needs to maintain a continuous engagement with Government if the UK is to overcome some of the barriers to deployment.
“The input which we need from industry is to help get early identification of problems, and to work collectively with them to deal with that,” he adds. “When we are aware of [the problems] we can take forward significant progress to address them for the longer term. That sort of nature of engagement remains very important.”
The recent fiasco over the feed-in tariff cuts for solar PV, which saw the rug pulled from under many companies before they had a chance to adjust their business plans, has, some argue, undermined the relationship between Government and industry. But some industry insiders believe that the renewables sector, for its part, needs to make concessions to Government when it comes to financial support:
“The industry's got a bit of a reputation for always wanting more, in the expectation that it will be ratcheted down a bit,” one industry figure says. “Industry needs to stop doing that, and come back with something that more accurately reflects what the returns need to be in order to result in deployment.”
Crucially however, the UK’s targets do not end with 2020. The UK is legally committed to cutting its carbon emissions by 80% by 2050, and with the Government pledging to decarbonise the grid by 2050 at the latest, there can be no doubt that the pressure is on to find low-carbon, and yes, low-cost solutions for the coming decades.
The Government has outlined a programme of mass-roll out for renewable heat, fuelled by the Renewable Heat Incentive during the 2020s, as well as a mass-roll out of ultra-low emissions vehicles and sustainable biofuel. But as yet, the Government is yet to come off the fence on which technology – nuclear, carbon capture and storage, or renewables - will win the race to be the primary supplier of low carbon electricity.
A report from the UK Government’s climate advisors from May 2011 estimated the UK could reach renewables penetrations of 30%-45% by 2030, but Hendry would not be drawn on whether the government thought this scenario was feasible. “We certainly share the ambition,” he says. “We believe that this is not just simply a [renewables] target to go to, 2020, but it has to be a longer-term programme for the United Kingdom, to be a much more substantial renewable future, post-2020.”
Dustin Benton, senior policy advisor at environmental think-tank Green Alliance, believes that UK must focus on how it is going to tackle the post-2020 world now – and that means taking action to support some of the earlier stage technologies.
“So much depends on what we do over the next decade,” he says. “We should absolutely be thinking about how we give certainty particularly to the earlier stage renewables such as marine and tidal – the UK will have the opportunity to be a global leader.”
He adds: “We really need to provide that long term stable framework. Whether that means setting a 2030 renewables target or being really clear about the price for carbon or whether it means talking about the way in which we incentivise renewables through the feed-in tariff, all of those are options.”
Gaynor Hartnell, chief executive of the Renewable Energy Association, remains positive. “I am really confident about the long term prospects for renewables,” she says, “After 2020, even if the UK hasn't really got its act together, renewables will be taking off globally. And it will eventually become the mainstream energy provider and no-one will really think twice about that.”
Renewables Obligation (RO)
Financial support mechanism for large renewables projects in the UK – i.e. those over 5MW. First introduced in 2002, the RO places an obligation on the UK’s electricity suppliers to source a set percentage of their electricity from renewable sources, with the obligation increasing slightly each year. Renewable energy generators are allocated Renewables Obligation Certificates (ROCs) by the regulator, Ofgem, for each MWh generated, which they can then sell to electricity suppliers as proof of purchase of renewable power. A Government review of the Renewables Obligation is likely to see the scheme phased out for new projects from 2017 (see below). The ROC is paid for by a levy on UK consumer energy bills.
Feed-in Tariff (FiT)
Financial support mechanism for smaller renewable installations – i.e. those below 50kW (installations between 50kW and 5MW can choose between the RO and the FiT). Introduced in 2010, it offers domestic and commercial customers a guaranteed 25-year rate of return on electricity sold to the grid from small-scale renewables installed on their property. However, a programme of cuts to the FiT is underway, with solar PV rates slashed by half this December, and further cuts to other rates expected in 2012. The feed-in tariff is paid for by a levy on UK consumer energy bills.
Electricity Market Reform (EMR)
Major reform of the UK’s electricity market, due to be phased in from 2017. Key to the reforms is a new financial support mechanism for low-carbon generation, including renewables – a feed-in tariff with contracts for difference (CfD), which offers low carbon generators subsidised payments to ‘make up the difference’ if the wholesale electricity price drops below a certain level.
Renewable Heat Incentive (RHI)
Introduced in November 2011 for non-domestic customers, the RHI offers a 20 year tariff of financial support for those who invest in renewable heat technologies in their homes and businesses. Payments are made in relation to each kWh equivalent of heat produced. The RHI for domestic customers is due to be launched in 2012.