The UK’s energy
policy has become increasingly market driven, in the belief that competition
will reduce costs. All the support systems for renewables, from the early NFFO
through to the Renewables Obligation and then the new Contracts for Difference
(CfD) system, are all based on market competition- in the case of the CfD, via
competitive contract auctions. That has contrasted strongly with what was done
elsewhere in the EU, in Germany especially, where guaranteed-price Feed in
Tariffs (FiTs) have ruled. One
result is that much more capacity has been installed, for example over 70GW of
PV and wind in Germany, than in the UK (24GW total so far), which remains near
the bottom of the EU renewable energy league table, despite having a better
renewable energy resource base than almost any other EU country.
However things
are changing- though not for the better. In the UK, the new Tory government is
trying to remove the last vestiges of direct support for new renewables, via
further cuts to the small FiT than was introduced after much grass roots
pressure. Though that’s also
happening elsewhere- FiTs have been cut across the EU, and are being phased out
in preference to market based systems, including contract auctions, as in the
UK. In part this is since, it is argued, renewables are becoming cheaper and do
not need high levels of FiT support, with its impact on costs to consumers.
There is some truth in that. The initial pass-through cost to consumers (for PV
especially) was relatively high and some of the new technologies are becoming
near competitive with conventional sources in some markets- although it has to
be remembered, those sources also get subsidies (in fact much more that
renewables), so it's not a level playing field. Although some renewables may
prosper in the new competitive regime, others will not, especially the newer,
less developed, options, and the end result of the cut backs could be a
slow-down in the growth of renewables, due to what some see as a premature, and
indeed punitive, removal of support.
Certainly, in the UK, that seems to be the intent of the removal of
exemption for renewables from paying the Climate Change Levy (CCL).
While all this
might be seen simply as the result of shift to the right, earlier on there was
some speculation that the Cameron government was actually prepared to intervene
in markets quite strongly. The hard right obviously saw the CCL and the FiTs
as unwarranted interventions, but,
despite their competitive element, they were also not happy with the CfD for
renewables, or with the capacity market that was said to be needed to maintain
back-up. In part this was since
the hard right didn’t like renewables, even cheaper renewables like on-shore
wind, sometimes due to concerns about local property values and views, but more
generally since the new disruptive technologies were undermining profits in the
conventional energy system. So
there was a multiple ideological backlash. The CCL was mangled, the CfD toughened
up even more, with on land wind excluded, FiTs revamped and large solar blocked
via new planning rules.
This harder line
approach has spread to Germany, which is in the process of dismantling the FiTs
and creating a new market-based system. It has also decided not to set up a
separate capacity market. Instead all will be run through a direct competitive
market. So, if anything,
it has, in some respects, gone further right than the UK. This raises many
questions: can price signals and competition really
hold it all together, and ensure that enough balancing capacity, including
demand management, is available?
And also stimulate energy saving? And reduce imports? www.bmwi-energiewende.de/EWD/Redaktion/EN/Newsletter/2015/07/Meldung/white-paper.htm
The main
countervailing influence, the state imposed block on nuclear in Germany apart,
is the belief that the EU Carbon Trading System (EU-ETS) will help restore some
sort of balance, squeezing coal out. So far, with the carbon caps set much too
high to stimulate much trading, that is something of a fantasy, although it is
shared by the UK, which has even introduced its own unilateral top-up system,
to try to force the price of carbon up. That seems a desperate interventionist
attempt to breathe some life into the system- maybe so as to help nuclear
survive. It rather undermines the basic attraction of the EU ETS, such as it
is- that it is a market mechanism, creating a price for carbon and, in theory,
stimulating trading in it. Interestingly, that has not endeared it to the right
in the USA, who often see emission cap and trading systems as just a carbon
tax. The US left (if such a thing really exists!) has instead mostly focused on
local renewable quotas or, nationally, on direct emission regulation, and Obama’s
new state-wide Clean Energy Plan goes a long way in that direction, aiming for
a 32% cut by 2030. That is a brave intervention, but maybe will face the same
sort of political problems that have emerged in the EU with the ETS- resistance
by states/countries with high carbon dependence.
What seems clear
from most of the battles so far, is that, given powerful vested interests,
markets don't work and intervention is hard. But it is not a static system:
increased concerns about the costs of climate change and air pollution, and the
rapid reduction in renewable cost, is accelerating the challenge. With the
energy market also changing (not least by the rise of prosumers), some key
energy/engineering companies are abandoning their fixed positions. Siemens,
RWE, E.ON and so on have all now embraced renewables (and dumped nuclear), in
the hope of maintaining profitability. They may look to competition still, but
may also expect the market to be less skewed and for interventions to be more
consistent. Political change is also always possible, so that new directions
may yet emerge, even the UK!
Jeremy Corbyn has certainly outlined a radical new approach, via direct
state intervention and new policy directions to support a more ‘open, competitive and sustainable energy market’:
http://www.theecologist.org/blogs_and_comments/commentators/2978777/jeremy_corbyn_the_green_britain_i_want_to_build.html
