1. POLICY ON RENEWABLE ENERGY AND ENERGY EFFICIENCY IN THE UK: Opportunities, Obstacles and Funding A Presentation to the London Renewable Energy Conference by Professor Paul Ekins Head of Environment Group Policy Studies Institute Friday 11 th October, 2002

2. Structure of Presentation Energy and Sustainable Development Energy Efficiency Renewables

3. Sustainable Development Criteria of the Sustainable Development Commission Integrating the economic, social and environmental dimensions of quality of life Respecting biophysical limits Making the polluter pay Protecting and enhancing UK competitiveness Promoting social justice and inclusion Achieving energy security

4. Conclusions for Energy Policy “A combination of energy efficiency and new renewable energy sources performs strongly against all the sustainable development criteria and is the first choice when it comes to meeting the energy demand and supply challenges of the future in a manner consistent with sustainable development.”

5. PIU Energy Policy Objectives Current Government formulation: ‘Ensuring secure, diverse and sustainable supplies of energy at competitive prices’ PIU recommendation: In setting future energy policy, “the guiding policy principle for government should be sustainable development, requiring the achievement of economic, environmental and social objectives” Key priorities: maintain energy security, ensure compliance with existing carbon abatement targets, develop a range of low carbon options to be used to meet possible post-Kyoto targets. The UK should also be pursuing innovation to permit deep cuts in carbon in the longer-term.

6. PIU Conclusions Energy efficiency has the closest match with all the major sustainable development objectives Energy efficiency should be at the centre of low carbon strategies – much can be achieved at very low cost 20% improvement in energy efficiency by 2010, further 20% by 2020 The wide range of renewable energy technologies represents the most important priority among zero carbon options 20% by 2020 target for renewables. Development of a wider range of renewables options. Urgent removal of institutional barriers to renewables

7. COSTS Energy cost, p/kWh Carbon abatement cost, £/tC (2020) Potential contribution to carbon emission reduction, MtC 2020MinimumMaximum20202050 Domestic EE Low -300501530 Service sector EE -26050410 Industrial EE -8030925 Transport EE Probably negative Detailed assessment needed 1430 Large CHP< 2-19011035 Micro CHP2.5-3.5-630-11015

8. Onshore wind 1.5-2.5-805015 Offshore wind 2.0-3.0-301508>20 Marine (wave and tidal) 3.0-6.0 (wave) 70450Small>20 Energy crops 2.5-4.070200310 Solar PV10-165201250<1>20 Nuclear3.0-4.0702007>20 Carbon sequestration NA80280Small>20 Fuel cellsUnclear Gas (CCGT) 2.0-2.3The reference case against which the carbon reduction for other options was calculated Coal (IGCC) 3.0-3.5This would only be a carbon reduction option with carbon sequestration

9. Costs Economic growth reduced from 2.25% p.a. to 2.23% p.a. 60% carbon reduction by 2050 would cost perhaps 1% of the economic growth which can be expected over the next fifty years Benefits: –Internalise externalities –Clear international statement about the greatest environmental challenge facing humanity –Put the UK in a leading position to benefit from low- carbon technologies and activities  Case for vigorous policy is clear

10. Policy Imperatives Deploy energy efficiency technologies (remedy market failures) Create a market for renewables Context: Domestic carbon reduction target will not be attained on current policies.

11. Policy for Energy Efficiency Sectors: Industry, Transport, Households Principles (reinforce each other) –Incentives for demand reduction –Incentives for greater efficiency (rebound effect) –Regulation –Technological innovation

12. Industry Demand reduction: Climate Change Levy, emissions trading. NEED –CCL to be increased over time –Carbon permits to be auctioned Greater efficiency: Carbon Trust (Action Energy, ECAs, information on best practice). NEED –greater resource to reach SMEs Regulation: IPPC. NEED –Tighter targets Innovation: technology challenge. NEED –More powerful price signals

13. Transport Demand reduction: Fuel duties. NEED –Restored fuel duty escalator as necessary to achieve increasing real price of carbon Greater efficiency: Fuel efficiency agreement with manufacturers, company car tax reform, differential vehicle excise duty, consumer information Regulation & Innovation: Powering Future Vehicles. NEED –Visionary targets (e.g. very low carbon emission targets by a certain date) –Faster development of low or no carbon fuels

14. Households (1) Demand reduction: no policy. NEED –To establish expectation of rising real price of energy with complementary measures to protect those on low incomes Greater efficiency: Warm Front (HEES), EEC, no policy for middle classes. NEED –Strong incentives to implement all cost-effective options

15. Households (2) Regulation: Building Regulations, energy efficiency labels. NEED –Stronger building regulations –Mandatory energy efficiency audits –Household appliance efficiency regulations Innovation: NEED –Construction of low-carbon buildings –Low or no carbon energy appliances (e.g micro-CHP using fuel cells)

16. Renewables Objective is to create profitable markets NFFO Renewables Obligation

17. Summary of NFFO NFFO 1 NFFO 2 NFFO 3 NFFO 4 NFFO 5 Total Number of projects75122141195261794 (335 live) Average price (p/kWh) 7.107.204.353.462.71 Contracted capacity (MW DNC) 15247262784311773271 Operational capacity (MW DNC) 14117229915894865 (26%)

18. Lessons from NFFO Too low prices mean less projects Planning permission difficulties

19. Renewables Obligation Obligation to buy certain percentage, 10% by 2010 (requires unparalleled construction rates) Buy-out price 3p/kWh Recycle revenues from buy-out Exemption from CCL PLUS Capital grants Research, development and demonstration WILL IT WORK?

20. Renewables Obligation Potential constraints on profitability and market viability : Planning NETA Embedded generation Perhaps not enough incentives for higher cost, longer-term technologies Uncertainty beyond 2010

21. Conclusions Many policies have been introduced They are not yet reducing UK carbon emissions Not yet enough evidence of commitment through long- term policy signals (especially prices) Household energy efficiency very problematic Not yet clear that Renewables Obligation will kick start renewables market to required extent NOT YET ENOUGH TO GIVE THE UK A CLEAR LEAD IN THE LOW-CARBON MARKETS AND TECHNOLOGIES OF THE FUTURE

22. www.psi.org.uk