Britain's energy challenge: meeting energy generation and carbon emission targets

Energy policy in the UK is at a crossroads, and the decisions made now will reverberate for decades. At least 43 gigawatts of new electrical generation capacity, equivalent to half of Britain’s current total, will be needed by 2020, as all but one of its nuclear plants are retired and coal-fired power stations closed to meet EU air pollution standards.

A staggering £200bn of investment will be needed not only to maintain energy security against price spikes as North Sea resources dwindle and energy imports grow, but also to deliver the largest single contribution to a low-carbon economy.

Electricity output may need to double by 2020 as domestic heating, industry and transportation electrify, but there are very different ideas as to how this should be done, and the role of energy efficiency has been neglected. And it’s not only electricity that will be at a premium, the UK’s overall energy needs, including heating, transport and industrial processes are increasingly satisfied through oil and gas imports.

In 2003, the Labour government’s first energy White Paper left the door open to more nuclear power, but focused on efficiency and a huge expansion of renewables. Then a second energy White Paper in 2007, and a 2008 nuclear White Paper shifted the balance towards a wider energy mix. Reliance on renewables as the principle low carbon source was seen as costly, and a more balanced energy mix was desirable for energy security. The policy called for new nuclear power plants to supply at least 15 per cent of electricity needs and a continuing role for coal. The focus shifted away from the most effective of all the options: energy efficiency.

But there was a problem. A low-carbon Britain and a mix of substantial new energy capacity would not come about if it was left to a deregulated electricity market that had focused exclusively on competition to drive down energy prices since the 1980s. Up to that point, Britain’s declining emissions had been delivered through a dash for gas turbine plants, which were quick to build and cheap, with short payback periods. In comparison, higher capital-cost nuclear power plants suffered in a liberalised electricity market, through planning delays and long-term uncertainties over waste. Wind power also suffered from planning delays and lack of finance. There was to be no direct public subsidy for nuclear. But the new approach aimed to identify and remove barriers, with the Planning Act 2008 creating the controversial Infrastructure Planning Commission, now facing abolition, to avert long inquiries.

The last piece of the policy framework fell into place in 2008, when the Labour government, supported by all major parties, passed the Climate Change Act, a world-first. This enshrined in law the requirement for an 80 per cent cut in greenhouse gas emissions relative to 1990 by 2050. It was to be delivered in steps by rapidly tightening five-year carbon budgets, overseen by the Committee on Climate Change. Together with the creation of the Department of Energy and Climate change (Decc), energy and climate policy were now completely intertwined for the first time, at least in theory.

At the same time, the EU passed its ambitious 20/20/20 energy and climate package. This called for a 20 per cent cut in greenhouse gas emissions relative to 1990, a 20 per cent dependence on renewable energy, and a 20 per cent improvement in energy efficiency, all by 2020. A more stringent 30 per cent emissions cut depended on comparable action through a global climate agreement after 2012, but this still hangs in the balance. For the UK, this meant a 34 per cent emissions target for 2020, rising to 42 per cent with a global agreement. About half of emissions, from large industrial facilities and power plants, were already capped under the EU emissions trading scheme, with plants obliged to buy allowances to cover emissions.

Under a European directive, the UK also committed to achieving 15 per cent of its overall energy from renewables by 2020, 30 per cent of its electricity, mainly from wind, and 12 per cent of its heat use. It’s a huge task and progress is slow. By 2009, only 6.6 per cent of electricity was renewable, restrained by the recession and planning resistance. To meet the target, onshore wind power needs to quadruple, and offshore wind needs to jump fourteenfold.

Despite the challenges, DECC asked advisors in July to assess the possibilities of raising renewables targets. The government is also reassessing large-scale renewable support, and proposes shifting from a quota on utilities to guaranteed electricity feed-in-tariffs, which are already boosting micro-generation across the South-west under the Energy Act 2008.

In the absence of clear policies and incentives, renewable sources of heat have also struggled to reach 1.5 per cent, let alone 12 per cent. Two-thirds of gas is used for heating and dependence on imports is growing. Cogeneration of heat and power at community and council level would provide large savings, but high cost and poor incentives have led to very low uptake. Long-delayed proposals for a renewable heat incentive are due in the autumn, but the level of ambition to date remains modest.

Labour also saw a continuing need for new coal-fired plants, but accepted they should only go ahead with carbon capture and storage (CCS) technology, which remains unproven at scale. The government is considering advice on CCS for gas too.

But at the heart of the UK’s energy debate is still a contradiction between climate and energy policy. The energy national policy statements (NPS) risk legal challenge because they fail to adequately consider alternatives to new plant, such as energy efficiency. Crucially, there is no requirement to consider the cumulative impact of successive coal or gas-fired plant approvals on Britain’s carbon budgets. A new dash for gas is under way, threatening to crowd out CCS and nuclear and drive down electricity prices further. Of the 43GW of new capacity needed by 2020, the NPSs suggest 17GW should come from non-renewable sources, including CCS and nuclear power, but recent gas turbine approvals and applications already far exceed this quota. More than enough renewable electricity is in the pipeline, but, even with government support, lack of project finance and oversupply from gas could damage long term prospects. And unless gas is curbed or abated by CCS, the UK will breach its carbon budgets by 2020.

Nuclear power is still fraught with risks, from unresolved issues over sharing of nuclear waste and decommissioning responsibilities with government, to lack of a final repository for nuclear waste. Even with streamlined planning and safety approval for nuclear, utilities remain nervous of competition from gas turbine plant, and are looking for a much higher levy on carbon. There is no guarantee a large-scale programme will materialise, and existing plants could end up with windfall gains, though at least some plants will probably get built.

A key policy, to be consulted on later this year, is to impose a top-up tax on emission trading scheme allowances bought by energy utilities to cover their emissions, and so force up the carbon price to incentivise low carbon investment. The principle is welcomed by climate advisers and the nuclear industry, though the devil will be in the detail. A higher carbon price will not work alone. A parallel restructuring of Britain’s dysfunctional electricity market is the only way to shift the balance in favour of longer-term low-carbon investment. This autumn, the Government will consult on reform of the market and its regulator, Ofgem. Whether the 2011 White Paper makes a difference and whether the promised Green Investment Bank is influential enough to catalyse these changes remains to be seen.

Energy efficiency could and should play a much larger role in reducing emissions and new capacity need. The government’s “green deal” for homeowners in the forthcoming Energy Security and Green Economy Bill could greatly accelerate upgrading Britain’s ageing housing stock.

Predicting energy policy need to 2050 is a hard task given technological and social changes over that timescale, though abated natural gas is likely to still be in the mix, and ageing nuclear plants will again pose waste challenges. DECC’s 2050 Pathways Analysis, released in July, stresses per capita energy use will need to fall as population grows, while low carbon electricity use will rise. Better sustainability standards will be needed for bioenergy sources vital for remaining high temperature industrial processes and aviation.

High levels of renewable electricity will need much greater investment in storage and ultimately a European supergrid, tapping into wind and marine energy, North African and Middle Eastern solar power, would be a huge undertaking, but grant access to abundant renewable energy supplies.

An evolving, broadly coherent energy and climate policy appears to have survived a change in government, albeit a long way from being finalised. Meeting the energy challenge will mean facing up to years of underinvestment in low-carbon infrastructure through market reform and intervention, a push on energy efficiency, and ensuring energy policy choices taken now are sustainable into the future. m

Dr Paul Hatchwell is an energy and climate consultant and writer for the ENDS Report, the UK journal and website for environment business and policy