WILL de-carbonising the nation’s energy supply be good for the North East?
OVER 260 MPs recently voted to decarbonise UK electricity generation. They have been backed by Lord Sugar and scores of prominent businesses.
This Energy Bill amendment was effectively calling for the Government to remove all fossil fuels from UK electricity generation by 2030.
However the amendment failed, with 290 MP’s voting with the Government, and no decision on a target will now be taken until after the next election.
What’s all the fuss about?
It is estimated that over £110 billion of investment is needed over the next 20 years to allow the UK to generate low carbon electricity - representing a significant opportunity for British business.
But there are concerns that if this process is not managed correctly then UK households and business will face rising electricity and gas prices and possibly power cuts.
What does decarbonising the nation’s electricity supply mean?
The Climate Change Act of 2008 bestows a duty on the Government to ensure that UK carbon emissions in 2050 are at least 80% lower than in 1990.
The UK also has to hit a Europe-wide 50% reduction target by 2030. One of the main ways to do this is cut emissions from the larger carbon dioxide emitters.
Two of the largest are coal and gas fired power stations. But they play a prominent part in UK power generation - last year accounting for around three-quarters of all UK electricity.
Why do it?
The driver behind this is Climate Change. Carbon dioxide levels in the atmosphere reached a one-million year high of 400ppm (0.04%) earlier this year.
This is a rise of some 25% over the last 150 years and has been attributed to the increased burning of fossil fuels since the Industrial Revolution. This is said to be the reason why global temperatures have risen by 1.3% in the last century.
How will the UK electricity supply be decarbonised?
One of the first targets is to increase the level of renewables in the UK energy mix. The Government has set a goal of 15% by 2020 and is on target to achieve that.
The Government has published five year carbon budgets which set out its CO2 reduction targets. Budgets after 2022 have yet to be set.
Those voting for the amendment say a decarbonisation target will speed up the switch away from fossil fuels and provide certainty to renewable investors.
But the Government says it will not set a decarbonisation target until 2016 when the Carbon Budgets for 2022 and beyond are set. These will set the future pace of CO2 reductions.
The Energy Bill, which is currently passing through parliament, will establish the subsidy levels paid to low carbon and nuclear power generators to encourage further investment in renewable energy sources.
It also highlights how over £110 billion will have to be spent decarbonising UK energy supply.
Will North East businesses benefit from this £110 billion investment?
Yes. Offshore wind and nuclear, along with a host of other renewable energy sources, are identified as the main technologies to allow the UK to decarbonise.
The North East is well-placed geographically for access to the proposed wind farms in the North Sea. The region has the ports, infrastructure and marine engineering skills and heritage to become a hub for offshore wind.
It is estimated at least 10,000 new renewable jobs could be created in the North East.
Is there a downside?
Renewables require significant subsidies. Wind power is priced at around £130 per MWh compared to the current wholesale price of around £50 per MWh.
The Energy Bill will also establish a payment mechanism to back-up power stations. These will be asked to generate electricity when the wind is not blowing.
Who will pay for this?
Renewable power is supported by the Government subsidies with some of the costs being passed on to businesses and consumers through higher electricity prices.
The pro-renewable lobby say rising global gas prices would cause bills to increase in any case, and that renewables will be cheaper in the long term. Although many say it is subsidising renewables that will cause prices to rise.
Some say an extra £500 will be added to annual household power bills over the coming decade.
That doesn’t sound very good
There are also concerns rising energy prices will affect the global competitive of business.
And additional Government measures to cut carbon emissions through the Carbon Floor Price (CFP) have already cost the North East 500 jobs, with the closure of the Alcan aluminium smelter at Lynemouth.
This is known as carbon leakage and many fear the CFP will see other businesses pack up and leave.
Global temperatures have remained flat for more than a decade and many argue the case for such a huge upheaval in electricity generation is not so pressing.
What about Carbon Capture and Storage?
Fitting carbon capture and storage technology (CCS) to fossil fuel power stations would stop CO2 getting into the atmosphere but there are no large-scale CCS plants operating effectively anywhere. It’s a complicated and expensive process and some say it is still at least a decade from industrial-scale viability.
What about Shale gas?
US gas prices have plummeted and are now 75% lower than in Europe due to its shale gas bonanza.
Last week shale gas company IGas said its licence area in the north west of England could contain between 15 and 172tn cubic feet. The lower figure would be enough to power the country for five years. The British Geological Survey, which is due to be published soon, is also likely to show the UK has abundant shale gas reserves.
What’s the Government going to do?
Expect to see a new dash for gas with up to 20 new power stations constructed over the next decade. Almost all of the coal powered stations will be closed by 2020. Gas emits half the CO2 of its fossil fuel cousin.
In the meantime the Government will encourage new nuclear and renewables with the subsidies outlined in the Energy Bill.
However there are concerns the UK will be unable to compensate for the loss of coal-fired power sufficiently quickly and we may face power cuts
What do the experts say?
Lord Ridley, the recently elected peer from the Blagdon Estate in Northumberland, is a leading science journalist and author.
Decarbonising the nation’s energy supply, in the way we are currently planning to do it, will be bad for the North East economy, even if we attract some wind-power jobs here. Carbon rationing has already exported 500 jobs from Lynemouth.
It will continue to raise costs for business, destroy jobs, hit the poor, line the pockets of the rich and damage the tourist industry. And it is possible that the current decarbonisation strategy will achieve these feats without actually achieving decarbonisation.
These are not scare stories, but fact-based conclusions from what is happening all over the world. Denmark, which rushed into wind early, has concluded that wind power destroyed as many unsubsidized jobs as it created subsidized ones – by hitting employers’ bottom lines.
As for bioenergy, most experts now agree that both biomass-burning power stations and biofuel crops in practice actually increase emissions over their first 80 years. They do this by directly or indirectly (through the effect on prices) turning forests into emissions.
Every decarbonisation policy successive governments have pushed – ground-source heat pumps, carbon capture and storage, electric vehicles, biomass, biofuel, onshore wind, offshore wind – has so far proved a costly flop.
The only decarbonisation policy that has worked, anywhere in the world, was not a policy at all; it was a happy accident. The dash for cheap shale gas that America embarked on six years ago has cut US carbon emissions by nearly 20% since 2007, lowered energy costs and created hundreds of thousands of jobs. Cheap shale gas from Lancashire would be great for the North East.”
Simon Bowens, local and regional campaigner, Friends of the Earth - Yorkshire and the Humber and the North East
“Decarbonising our energy system is the most cost-effective way of achieving the UK’s commitments to tackle climate change.
The development of low carbon energy such as wave, wind, tidal and solar and energy efficient technology such as electric vehicles presents a great opportunity for the North East.
Using our innovative engineering skills, infrastructure and, for offshore wind, our proximity to and experience of working in the North Sea, our businesses can be at the heart of this energy revolution.
We need to do it now. Recent evidence from the Government’s advisors shows that delays to this investment could cost the UK economy over £25bn in higher energy bills, with a resulting negative effect on businesses and families in the North East.
However, investors need greater clarity on future Government direction. The Energy Bill currently going through the House of Lords needs to have a clear clean power target to bring down the cost of capital and investment.”
Opinion is mixed amongst other regional experts
Ian Lavery, MP Wansbeck, sits on Westminster’s Committee for Climate Change. He said: “I supported the amendment to set a decarbonisation target.
“It’s essential that we have a target to decarbonise our electricity supply by 2030
“To ensure we can achieve this we have to crack on with establishing a viable carbon capture and storage programme.
“In terms of renewables the North East is well-placed to capitalise on the opportunities, in particular with offshore wind.
“The Government wants to have a new dash for gas to get us through the next ten to 20 years and then after that a lot of its focus will be on nuclear power.
“It is banking on some kind of shale gas boom, but shale gas is still a fossil fuel and will need to come with a carbon capture and storage programme.”
George Rafferty, chief executive of NOF Energy, said: “It is clear that a proportion of de-carbonisation of the UK’s energy supply will be required if we are to meet EU Directive of achieving 15% of our energy consumption from renewable sources by 2020.
“However, we cannot ignore the contribution of oil and gas to the energy mix. We advocate the need for a balanced energy future, which utilises a blend of traditional and emerging energy resources.
Alex Dawson, chief executive of TAG Energy Solutions and chairman of North East renewables group Energi Coast, said: “Any amount of decarbonisation of the energy market will present opportunities for North East businesses.
“The creation of renewable energy solutions on an industrial scale is the next chapter for the energy industry and North East companies are fully able to play a considerable role in its future.
“However, the delays to the Energy Bill have caused indecision among operators and investors, which has reduced the amount of work available to UK suppliers.
Andrew Davison heads the energy team at Newcastle law firm Muckle. He said: “An explicit decarbonisation target or target range would probably act as brake on new fossil fuel fired generation and support investment in low carbon generation.
“The key question is at what cost? Currently low carbon generation tends to be more costly in terms of capital than, say, gas fired generation.
“There has to be a continuing concern that if we put too much emphasis on renewables and they continue to be more expensive than fossil fuels, the UK’s economy will be disadvantaged in world markets. Business needs to know that the energy costs it will face are competitive in a global context.”
Charles Reynard, corporate partner – clean energy and sustainability team - at Eversheds law firm in Newcastle, said: “Whilst not unexpected, this decision is disappointing. It is likely that the rationale is due to the fact that energy is now very politicised in the UK with energy costs now taking a significant proportion of voters' income.
“In addition, US shale gas will make US industry and others highly competitive and Europe, in comparison, much less so. There are those who no doubt would have viewed a 2030 target as a challenge for UK industry further impacting its ability to compete globally.”
James Bryce, head of energy at Jesmond-based Square One Law said: “If met, the proposed carbon reduction target will save the economy a projected £163m per annum if gas prices rise in line with expectations, or £249m if gas prices rise at the rate of the highest projections.
“However, relying more heavily on gas up to 2030 by building more gas-fired power stations would cost between £312m - £478m, depending on the rates of gas prices rises – amounting to between £10-15 per household.”
“A balanced energy future combining traditional and emerging energy sources is something that should remain a goal for the UK and for the North East. Renewable energy generated locally must continue to be a priority if we are to ensure our energy supply for the coming years.”