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The Energy Challenge: Role of Renewables

The Rt. Hon. John Hutton MP,  Secretary of State for Business, Enterprise & Regulatory Reform
Fabian Society, London,  17 September 2007

Tim, thank you for your kind invitation to speak today and to the Fabian Society for hosting this event. It’s a pleasure to have the opportunity to come and speak with you about what I think will be the defining challenge of our time: how we make the transition to a low carbon economy.

Completing this journey in the decades ahead will be critical to the functioning of our economy and society.

So today, I want to talk with you about how we meet that challenge. My view is that there is no single technology we can rely on to help us achieve our goals. But I believe there is no solution that does not involve a greater role for renewable energy. And in moving forward we must be clear about the obstacles that confront us but equally determined to overcome them.

At the heart of this transition must be the continuing promotion of competitive energy and carbon markets – in the UK, Europe and ultimately the rest of the world.

The interdependent nature of the climate change challenge necessitates an interdependent energy supply strategy. No major economy will be able to stand alone. We need a stable and predictable domestic and international policy framework that can facilitate investment in a range of energy sources, with strong financial incentives towards the production of low carbon technologies.

Competitive energy markets, driving the production of low carbon technologies, will both enable us protect our environment and help our economy to grow and prosper. And that must mean a profound shift in the way the world generates and consumes energy.

The challenges and the solutions for energy are global, requiring action internationally as well as here at home.

As economies continue to grow, particularly in developing nations, so too does the world demand for energy, expected on current policies to increase 50% by 2030.

This is why energy supply and climate change are two sides of the same coin. If the carbon reduction targets that we set domestically and internationally become the ‘question’, then how we manage both the demand for and production of energy will be the ‘answer’.

It is right that in this critical debate, Britain takes a lead; that we set challenging domestic targets; that we gain international agreement for the goals we want to achieve. But we will only transition to a low carbon economy if we create a policy framework that incentivises business and consumers to change the way they produce and consume energy.

This transition won’t be achieved by Government diktat or crude regulation.

We need to create a virtuous circle between the competition in our domestic and international energy markets and the empowerment of consumers to extract maximum value from the reputation impact that companies respond to in a modern, open economy.

This requires evidence-based policy making, the courage to take tough decisions, and the willingness to take action at the personal as well as the collective level.

Critically, it requires the UK Government to do everything it can to influence its international partners and that starts with our neighbours in the European Union. Political parties that claim to be environmentally friendly have to first ask themselves whether it can ever amount to more than hot air if they isolate themselves from our EU partners.

Our influence is already delivering results.

The goals agreed at this year’s EU Spring Council – a 20% reduction in greenhouse gas emissions increasing to 30% if our international partners join in; a central role for emissions trading and a 20% sourcing of renewable energy supplies by 2020 – were ambitious and in large part, the result of UK leadership.

For those that say markets are the problem, my response is simple. Properly structured, well regulated markets will be the very foundation of our long term answer to the climate change challenge. But as in other parts of our economy, well functioning markets don’t happen by accident. They require Government and regulatory intervention to build and sustain them. And in the EU ETS Governments have led the way in constructing such a market for reducing global carbon emissions by the most cost-effective means. It has the potential to become the basis of a global carbon market.

So a priority for UK influence in the EU transition to a low carbon economy must be the creation of a fully functioning EU energy market. More openness and competition leads to a better deal for consumers – both domestic and business – and with the right incentives, will help meet our 2020 goals.

We have led by example in liberalising our domestic energy markets. We want to see the EU make further progress towards energy liberalisation over the coming month for example by requiring EU States to ‘unbundle’ their transmission systems from their energy generation and supply operators.

Britain can also be proud of the leadership role it is taking at home. Traffic light assessments aside, a grown up analysis of Britain’s role shows a consistent and ambitious determination to lead from the front. Earlier this summer we published a draft Climate Change Bill. It will, for the first time, impose a legally binding duty on Government to reduce the amount of carbon that is produced, as we work towards our target of achieving at least 60% reduction in carbon emissions by 2050. We are the first country to take this step.

A significant expansion of renewable energy will be critical to meeting our climate change objectives and transiting towards a low carbon economy. But we will need to do so in a cost effective way: one that supports and not hinders UK competitiveness. These are not false choices – renewable energy versus a competitive economy. Over the past 10 years UK GDP has increased by 28%. At the same time we have been able to deliver a reduction in Greenhouse Gases of almost 7 %. Going green doesn’t mean going slow. But it does mean working to create a level playing field in energy production over the next twenty years increasingly built upon the true price of carbon to the economy and the country.

Our commitment to renewable energy is evidenced not by words but action.

It was this Government that introduced the Renewables Obligation, mandating electricity suppliers to source an increasing percentage of their energy from renewable sources. It means that annual household bills are likely to rise an average of around £11 by 2010/11 to support renewable suppliers.

And Government is playing its part with increasing support for energy innovation - ranging from the research and development programmes supported by the Research Councils and the Technology Strategy Board to my Department’s activities in support of demonstration and replication of renewable technologies.

We shall shortly be launching the new Energy Technologies Institute, with a minimum budget of around £600 million over the next decade for R&D into low carbon energy, drawing on private as well as public funding. The ETI and the Environmental Transformation Fund, to be established next year, will bring a new level of coherence to our energy innovation strategy.

Our best forecast is that around 15% of our electricity supplies will come from renewable sources by about 2015: a tripling on present levels.

We know that we shall need to do even more to make our contribution to the EU target. The Commission is yet to propose how the target should be met by Member States, but whatever arrangement is devised, there’s no question that it will pose a major challenge not just for the UK but also for most EU Member States. As it should do: the purpose of targets is to challenge, not comfort.

Meeting the target will involve both sustained political will and significant investment. It will also mean reconciling competing aims. How, for example, will new EU Renewables Directive be compatible with the existing EU Habitats and Birds Directives?

Implementing the EU Renewables target will need to be seen as a credible and cost-effective contribution to tackling greenhouse gas emissions if we are truly to act as a global leader. Emissions trading must also be shown to be an effective basis for a global approach. And renewables deployment must be cost-effective: we have no wish to land unnecessary expense falling on consumers, nor threaten EU competitiveness.

So, what progress are we making in the UK towards transiting to a low carbon economy?

We started from a lower base than some countries, but the progress during the last few years has been rapid. Since the start of the Renewables Obligation in 2002, where Renewables was responsible for 1.8% of electricity generation, the UK has grown to more than double that with 4.43% of electricity from renewable generation eligible under the scheme at the end of last year. This rises to 4.6% for all renewables.

The Government is committed to the Renewables Obligation. It has been a success so far, and industry confidence in the system has grown. Its effectiveness will increase further as under our White Paper proposals to reform it and as we reform the planning and grid access regimes.

But of course, we will need to do more.

We have three pieces of legislation – the draft Planning, Climate Change and Energy Bills. These are all interwoven, setting legal frameworks for how we will achieve our goals. Taken together, the three Bills will give the UK a fit-for-purpose legislative framework which will put the UK on a long term path to tackling climate change and ensuring secure energy supplies.

We are making two important changes to help drive increased investment in renewable electricity.

First, grid access. Ofgem, National Grid and the network companies have a vital contribution to make in delivering investment in our electricity networks. The last Transmission Price Control saw agreement on £4bn of investment over the next five years, in addition to the £500m already committed to connecting renewable generation projects. This is good news, but we need to look further ahead to a world where the generation mix has increased amounts of variable generation. This means sharing access to the network and changed approaches to network operation. We announced in the White Paper a Transmission Access Review, which we are carrying out with Ofgem to ensure that renewable projects have better access to the grid in the medium to long term.

Second, banding of the Renewables Obligation. This is a mechanism that aims to recognise that some renewable technologies are more advanced than others. It will allow us to reflect the practical constraints faced by the most mature technologies such as onshore wind, to give less support to cheaper technologies such as co-firing, and to give much more support to the next generation of technologies such as offshore wind, wave and tidal. It’s an important measure and we welcome the wide range of responses we’ve received in our recent consultation on it.

Planning

As a nation we must meet both the challenge and the opportunity that a transition to a low carbon economy provides. We must be straight with people about the barriers to a low carbon economy. And in my view there is no greater obstacle to meeting that challenge than reforming our planning system.

If we are serious about renewable energy, about meeting our 2020 goals, then we have to create a planning system that supports and doesn’t hinder that objective. Our strategy for meeting the twin challenges of moving to a low carbon economy and ensuring our energy supplies was set out in the May Energy White Paper. It will be the foundation of our economy. And a national energy strategy must be supported by a planning system that is fit for purpose. That is capable of meeting the modern challenges of climate change and energy security.

Despite progress in renewable energy generation, Britain is not fulfilling its potential. Why? Because we have a planning system that for important infrastructure projects takes too long, is unpredictable and complex. It satisfies the needs of neither developers nor objectors. The result is a politicised planning system that frustrates a UK energy strategy and in particular our goals around renewables.

Today there are 56 wind farm projects – with a collective potential for generating 4 GW of energy – that have been stuck in the planning system for over 2 years. 3.3 GW of this potential energy resource resides in Scotland alone. If all these projects had been approved and online we would have saved up to 2.4 million tonnes of CO2 by now, produced electricity equivalent to that used by 2.1 million homes and we would be twenty-five percent closer towards our 10% 2010 target.

We are frustratingly close to a dramatic escalation of renewable energy in the UK but it’s being held back by a failing planning system, unable to cope with the modern demands of critical energy infrastructure.

Onshore wind farms appear to be faring particularly badly. In recent years an increasing percentage of wind farm applications have been turned down so that by 2006/07 nearly 50% of all applications, where the decision rest with local planning authorities, were refused.

It’s no good saying renewable energy is good in principle but not in practice. Yes, it means difficult, hard choices. The planning system must be able to give potential developers confidence that important projects will treated fairly within a timeframe that properly balances the need for scrutiny with need for predictability.

The successful delivery of the proposed reforms to our planning system, which the Government set out in its Planning White Paper earlier this year, will, I believe, be the key determinant in whether we have a realistic chance of meeting our 2020 renewable goals.

Rhetoric around the need for action on climate change is no substitute for supporting the action that is necessary to make it a reality. It’s critical that all of us – politicians, civil society, business – get behind the important changes to our planning system.

Reform of our planning system is not a false choice – democratic oversight or streamlined planning. We can and must have both.

All major infrastructure progress should be put through a rigorous planning process. All major new developments have impacts of one sort or another.

But we have to get the balance right. If we don’t we risk pumping more CO2 emissions into the atmosphere for every day of delay.

As things stand, the planning system can be subject to delays for a variety of reasons. Information provided by developers may be incomplete. Regulators, whether in central or local government, may take too long to reach decisions, sometimes because they are waiting on critical inputs from Government's statutory advisors on matters such as environmental impacts. Public inquiries can take a long time and there may be a wait for the report and decision afterwards. If a consent decision is judicially reviewed, this can add years rather than months to the process. And all of this excludes the time spent at the pre-application stage and the period from a final consent decision to generation of electricity. In a worst-case scenario, there can be 7-10 years between a company taking an internal decision to invest and delivery of energy to the grid.

This is simply unacceptable if we are serious about meeting our renewable energy objectives.

It is possible to deliver reform that brings greater transparency to our planning system, takes ministers out of individual decisions and creates a strong democratic framework for Parliament, public and civil society to engage. A planning process that is fair to the rights of objectors but also creates confidence for developers. The creation of an Infrastructure Planning Commission operating within National Policy Statements, will do just that.

Making the planning system work is everyone’s responsibility – including developers, who must work with local stakeholders and submit well prepared applications. But as long as we all want energy, we have to accept that it needs to be generated somewhere.

Local Authorities will continue to have a vital role to play, particularly but not exclusively in planning. Tomorrow, the Government is publishing the Energy Measures Report, which sets out the steps Local Authorities can take to improve energy efficiency, increase the take-up of microgeneration and low-carbon technologies, reduce greenhouse gas emissions and tackle fuel poverty.

The Planning Module for example confirms that climate change is at the centre of what Government expects from good planning. It underlines the important role of positive planning in helping shape places with lower carbon emissions and resilient to the climate change now accepted as inevitable. We want to see ambitious local approaches that lead to increasingly higher levels of local renewable energy. This will require practical steps from local councils as well as developers and energy companies.

I don’t doubt that here in central Government we will continue to need to do more. There are for example, many on and offshore wind projects that are being delayed by the challenge of potential technical interference with the country’s air radar systems.

But I am determined to do whatever my department can do to expedite consent applications as fairly and speedily as possible.

So today, I am delighted to be able to announce that the Government is granting consent to the South West of England Regional Development Agency’s ‘Wave Hub’ project, ten miles off the Cornish coast. This is a deep-sea electricity ‘socket’, which will make it possible for several demonstration wave farms to be set up. In addition to providing renewable electricity for 7,500 homes when fully operational, these wave farms will, I hope, help to prove the value of this developing technology.

Given the sheer length of the UK’s coastline, wave and tidal energy have enormous potential for us, and this project and the significant funding already allocated to the sector reinforce our commitment to their development.

I can also announce today that we are granting consent for EDF Energy’s Teesside Offshore wind farm. This is a wind farm of 30 turbines, to be located off the coast between the mouth of the River Tees and Redcar, and when complete it will generate green electricity for approximately 72,000 homes.

Conclusion

Our Energy White Paper sets out our strategy to tackle climate change and energy security. Markets are at the centre of this strategy, together with the interventions government needs to make sure that markets work well and in ways that meet our energy and climate change goals.

Within this framework my ambition is to make the UK the best place in the world for investment in renewable technology. Over the next 20 years the world has to adapt to a low-carbon economy. With it will come a massive increase in the demand for low carbon technologies and for scarce construction and engineering capability, able, with relatively little notice, to move from country to country. Nicholas Stern estimated that the low-carbon energy product market could be worth over $500bn per year by 2050.

Britain will have to compete fiercely for that investment and scarce capacity with other economies. The growth of the new emerging economies and often the sheer size of their domestic markets makes them potentially enormously attractive for that scarce investment.

I can tell you now that the transparency, predictability and effectiveness of a country’s planning system will be the key determinant in the decisions those developers make. Get it wrong and we will drive them away.

So if we are serious about climate change then we must be serious about renewables. And if we are serious about renewables we have got to be serious about planning. You can’t do one without the other and hope to succeed. That is the test for anyone who wants to contribute to the debate about the real choices that the nation has to make in months ahead as we push on towards a low-carbon economy.