Targeted support vital to future of renewables
- Published on Tuesday, 23 October 2012 12:14
- Posted by Vicki Mitchem
With DECC and Treasury apparently divided over energy policy, a new paper published today (23 October) and funded by WWF-UK, highlights the importance of targeting policies to promote emerging clean energy solutions and cautions against simplistic solutions to policy.
The report comes at a turbulent time in UK energy policy with three major investors having shelved their planned investments in UK offshore wind factories over the last six months alone citing "lack of political certainty" and "sapping market confidence". Other major manufacturers, with substantial investment plans in the UK, also recently threatened to quit Britain in the absence of the Government providing them with clear investment signals in the near future.
The new paper 'On picking winners: The need for targeted support for renewable energy', written by Dr Rob Gross of Imperial College London, argues that 'technology neutral' energy policy is a long way off and urges the government to make sure that the Energy Bill targets support effectively at a range of renewable technologies.
The report notes that several commentators have argued that a single, economy-wide carbon price is the most effective way of addressing the climate change challenge. However, although carbon pricing has an important role to play, it is far from sufficient on its own to bring forward investment and accelerate cost reductions in emerging renewable technologies, or to avoid lock-in to high carbon infrastructure.
The report concludes that targeted financial support policies, such as feed-in tariffs and the Renewables Obligation, create certainty for renewable energy investors and play a critical role in accelerating the deployment of renewable energy technologies.
Dr Rob Gross, Director of the Imperial College Centre for Energy Policy and Technology, said: "There is a notion, popular amongst some energy economists, that carbon pricing is the only policy we need in order to save the planet. This is so simplistic it is absurd. Renewable energy in particular needs the policies that are investment grade. Only then will we get costs down and create a cleaner and more secure energy system.
"Investing in large-scale wind is not the same as investing in small-scale wind or solar and neither is it the same as investing in gas. We need horses for courses in our energy policy. The government understands this but is often being urged to take a different approach in order to simplify energy policy. I am all in favour of simplicity, but we must not lose sight of what drives investment, and what investors need. Targeted policies are essential. If the government relies too heavily on carbon pricing the result will simply be higher bills and higher carbon."
The report highlights a number of limitations which could arise if carbon pricing was the only policy driver to support investment in renewables:
• A carbon price will rarely be set at the level necessary to attract investment in newer clean technologies like renewables. Instead, it is more likely to drive investment from coal to gas.
• A carbon price set high enough to drive investment in emerging technologies which cannot yet compete with established fossil fuel generation would risk a windfall for operators of existing low carbon plant and higher prices for consumers. Targeted financial support policies combined with a lower carbon price provides an effective way of providing certainty to renewable energy developers whilst driving investment away from high carbon technologies across all sectors.
• At the global level, fossil fuels are more often subsidised than taxed, which also undermines carbon pricing. The effect of fossil fuel subsidies is therefore to create, in effect a 'negative carbon price'.
• Carbon pricing does not do enough to overcome the non-financial barriers that hinder the deployment of emerging technologies such as compatibility with existing infrastructure, incumbent lobby interests and skill shortages.
David Nussbaum, Chief Executive of WWF-UK said "Dr Gross' report exposes the deep flaws in the argument that carbon pricing can do it all. Whilst the simplicity of this argument may sound appealing, in practice relying on carbon pricing alone is likely to lead to carbon-intensive gas plants continuing to dominate our energy mix - preventing newer and cleaner technologies from realising their potential and locking us in to a risky reliance on largely imported fossil fuels.
"Without targeted and proportionate policies supporting our renewables industry, we will miss out on the opportunity rapidly to reduce the costs of emerging renewable technologies and on the promising economic growth opportunities that the sector has to offer the UK. This would be a huge missed opportunity given the UK's current industrial leadership in offshore wind and marine renewable technologies."