UK Climate Change Policy:An Economically Compelling Example?
Dr John ConstablePolicy and Research Director
Amicus the Union Conference“What Price Manufacturing”
Edinburgh19 April 2006
UK Emissions in Global Context• World: 25,000 million
tonnes of CO2 p.a.• US: 5,800 mt
– 23%• W. Europe: 3,900 mt
– 16%• China: 3,500 mt
– 14%• UK: 560 mt
– 2.2%
Renewable Electricity and Emissions Reduction
• 2010 renewableelectricity target:– 33.6 TWh
• If met saves 9.2 mtCO2– 0.016 of UK emissions– 0.0024 of Europe’s
emissions– 0.0004 of global emissions
• RO cost:• £1 billion p.a.
in subsidyalone
• £108/tCO2
Ofgem: “the implied cost of carbon toconsumers for the Obligation is £198-515/tC, much greater than the £40-50/tC estimated for the allowance priceunder the EU-ETS”
Steven Smith to DTI, 23 June 2005
World Growth: China & Electricity
• UK: 390 TWh• China: 1,800 TWh• W. Europe: 3,000 TWh• US: 3,900 TWh• In 2020 China will need
11,000 TWh– From 2,400 GW of
power stations– UK: 78 GW– US: 933 GW
Zhang Guobao, vice-ministerof the National Developmentand Reform Commission,quoted in the China Daily,19.10.04
What Can the UK Do?The Prime Minister’s Opinion, 28 Feb. 2006
• “[…] the UK accounts for something like2% of greenhouse gases.”
• “By 2020 as the world economy continuesto grow, this proportion will have fallen to1.5%.”
• “Even the most extreme and unrealisticaction taken in the UK will have only a tinyimpact on global climate change.”
• “Even more crucially, it would do nothing to protect us fromits worst effects.”
• “I am afraid that, in this case, being virtuous alone will notbring much reward.”
» Letter to Stop Climate Chaos, 28 Feb. 2006.
Being virtuous…
• Quantitative Contribution?• No: Zero carbon UK will have no effect.• Qualitative contribution? Perhaps...• Economically Compelling Example• Are we on track?
The RenewablesObligation
• Subsidy stream of ca.£1 billion by 2010
• Unbanded: blind tointrinsic merit
• Market invests in leastcapital intensivequalifying ticket– Initially, Landfill Gas– Now, Onshore Wind
• 17 GW proposed inScotland alone
• Economicallycompelling?
E.ON Netz WindReport 2004 &
2005
• Germany has 17,000MW of wind
• E.ON Netz controls7,000 MW
• E.ON Netz controlarea roughly the sizeof the UK
• 20 million customers
E.ON Netz Wind Report 2005
• “The wind blows, when itwill.”
• “The wind blows as it will –despite increasinglyaccurate forecasts, it isdifficult to predict its actualstrength.”
• “The wind blows, where itwill – and sadly, it does notblow where large quantitiesof power are required.”
Martin FuchsCEO, E.ON Netz
E.ON Netz Concludes:Wind is a Supplementary Generator
• “Wind power plantswith a 48,000 MWoutput will onlyreplace a secured2,000 MW ofthermally generatedpower – theequivalent of justtwo new-generationcoal blocks.”
Professor Michael Laughton:Capacity Credit in the UK
• Conclusions from NGT data:– “Irrespective of the amount of wind
capacity installed in the system, theconventional capacity required will neverbe less than the peak load.”
– “[…] the 20% conventional plant marginneeded without wind will never bereduced to less than 9 or 10% regardlessof the added wind capacity.”
Professor Michael Laughton, “Power Supply Security with IntermittentSources Conventional Plant Capacity Requirements”, Power in Europe, 460(10 Oct. 2005).
Weaknesses inUKERC Desk Study
• Ignores overall systemcosts:– Maintaining
dispatchable plant =to peak load, atreduced load factor
– Grid expansion• Assumes distributed
wind carpet andsmoothing
• Insufficient regard toGerman and Danishexperience
• “[…] the total cost of intermittency at a 20%penetration […] in the range of a little under£5/MWh up to around £8/MWh.” (p. 47)
• 0.2 x 400 TWh x £5-8 = £400-640 millionp.a.
• But, these are not the total costs, and maybe optimistic…
Grid Expansion
• Non-firm renewablesneed grid.– Germany: 1,200 miles
of new grid (£2 billion)• Wind seeking Scottish
grid connection– 17,000 MW
• National Grid (2004 )estimate of cost:– £250,000 per MW– 5,100 MW x £250,000
= approx £1.3 billion.
Aluminium & CopperLondon metal market:
Aluminium: $2,600/tonne Copper: $6,000/tonne
Aluminium & Copper and prices, $/tonne,01.06.05-15.04.06Charts from BBC
Are Non-firm Renewables Economically Compelling?A German View
Professor WolfgangPfaffenberger.
University of Bremen,Director, Bremer Energie
Institut.
• “[…] investing in renewable energyplants creates employment inindustries producing these goods.”
• “[…] the extra cost of renewablesadds to the cost of energy and inthis way destroys purchasing powerthat could have created demandand employment in other areas.”
• “Whereas the gross effect ofspending on renewables isalways positive, the net effectmay be negative.”
(Report for REF, Dec. 2005)
An Effective Climate Change Policy:Realism about Alternative Energy
• Revise RenewablesObligation
• Favour firm renewables forelectricity, eg:– Biomass– Tidal
• Organic energy for transport& heat (biofuels)
• Domestic renewables forenergy efficiency
• Quality not Quantity
Tidal: Variable but Predictable
• Korea Water ResourcesCorporation now buildingSihwa Bay
• 254 MW• 550 GWh p.a.• Operational in 2009
CHP Biomass: Firm, Sustainable
• Potential values:– Firm– Distributed
generation– Local incomes– District heating– Incentive for
sustainableforestry
– Compatible withrural touristindustry
Energy from Waste• UK produces 38 million tonnes
Municipal Solid Waste p.a.– 50 mt p.a. by 2020.
• Potential output: 25 TWh p.a.• 400 mt commercial and industrial
waste• Potential output: 40 TWh p.a..• Environmentalists are critical
– Tyseley: 15 self-reported breaches ofemissions regulations in 1999-2001
• Invest to improve standards. • Tyseley, Birmingham• Built 1996• 30 MW plant
Yes, wind doeshave a role,
offshore with storage
• Offshore benefits– High capacity factor– Closer to centres of load
• Storage to ensuresmoother output andhigher capacity credit
Power Policy Needed…• Demand oriented…• Energy when needed,
delivered at the required rate• Firm, team-working,
renewables• Clean, efficient, conventional
plant:– Fossil with CCS for EOR.– Decisive choice, either way, in
regard to nuclear.• We need a Power policy…
because economic self-harmis counterproductive.
“[…] being virtuous alone willnot bring much reward.”