New Times,
New Thinking.

2 January 2007

The confusing state of green electricity

The Government's policy on renewable energy is chaotic and depressing

By Sian Berry

Over the Christmas break, between handfuls of chocolates and dozens of board games, I have been having fun working on the Green Party’s response to a DTI consultation, which closes at the end of this week, on amending the Renewables Obligation. As usual, the more I read about the Government’s chaotic energy policies, the more depressing it all becomes.

If you haven’t heard of the Renewables Obligation, it is the mainstay of the Government’s policies to support renewable energy, and aims to increase generating capacity to reach 20 percent of our requirements by 2020. The problem is it’s a terrible system and it isn’t working.

By setting an annual obligation for electricity suppliers to source a rising amount of their electricity from renewable sources (currently 5.5 percent), and making them purchase “Renewables Obligation Certificates” or ROCs to show they are complying, the system is supposed to ensure that money from consumers of “brown” electricity flows to the people generating “green” electricity.

Bear with me. I’ve been trying to fathom this for about two years, and it’s not easy, but here’s how I understand it to work. Each ROC represents one megawatt hour of electricity generated from renewable sources and, at the end of the year, suppliers who are short of the necessary ROCs can “buy out” their obligation by paying a fee to the Government.

The surplus is then distributed to those who have submitted genuine ROCs. However, because the ROCs are tradeable and most green electricity companies sell on their certificates before the end of the year, the majority of this surplus doesn’t reach the people it is supposed to, and a host of middle-men get to take a cut in the meantime.

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This subsidy leakage makes the Renewables Obligation one of the least efficient ways to provide help to our most promising and important new industries. The Carbon Trust recently analysed the failings of the RO and found that, without radical changes, it would only help us reach half our 2020 target, with just 10 percent of our electricity expected to come from green sources by then.

This complicated system is also a surefire way to confuse the people who want to buy renewable electricity at home and boost green industries with their “consumer power”. Most “green” tariffs don’t simply allocate renewably generated electricity to your bill over and above RO requirements, as you might expect they would. Instead, there is a whole range of methods that are used to make electricity greener.

Last year I was Campaigns Co-ordinator for the Green Party. While putting together our “Green Energy Works” campaign, I spent ages talking to green electricity companies about how they did it. While they all aimed to raise funds to get more green energy on line, their approaches ranged from selling all their ROCs, charging customers a premium price and dedicating the money raised to building new capacity; to using cash raised from customers to “retire” a proportion of their ROCs rather than submitting them to the Government, thereby increasing the requirement for everyone else.

The National Consumer Council published a report last month that concluded, “Given the complex legislative and regulatory framework surrounding green electricity, it is easy for consumers to be misled by suppliers’ claims.” And a recent Newsnight investigation, which exposed how little good a lot of “green” tariffs actually do, tried to explain the Renewables Obligation and only succeeded in generating a deluge of comments and questions on their website from flummoxed viewers.

The Renewables Obligation is also failing the technologies that most need help. Designed to be “technology neutral”, it raises the most money for the lowest cost technologies. So, onshore wind turbines (which are almost commercially viable without subsidy) are starting to make profits far above what would make investment attractive, while offshore wind and wave technologies – now at a crucial stage of development – receive far less. As a result, investment in offshore wind is close to stalling altogether.

It’s not just the Renewables Obligation that’s rubbish. On the other side of the energy policy coin, the system of grants to help people generate green electricity at home has also been turned into a shambles by the Government.

The Low Carbon Buildings Programme (LCBP), introduced in April 2006, promised £80m over three years to support the installation of renewable energy, but only £6.5m of this was set aside for householder grants.

This was also a deep cut in funding compared with the two programmes the LCBP replaced. One of these – Clear Skies – provided £6.6m per year alone. Not surprising, then, that last October all of the £3.5m set aside for this financial year was used up, forcing the diversion of £6.2m from other parts of the LCBP.

The renewable energy industry is understandably livid at these stop-start grant schemes and the low level of subsidies overall. Before the start of the LCBP, representatives wrote a joint letter to energy minister Malcolm Wicks stating that the uncertainty surrounding the grants was “deeply damaging to business and investor confidence” and threatening jobs.

Looking at the bigger picture, the funding dedicated to the LCBP is laughable and shows how little the government is taking the transformation of the energy market seriously.

The Stern Review on the economics of climate change said that one percent of GDP should be invested now in efforts to stop global warming, and that this investment would be a bargain compared with the costs of adapting to climate change in the future. This proportion of GDP is equivalent to £11bn per year, so putting £80m over three years into a sector that could make a huge contribution to averting climate change is ridiculous.

There is no evidence that the likely demand for householder grants was even investigated by the DTI before the launch of the LCBP. Our Green Party peer, Lord Beaumont of Whitley, asked in Parliament in December, “What work is being or has been done to predict the likely demand for Low Carbon Building Programme grants?” and got an answer worthy of Yes Minister from one Lord Truscott, Parliamentary Under-Secretary of State in the Department of Trade and Industry.

He told us nothing about the planning of the LCBP and simply said how many applications had been approved so far (we can look that up ourselves on the DTI website, thank you) and said that the government would “continue to monitor the uptake of grants going forward.”

I was told recently by a retired civil servant that the standing advice to those responsible for drafting parliamentary replies is to “make sure that the person receiving the answer is never in possession of more information after reading the answer than they were before”.

We will be asking more questions soon along the lines of, “Why are you not implementing any sensible energy policies like in Germany or Spain?” Given what we now know, it may be best if we make up the answers ourselves. Something like, “Our last sensible policy idea was in 1996, what did you expect?”

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