As is now well known, the succession of government cuts against renewable energy subsidies in the UK was greeted by a howl of outrage from businesses and green energy groups. The most recent development in this episode was the move by government to omit
However, all is not what it may seem at first sight. Phil Foster of Love Energy Savings believes that there may have been some justification for the government’s subsidy cuts, on the grounds of addressing concerns about the Levy Control Framework that have been mounting for some time, as well as a continuing need to tackle the UK deficit.
“When cuts to solar power subsidies were announced, the energy and climate change secretary Amber Rudd stated that the aim of the cuts was to get costs under control” Mr Foster said, drawing attention to the Energy Secretary’s remarks about keeping bills as low as possible for hardworking families and businesses. “There’s no doubt that the subsidies have been removed for financial reasons. The nation’s deficit won’t service itself after all.”
Foster maintains that it is impossible to say for certain whether the government has an ulterior motive for withdrawing subsidies, but acknowledges that it was a risky move, given the possibility of ‘pulling the rug’ from underneath organisations that continue to develop renewable energy sources. He further points out that North Sea oil and gas and investment in shale gas as a viable option are clearly seen by the government as important and that throughout their election campaign, the Conservatives were very open about their plans when it came to energy. However, this could also be a sign of short-sightedness on the government’s part, since although energy prices may come down if the investment in domestic oil and gas bears fruit, thereby reducing the need to import energy from abroad, there is also a time limit on these sources. Foster is keen to remind people that as these resources begin to run out, prices are likely to start rising again.
How authentic is this claim? Talk of oil and gas supplies running out risks involvement in discussions about ‘peak oil’, a subject of much controversy. One of the best books on this topic, for those who are new to the subject, is Jeremy Leggett’s Half Gone: Oil, Gas, Hot Air and the Global Energy Crisis, in which he points out quite convincingly that the days of the giant oil discoveries are well and truly over. Leggett doesn’t specifically refer to the North Sea, but other authors certainly do. Even The Economist magazine recognises that North Sea oil and gas is in trouble, mentioning in its January 24th 2015 edition that production peaked in 1999, declined slowly up to 2010 and then plunged. Euan Mearns, writing in Energy Matters in 2013, explained why this was so. Despite increased capital expenditure on new field development and old field refurbishment, North Sea oil continued to decline. An even greater concern, Mearns added, is the spiralling operating costs of the industry. Total OPEX (operating expenditure) for oil and gas doubled from £4.5 billion in 2004 to £7.8 billion in 2012 whilst in the same period both oil and gas production more than halved.
Experts from the International Energy Agency (IEA) predict that by the end of 2015 North Sea oil production will actually increase for the second year running to almost 3 million barrels per day, with several new fields opening and no outages. However, this is by no means anything other than a temporary reversal of a long term trend. The IEA has also made it quite clear that decline rates will accelerate again and output will fall by 150,000 barrels a day in 2016.
So Phil Foster’s mention of a time limit on these resources is indeed legitimate, and that in turn means there is at least some grounds for doubt with regard to Chancellor George Osborne’s plans for renewed investment. There is also widespread doubt about the viability of the UK’s supposed shale gas resources. The true amount of recoverable shale gas in the UK remains uncertain and that means replication of the US experience with fracking, which is itself now beginning to decline, is probably unlikely. Round all that up and we’re back to renewables again.
Phil Foster is optimistic about the UK’s ability to meet its climate change and renewable energy targets, despite all the post-announcement hoo-ha, but he also warns that there is still a great deal to do.
“In February 2015 it was reported that the country was already on track, and that the target of 15 percent energy from renewable sources had been achieved in 2013” he says. “Whilst this is great news, the work isn’t over yet. It is essential that, at the very least, the country’s rate of carbon reduction is maintained, as there is still a long way to go until the year 2050. Whilst the research into renewable energy sources continues, the government should look to encourage households and businesses of all shapes and sizes to reduce their own greenhouse gas emissions. Every little really does help in this sense and getting each house and business to cut back on their energy usage will all add up. This could range from encouraging businesses to compare their energy tariffs or to switch to one that uses renewable sources, to incentivising people to cut their everyday energy use. Climate change affects us all, and the government should work to raise awareness of our 2050 targets and how we can all play a part in achieving these ambitious goals.”
The big question is where does the sector go from here?
“When funds are reduced, the best way to ensure that research keeps moving forward is to start thinking creatively about how the same goals can be achieved but for less money and materials” Foster says. “Turning to alternative sources may be a factor, with research continuing into sources such as hydrogen and biomass, whilst the existing systems in place should also be examined to see if they could become more efficient. Forward-thinking is the future, and we should hopefully see more universities and researchers coming up with innovative and cheaper solutions that help towards a greener future.”
Phil Foster from Love Energy Savings
Foster is hopeful that the sector will continue to advance and develop further despite cuts to subsidies, as this is the only way that the UK is going to meet its 2050 greenhouse gas emission targets. He adds that the Department of Energy and Climate Change (DECC) should be working extremely closely with the Treasury to ensure that it is receiving the funding it needs in order to be sure that the country is working towards reducing its emissions. He also believes that the UK should start to see technology such as wind turbines, wave energy converters and solar panels becoming cheaper and more readily available with continued research and development.
The need to think creatively about how goals can be achieved for less money is a view echoed by Richard Hellen, Director of environmental trade association Low Carbon South West and Director-Trustee of The Schumacher Institute, a research centre and community organisation that is founded upon the beliefs of economist Dr E. F. Schumacher in human-scale relationships, technology and institutions. Mr Hellen certainly thinks the government’s behaviour of late will shake up the sector, causing some to drop out while others decide to merge. He also believes that a rapid pull-out of particular areas of the sector, such as heat pumps and biomass, will be more difficult, on the basis that the technology is a lot more complicated.
“It takes time to understand the details of how you put in a biomass boiler” he says, during an interview via Skype. “It’s a lot more complicated than putting in a simple PV system. There’s a whole supply chain of your biomass for a start. Heat pumps can be quite tricky. The air source heat pumps are relatively quite straightforward, ground source heat pumps can be complicated but they are better to go for as they have a higher efficiency. However, they cost a lot more than air source heat pumps.”
When it comes to finance for solar PV in the absence of government subsidy, Hellen believes that the fundamental question is how much finance is needed, which in turn is down to the cost of PV, particularly if the costs continue to fall over time. This is a complex matter, because it concerns the cost structure of production and the margins built into different elements of the supply chain, through to the means of production. Clearly, at some point, the floor for solar PV is not going to carry on because there are some fundamental cost floors involved, the raw materials, and the energy costs for making the stuff in the first place.
“How close you could get to that cost floor and what would be an adequate margin in order to make things stack up is an interesting question and something I am not qualified to talk about” Hellen says. “But it is a question that should be looked at quite closely because that does tell you where the profit position is going to be and therefore what the chances are of not just meeting grid parity but also doing better than grid parity. That then brings us to a more important point relevant to the whole energy business and that is, what do we mean by the ‘price of energy’? Do we mean energy or do we mean power? Or do we mean reliability? At the moment, the simple PV market is just in terms of kilowatt hours, but when you get to the people who have to face up to the problem of matching supply with demand, they’ve got the job of deciding how to deal with surges in supply when it’s really sunny down in Cornwall and they’ve got rather shaky distribution lines.”
This opens up a discussion about other challenges for renewable energy development, besides that of finance. Western Power Distribution (WPD) is currently having problems accepting any more capacity in South West England, at least until the interconnector across Avonmouth is developed. This is an increasingly common problem that large scale developers are fairly familiar with, as its one of the first things they do, even before they start talking to landowners. The topic of smart technology comes up, involving a grid that is profiled in order to avoid overstraining the distribution network.
“I think there’s going to be a whole more work there but it does mean the distribution network operators are going to have to be a lot more agile at figuring out what they can accept, where” Hellen says. “This is a really complicated problem. Anyone involved in networks will tell you there are all sorts of issues you have to address, not the least of which is how you deal with faults and trips. You’ve got to have all sorts of protection systems but, not only that, you also have to work out how to avoid overstretching the system in the first place. Transformers have a limited life, and if you go on pushing a lot of power through them to their limit, you erode their residual life and that means you are creating additional cost.”
Hellen explains that an interesting question in this context is what is the value in distributed generation in avoiding additional costs to the network operators? This also introduces the subject of other technology such as energy storage, which has only just begun to be seriously discussed.
There is a really interesting theme beginning to emerge here, which in turn is pointing to a really exciting future for renewable energy development. That theme concerns systems thinking rather than dependency on simple, single component values.
“You’re then starting to think about reliability or electrical supply quality” Hellen explains. “People tend to think that electricity is electricity, but it has all sorts of spikes and surges and harmonics and stuff which can cause me problems. It can cause things to trip, or damage systems. So part of the improved intelligence that we have to develop is a knowledge of that aspect of electricity supply. It gets people thinking that it’s not just about pence per kilowatt hour.”
Hellen compares this discussion to that around water during the time of the recent floods. Suddenly, when people have no drinking water supply, they start to realise that drinking water is incredibly valuable. It’s something that relates closely to his interest in resilience, something that he believes people aren’t really thinking about at present.
“There is a need to educate ourselves about the nature of uncertainty and how we value mitigation against uncertainty” he continues. “We pay a premium to insurance companies and that’s how we do it, but we do that in a relatively simple way. When it comes to energy supply, we are starting to be forced to think about the nature of reliability and other elements of value of this thing that we thought just had a single value. So if I don’t have electricity coming into my office, and my office has ten people, I am going to lose a hell of a lot of money if they can’t work. So, like it or not, we are being forced into an appreciation of the importance of energy management within complex systems and what we do to mitigate the risks. We start to think a bit more consciously about systems and how they behave in circumstances other than business as usual. We have to start thinking in terms of variations of the business as usual theme. At this point it starts to become a bit more complicated. I think we’re moving into an area where we think about complexity and what we can do within our sphere of decision making when it comes to complexity and consequence on the way we individually do things or even collectively do things.”
Richard Hellen, Director of Low Carbon South West and Director of The Schumacher Institute
All of this has the potential to place a great responsibility on the shoulders of ordinary citizens. Hellen thinks that people will have to become ‘active citizens’ rather than regular consumers. The signs of this happening are starting to appear already, particularly with regard to economics. Hellen believes that a lot of us are starting to become a lot more savvy about that particular subject than we have been thus far.
“The reason we’re becoming more aware of that is because we’re more aware of the risk of it all going wrong” he says. “So, for example, you don’t have all your money in one big bank, you have your money distributed in lots of smaller banks, just in case the big bank fails. That’s how you manage risk. Dispersal – you don’t have your [military] aircraft all on one airfield [i.e. where they can all be more easily destroyed by an attacking force]. It’s that risk management thing that I think we’re coming more aware of. And let’s face it, we have some pretty big risks on the horizon.”
It’s all about diversity and redundancy. The way forward then is having a lot of diverse technologies doing the same thing while being independent of each other. Hellen points out that the likes of BP and Shell have been doing this for decades. So the electricity sector is starting to think about managing decisions in a complex environment with the uncertainties of increasingly worrying size. This in turn leads to a ‘joining the dots’ process in which the major factor is “if only we had…X”.
“So, for example, we’ve got energy management, we’ve got energy storage, but if only we had that bit of technology it could make this whole system work and that’s where people like Innovate UK and Knowledge Transfer Network need to have some feedback saying “we’re missing this element”” Hellen explains. “It could be something like novel financing methods, so different kinds of finance arrangements, not just one size fits all.”
This is where community energy is really beginning to help move the sector on, for the simple reason that ordinary people are having to think about how to fund potentially complex projects.
“This is community engineering” Hellen says. “Because you’re asking people to come out of their normal little boxes. Maybe what we’re asking is for your average consumer to become your average citizen. It means they’re making a social investment. It could be their time, or it could be their money or their ideas, so there’s a whole mix of being engaged there, which I find fascinating.”
Fortunately, people become really interested in issues when they feel it’s relevant to them. Another way to attract people’s attention is through story, particularly when there’s a strategy involved.
“I was listening to something the other day on the radio about an ex-forces war gamers enthusiast who took his war gaming skills into the world of big business or whatever” Hellen says. “I find that fascinating because the art of forming strategies, while complicated, is done through telling stories. I knew some guys who were from that sort of background and they used scenarios for helping to stretch the imagination involving low probability but nevertheless credible circumstances. So this is the situation, what are you going to do about it? Game on.”
This in turn brings realisation about the nature of intelligence and risk. One of the major sections of the community that is really into this right now is the computer gaming fraternity, most of them young but very intelligent. This raises the question of what else they can do with their gaming skills. Hellen thinks that if the energy sector can create an environment in which gaming output can happen, it may enable the most appropriate solutions for specific challenges to be revealed. However, this also places a duty on government to enable flexibility of innovation and initiative to emerge.
Ironically, it may turn out to be the case that the government has just done both the UK renewable energy sector and ordinary people interested in energy issues a huge favour. In Act 2 of Shakespeare’s pastoral comedy As You Like It, Duke Senior comments: “Sweet are the uses of adversity, which, like the toad, ugly and venomous, wears yet a precious jewel in his head”.
Like the forces that pushed Duke Senior into the Forest of Arden, the government may be trying to make renewable energy “exempt from public haunt”. In which case, faced with potential increasing adversity from depleting fossil fuel supplies and climate change, the onus regarding how to deal with these risks may very well, henceforth, be on the ordinary citizen, the likes of you and me.
That is a challenging, but potentially very exciting prospect indeed.
I am an experienced freelance journalist with a wide and varied portfolio to my credit including web content, magazine articles, reporting, features, interviews, reviews and blogs. My special interests include environmental issues, particularly climate change, renewable energy, transport, green building and sustainable infrastructure. I have numerous secondary interests ranging from politics and current affairs to social justice, science, technology and innovation, historical topics and lifestyle subjects such as literature, psychology, contemporary spirituality and culture.