The UK Labour party recently demanded that the Conservatives introduce a more transparent approach to their energy policies with the Shadow Energy Minister, Alan Whitehead, tabling amendments that would force Amber Rudd and future energy secretaries to update parliament every six months on how policy changes affect the UK’s 2020 EU renewables target, and outline the cost to the British tax payer if the UK were to fail to meet these targets.
This is something that UK renewable energy company Dulas has been calling for ever since the Paris talks last year. Dulas Managing Director Phil Horton has said that with the nine substantial cuts to renewable policy and clean technologies since the Conservatives took over a majority government, Britain’s ability to meet the targets agreed in Paris is in jeopardy. As a company that has been personally affected by policy changes bought in since May, Dulas would call for U-turn on many of the decisions made, as the only realistic way to meet 2020 targets.
In a highly interesting conversation with Renewable Energy Magazine, Phil Horton discusses the present situation with regard to the UK renewable energy sector, including Labour’s proposed amendments and the possible impact of present government policy on UK renewable energy targets, particularly with regard to the UK’s present reputation as a leader in the global renewable energy sector.
Can you tell me about Dulas and what it does?
Dulas was founded over thirty years ago, and has worked in the renewable energy field ever since; in the UK’s wind, solar, and hydro sectors. Although we’re not a developer ourselves, we act as consultants to those investing in renewables projects. That’s about two-thirds of our business and the other third is involved with the production of solar powered vaccine refrigerators in developing countries working in conjunction with UNICEF and NGOs.
We do everything from planning, environmental impact assessments, and consultancy work. We manage the installation of wind, hydro and solar projects as well as providing O&M services.
How would you describe the UK government’s energy policy at the moment?
I would say ‘confused’; I think that’s the best description. We have quite a lot of contradictory messages coming from the government at the moment. They want to control costs but they also want to support more expensive sources of energy; they want to reduce carbon emissions but also want to support fracking; and they want clarity for a market which their policy changes have made extremely uncertain.
What we’re seeing is a drop in the planning work in the very early stages of project development, and you have to remember that projects like wind farms undergo a 5-10 years planning and development stage before they come through to fruition. Witnessing this drop off now, we will only start to feel its real impact in the next few years. No one is actually making the decision to go ahead with projects, because they don’t know what the next changes are going to be. These are viable projects, but they’re not willing to take the plunge at the moment because they’re thinking “What’s the next policy change going to be?” It’s that uncertainty that’s harming the market at the moment.
On the solar side, we’ve seen a few people withdraw from the market and a few people go out of business. The market has become very competitive with an enforced ‘cheap as possible’ attitude, but that’s not necessarily a negative thing; we need competition within a viable energy system. So I think on the larger scale and the more long-term projects, it’s the uncertainty that’s the problem rather than the immediate cuts that we’re seeing on the tariff.
What would be the most serious effects of the UK missing its EU renewable energy targets?
With regards to the UK’s global reputation, the industry has been saying that we’re leading on renewables development and climate change; David Cameron has been saying at Paris that we’re leading on this; so quite apart from anything else, our standing in the world would be damaged if we were to miss 2020 targets.
It would also waste all that time and effort and innovation that’s gone into developing the technologies and the industries in this country which could be exported overseas. So there’s a danger that if the investment goes elsewhere, we’ll miss out over the next few years on what will become a global boom in renewables.
What penalties would the UK incur if it failed to meet its obligations under the Paris agreement?
It’s not clear yet exactly what would happen if the UK failed to meet its obligations. There’s a lot of flexibility in there in terms of how countries meet their targets. I would be less concerned about the financial penalties and more concerned about what this says about where we are going for our children and our grandchildren - in terms of a world with lower CO2 emissions and minimal climate change, and also in terms of opportunities for future generations.
In Wales we have a new Wellbeing of Future Generations Act, which obliges all public bodies to consider future generations’ energy policy. One of the impacts of UK government policy is that it will stop Wales and Scotland from achieving their stated aims as well. We’re going to end up with a Wales versus England versus Scotland situation if we’re not careful.
How has Dulas been affected by the cuts so far, and how does this compare to other companies in the sector?
We’re generally more robust than other companies because we work across all these various technologies, and that’s protected us over the years. What we have seen is a 70 percent drop in planning work since July this year, since the initial announcement, so those people working on the consultancy side we’ve had to divert on to other work. We’re starting to work overseas because other countries have a more enlightened approach to renewables at the moment, so we’re looking within Europe and also further overseas.
We’re also changing the type of consultancy we’re offering, so looking to new markets within the UK, particularly with regard to collating all the information on energy used for high energy users and looking at helping to reduce energy costs.
Renewables help with that because they give you a guaranteed price for your electricity looking into the future, whereas we’ve got these volatile wholesale energy markets within the electricity market and, while electricity prices are low at the moment, they are forecast to increase again. What we’re trying to do is to help clients with planning for the future, particularly where they have high energy costs at the moment. So we’re looking at a more holistic view of energy and carbon reduction. We’re changing our response to the market and so we’re better placed than most because of the range of skills that we have and the range of products we offer.
Do you think the cuts are motivated by financial constraints or government hostility to renewable energy, or a bit of both?
I think it’s probably more to do with the hostility of a certain proportion of MPs in the current government. If you look at public surveys, 70-80 percent of the population support renewables and about the same proportion object to fracking. This current government tends to have a kind of ideological drive towards fracking rather than renewables. We have different rules, so we don’t have a level playing field in terms of planning and we’ve also got to talk about nuclear. Whether you like it (nuclear) or not in terms of your ideology, the reality is that projects are getting delayed further and further, so if you want to talk about 2020 targets, nuclear power stations aren’t going to have an impact until 2025 or 2030 at the earliest. I think there is some confusion in government about how we meet our 2020 targets.
In terms of costs, there seems to be this continuous refrain about protecting consumer bills ”for hard working families”. There’s a very interesting report by Good Energy with Warwick University, concerning the Merit Order Effect, which shows that increasing use of renewables on the grid has actually reduced electricity prices. The cost reductions we’re seeing in wholesale electricity prices have been driven by renewables and that’s because when they’re integrated into the grid they’re in effect at zero marginal cost because all the costs are capital costs, they have no fuel costs.
The daft thing about that is, because it’s pushed down wholesale prices, it’s increased the cost of the Levy Control Framework (LCF) which is the mechanism the government uses to assess how much renewables are costing. That’s based on paying the difference between the wholesale price and the strike price, so as the wholesale price goes down, their costs increase. It has no net effect on your bill, and indeed the forecast the government did in May, released after a Freedom of Information (FOI) request, showed a reduction in electricity bills after 2020, but we’re still hearing this argument that we have to cut the costs of subsidies.
What the Merit Order Effect says is that the net cost of subsidies is actually far lower than that headline figure, 50 percent of that LCF is matched by a reduction elsewhere in the electricity bill. There’s a lot of talk about the cost to consumers but I think the drive behind this is not the cost, it is the objection, particularly to onshore wind farms, from a very small number of people who are very vocal and seem to have a lot of influence.
Some people are saying that the cuts will actually help to stimulate the sector by making it more efficient; what is your view on this?
I can understand the arguments. The industry, when we were heading into the last election, both wind and solar, had their own manifestos which said “we will be subsidy-free by 2020”. It is worth noting that no form of energy generation in the UK is subsidy-free. There are support mechanisms for all of them, whether that be through tax breaks or something else - for example the announcement of tax breaks for offshore oil development in the last six months. Even gas-fired power stations that are coming in and bidding in to the market are failing to get funding at the minute.
Unfortunately, the lack of clarity over policy is affecting all parts of the industry and none of the energy technologies are subsidy free. There’s been an inordinate focus on the level of support for renewables without looking at the support for other technologies as well, Nuclear has been offered £92.50 per kilowatt hour for its generation, which is twice the electricity price. So it’s all very well using that language, but we need to use it for all technologies, not just clean energy sources.
What needs to be done to rectify the situation?
I think the government needs to take a long-term view of what they want the energy network to look like, beyond 2020. So we need CO2 reduction targets beyond 2020 - we don’t have those at the moment – and I think we need a lot of transparency as to how the forecasts for costs are put together. We also need planning certainty and a focus on a policy that says we can conquer the world with our knowledge of renewables and smart grids and the management of intermittent sources on grids.
We have all that knowledge here and if you look at the economy as a whole it could have a really positive impact on the UK. We also need to focus on energy security - these supplies from other energy technologies are far more insecure than renewables reliant solely on wind and solar and water within the UK. So we need a real refocus on clean energy away from stopgap fossil fuel solutions.
What do you think of Labour’s proposed solutions?
I think the matter of giving updates on policy would be valuable in that it would clarify where we are on the trajectory through to 2020, but Amber Rudd has already admitted that current policies will not deliver the required cuts to CO2 emissions, so if that brings more pressure to bear on them to deal with the problems in the industry and to give greater clarity and certainty and to support the industry to deliver those targets, that would be great. I think just getting that information will not, on its own, remove the problem but if it brings greater clarity and brings pressure to bear then that will be all to the good.
What action is Dulas calling for?
What we’re calling for is clarity over energy policy as a whole really. We’re getting a piecemeal approach at the moment. We want a vision from the government as to what they see the industry looking like in about ten years’ time. Is that 70 percent renewables on the network or is that fracking over the whole country? We need to have that clarity. We also need consistent support to remove that uncertainty.
The difficulty we have with all these changes is that a number of them were not anticipated so that people, in good faith, developed projects and invested money in them to a certain stage and then had the rug pulled from under them at the last minute. The industry seeks clarity and if they know what the rules are they will work within the rules and deliver, but they cannot make those investment decisions at present. We’ve had a lot of things taken away and we haven’t seen what’s been put back in its place. There will be loads of projects that are viable subsidy-free, but if there’s huge uncertainty over planning, then people still aren’t going to invest. I also think we need recognition that an energy policy runs beyond the five-year election cycle as well. There needs to be cross-party agreement on that.
How optimistic are you that positive changes can be enacted?
I am always optimistic; Dulas has been working in the UK market for over 30 years. When we started in that market we didn’t have those support mechanisms in place and we’ll continue to take the lead because we’re committed to a sustainable future, so there’s a lot of people committed to this industry for reasons other than making money out of it. The market is changing, I think the UK will commit to meeting its targets and I think maybe, with better information provided to Ministers as to how that can be achieved, we will get that clarity in the near future. Amber Rudd is under pressure to respond to these issues and the industry needs to support her in doing that.
Established in 1982, Dulas offers professional services for renewable energy. The company brings together expertise, skills and knowledge in the renewable energy sector and is able to advise clients on renewable energy including solar PV, wind, and hydro systems. Dulas operates in all areas of the supply chain from feasibility and resource assessment through to installation, project management and operation and maintenance. Its mission is to improve lives through renewable energy and sustainable technology through its global presence, working to help provide renewable energy technology to those who need it.