7 March 2011
The investment required to meet the UK’s 2020 renewable energy targets is likely to be below £40 billion ($65 billion), not the “intimidatingly large” £200 billion often cited, according to a report out today. However, much of that capital is likely to be needed between 2013 and 2015, which “could pose financing challenges”.
Mountains or molehills?, by London-based advisory firm Paradigm Change Capital Partners, aims to take a what it says is a “pragmatic view” of the anticipated development of renewable energy technologies by 2020.
It says that while 30GW of additional capacity would be required to meet the government’s most ambitious renewable energy target, at a cost of £79 billion, the UK’s binding commitments – under the 2008 Climate Change Act and the EU’s 2009 renewable energy directive – could be met with just 19GW of extra capacity, costing £51 billion.
Moreover, the report estimates that around £14.5 billion of capital has already been committed, reducing this figure to £36.6 billion, which drops further when the likely recycling of capital is taken into account.
“The overarching concern, therefore, is related not so much to the total volume of capital required, but to the timing and concentration of this requirement,” the report says.
The report estimates that around £19.6 billion will be required between 2013 and 2015, given the assumption that the current Renewables Obligation Certificate (ROC) support regime for onshore and offshore wind will remain in place (‘grandfathered’) until 2017, and the timing of finance needed for projects.
It warns that “there are a limited number of investors who understand this space – particularly newer technologies such as offshore wind – and are willing to commit large sums to its construction. With the anticipated spike in capital demand occurring with such a short lead time (2013), there is some doubt as to the number of new investors who will have come up to speed sufficiently to invest in this capital intensive and somewhat unproven technology.”
It therefore calls for the government to “smooth out” this spike through the “extension of the ROC grandfathering, or through the rapid introduction of a new equally attractive regime”.
If that is done and supply chain issues are addressed, “we do not see a serious challenge by these investors to supply the capital required.”
However, the report “flag[s] a warning sign for the years following 2020 and out to 2050. Post 2020, in particular, will be where the majority of the most challenging low-carbon projects are executed. It is expected that offshore wind will move into significantly deeper waters, [carbon capture and storage] will potentially come online, with nuclear to pick up pace. All three of these technologies are hugely capital intensive, are in some instances still unproven and have unknown cost structures. The 2020 target is met with the low hanging fruit, however post 2020 is the true challenge, one which we will be actively investigating to determine when and where there might be capital constraints.”
The report was produced in association with law firm Norton Rose.
Mark Nicholls
Friday, 11 March 2011
Green Investment Bank 'must be able to borrow'
Britain risks losing hundreds of billions of pounds needed to build wind farms and other renewable energy resources if the Government fails to set up a Green Investment Bank, MPs have warned.
By Louise Gray, Environment Correspondent 7:00AM GMT 11 Mar 2011
The Coalition Agreement promised to put aside at least £1 billion to raise money from the private sector for building new green power sources like hydroelectric power stations.
But the Treasury is getting increasingly nervous that setting up a Green Investment Bank will be bad for the country, as the Government ultimately takes on the risk, and would prefer a smaller, less powerful ‘fund’.
In a hard hitting new report, the Environmental Audit Committee (EAC) said watering down the bank will leave the UK short of hundreds of billions of pounds needed to plug the energy gap with renewable sources over the next few years.
Joan Walley, EAC chairwoman, said the Green Investment Bank would only be able to lever the levels of private investment required to cut emissions and boost renewable energy if it is able to operate as a bank which can raise its own finance on the markets.
She said between £200 billion and £1 trillion will be needed over the next couple of decades to move the UK to a low carbon economy.
But traditional sources of capital for investment in green technology would provide only £50 billion to £80 billion, leaving a massive shortfall in funding.
A bank would be able to create new green bonds and green Isas, which could raise up to £2 billion a year and help people feel they are doing their bit to help move the country to a low-carbon economy while putting money into savings.
"George Osborne has got the deposit, but if he doesn't allow the bank to raise extra capital, the sums are going to fall far short of what is needed," she added.
The report also said the Green Investment Bank should not subsidise nuclear power stations, but concentrate on renewable resources like wind and solar, as well as boosting energy efficiency.
Ed Matthew, director of Transform UK, a national alliance of businesses, said the committee had sent a strong signal that the Government must not dilute or underfund plans for the bank.
"This is the shot in the arm the UK economy needs. The only cost the Treasury should consider is the cost of failure to unleash this institution's massive potential to re-power our economy," he added.
John Sauven, the executive director of Greenpeace, said investment is needed as soon as possible to tackle climate change.
“The EAC report couldn’t be clearer – only a proper Green Investment Bank with at least £4bn capitalisation and powers to issue government backed bonds will deliver. Anything less – a temporary fund or a private bank – would be nothing more than gesture politics. It’s time the Prime Minister intervened and put a stop to Treasury mandarins paralysing a proper decision on the bank," he said.
Vince Cable, the Business Secretary, said he wanted the Green Investment Bank to grow into a "significant institution", which with other key policies would help meet environmental objectives and promote economic growth.
"We agree with the committee that the Green Investment Bank should be an enduring bank, which takes investment decisions at arm's length from ministers and be able to reinvest the proceeds from its investments.
"We are currently taking both the national deficit and EU State Aid Rules into consideration as we decide the bank's role in a broad range of green infrastructure," he said.
"We will announce the governance arrangements and business model by the end of May 2011."
By Louise Gray, Environment Correspondent 7:00AM GMT 11 Mar 2011
The Coalition Agreement promised to put aside at least £1 billion to raise money from the private sector for building new green power sources like hydroelectric power stations.
But the Treasury is getting increasingly nervous that setting up a Green Investment Bank will be bad for the country, as the Government ultimately takes on the risk, and would prefer a smaller, less powerful ‘fund’.
In a hard hitting new report, the Environmental Audit Committee (EAC) said watering down the bank will leave the UK short of hundreds of billions of pounds needed to plug the energy gap with renewable sources over the next few years.
Joan Walley, EAC chairwoman, said the Green Investment Bank would only be able to lever the levels of private investment required to cut emissions and boost renewable energy if it is able to operate as a bank which can raise its own finance on the markets.
She said between £200 billion and £1 trillion will be needed over the next couple of decades to move the UK to a low carbon economy.
But traditional sources of capital for investment in green technology would provide only £50 billion to £80 billion, leaving a massive shortfall in funding.
A bank would be able to create new green bonds and green Isas, which could raise up to £2 billion a year and help people feel they are doing their bit to help move the country to a low-carbon economy while putting money into savings.
"George Osborne has got the deposit, but if he doesn't allow the bank to raise extra capital, the sums are going to fall far short of what is needed," she added.
The report also said the Green Investment Bank should not subsidise nuclear power stations, but concentrate on renewable resources like wind and solar, as well as boosting energy efficiency.
Ed Matthew, director of Transform UK, a national alliance of businesses, said the committee had sent a strong signal that the Government must not dilute or underfund plans for the bank.
"This is the shot in the arm the UK economy needs. The only cost the Treasury should consider is the cost of failure to unleash this institution's massive potential to re-power our economy," he added.
John Sauven, the executive director of Greenpeace, said investment is needed as soon as possible to tackle climate change.
“The EAC report couldn’t be clearer – only a proper Green Investment Bank with at least £4bn capitalisation and powers to issue government backed bonds will deliver. Anything less – a temporary fund or a private bank – would be nothing more than gesture politics. It’s time the Prime Minister intervened and put a stop to Treasury mandarins paralysing a proper decision on the bank," he said.
Vince Cable, the Business Secretary, said he wanted the Green Investment Bank to grow into a "significant institution", which with other key policies would help meet environmental objectives and promote economic growth.
"We agree with the committee that the Green Investment Bank should be an enduring bank, which takes investment decisions at arm's length from ministers and be able to reinvest the proceeds from its investments.
"We are currently taking both the national deficit and EU State Aid Rules into consideration as we decide the bank's role in a broad range of green infrastructure," he said.
"We will announce the governance arrangements and business model by the end of May 2011."
Feed-in tariff review is good news for small-scale solar power investors
If an upper limit is set on eligibility for feed-in tariffs, it will prevent the budget being guzzled up by large-scale solar farms
Kevin Frea
guardian.co.uk, Wednesday 9 March 2011 16.10 GMT
The recent announcement of a review of feed-in tariffpayments for solar photovoltaic installations, prompted by fears over large-scale solar farms blowing the budget for Fits, was met with a chorus of disapproval from both the solar industry and environmentalists.
However, last week, John Costyn from the Department of Energy and Climate Change (Decc) explained the reason for exploring an upper limit of 50kWp for entering the scheme: it's because that is the legal definition of micro generation. This reminder that the tariff is all about encouraging small installations in and for local communities – not big installations needing big money and generating big profits – suggests that the review should be welcomed instead.
Mark Shorrock, from solar farm developers Low Carbon Solar and the landowner- and investor-backed campaign group Power to Society, has claimed that "scores of 'big society' community-owned schemes" are affected. In practice it's probably no more than a dozen schemes that are close to 100 kWp, and any limit must surely be adjusted to accommodate these. But let's be clear about how big a 50kWp installation is – up to 270 panels, a sizeable installation for any community building or social housing project. Every school in the country, for example, could spend up to £145,000 and gain an income, including free electricity, of £17,000 a year.
Large-scale solar farms are claimed to be more cost-efficient but have few benefits compared with smaller installations. They don't generate electricity where it's needed and energy is lost in transmission. They are slower to construct due to planning and grid connection issues.
More jobs are created installing a hundred 50kWp systems compared to one 5,000kWp solar farm and these smaller projects can be even more cost -fficient if they are grouped together. They also offer great opportunities to engage people in changing their behaviour around energy use. The Shimmer project based in Kingston-upon-Thames, for example, installs panels on the roofs of fuel poor households and helps tenants monitor their savings and build on them by using energy more efficiently.
If venture capital funds lose interest in solar power, as has already been reported, then it's time to get creative and replace their money with the savings of tens of thousands of small investors through 'community share' schemes – such as those planned by Brighton Energy Co-op and Ovesco in Lewes, based on models successfully used for wind farms. Green Isas and pension plans should be encouraged not threatened, and used to develop renewable energy.
At the Solar Co-op, we have raised finance for our first big installation from another cooperative and there must be hundreds more co-ops, charities, churches, trusts and other organisations interested in finding a safe, ethical home for their members' money. The early review has unsettled a lot of people who are striving to make community-funded installations a reality, but with the clarity that projects below 50 kWp will not be affected, there is still more than enough to be getting on with.
• Kevin Frea works for the Solar Co-op
Kevin Frea
guardian.co.uk, Wednesday 9 March 2011 16.10 GMT
The recent announcement of a review of feed-in tariffpayments for solar photovoltaic installations, prompted by fears over large-scale solar farms blowing the budget for Fits, was met with a chorus of disapproval from both the solar industry and environmentalists.
However, last week, John Costyn from the Department of Energy and Climate Change (Decc) explained the reason for exploring an upper limit of 50kWp for entering the scheme: it's because that is the legal definition of micro generation. This reminder that the tariff is all about encouraging small installations in and for local communities – not big installations needing big money and generating big profits – suggests that the review should be welcomed instead.
Mark Shorrock, from solar farm developers Low Carbon Solar and the landowner- and investor-backed campaign group Power to Society, has claimed that "scores of 'big society' community-owned schemes" are affected. In practice it's probably no more than a dozen schemes that are close to 100 kWp, and any limit must surely be adjusted to accommodate these. But let's be clear about how big a 50kWp installation is – up to 270 panels, a sizeable installation for any community building or social housing project. Every school in the country, for example, could spend up to £145,000 and gain an income, including free electricity, of £17,000 a year.
Large-scale solar farms are claimed to be more cost-efficient but have few benefits compared with smaller installations. They don't generate electricity where it's needed and energy is lost in transmission. They are slower to construct due to planning and grid connection issues.
More jobs are created installing a hundred 50kWp systems compared to one 5,000kWp solar farm and these smaller projects can be even more cost -fficient if they are grouped together. They also offer great opportunities to engage people in changing their behaviour around energy use. The Shimmer project based in Kingston-upon-Thames, for example, installs panels on the roofs of fuel poor households and helps tenants monitor their savings and build on them by using energy more efficiently.
If venture capital funds lose interest in solar power, as has already been reported, then it's time to get creative and replace their money with the savings of tens of thousands of small investors through 'community share' schemes – such as those planned by Brighton Energy Co-op and Ovesco in Lewes, based on models successfully used for wind farms. Green Isas and pension plans should be encouraged not threatened, and used to develop renewable energy.
At the Solar Co-op, we have raised finance for our first big installation from another cooperative and there must be hundreds more co-ops, charities, churches, trusts and other organisations interested in finding a safe, ethical home for their members' money. The early review has unsettled a lot of people who are striving to make community-funded installations a reality, but with the clarity that projects below 50 kWp will not be affected, there is still more than enough to be getting on with.
• Kevin Frea works for the Solar Co-op
Renewable heat incentive plans unveiled
Businesses and public sector will be initial beneficiaries, and households can take advantage of subsidies from October 2012
Q&A: Renewable heat incentive
Fiona Harvey guardian.co.uk, Thursday 10 March 2011 11.43 GMT
Homeowners, schools and businesses will be able to apply for a slice of £860m government funding to help them install wood boilers and solar water heaters under new plans unveiled on Thursday morning.
The "renewable heat incentive" is the first financial scheme of its kind in the world to subsidise low-carbon heating, and over the next decade could reduce carbon dioxide by 44m tonnes – equivalent to taking 20 gas fired power stations off the grid, according to government estimates.
Businesses and public sector organisations are expected to be the biggest beneficiaries of the plan at first, as households will have to wait until October 2012. But up to 25,000 homeowners will be eligible from this July for a special grant to cover the cost of installing green heating.
Ministers also expect the scheme to generate thousands of new jobs.
"This is not marginal ... this is a big, big scheme," said Chris Huhne, energy and climate change secretary.
People taking up the subsidies will receive a rate of return on their outlay of about 12%, according to government calculations. For instance, a large ground source heat pump installation costing about £300,000 would receive a subsidy payment of £27,600 a year.
However, the subsidies will be reviewed over time and are likely to be reduced as the cost of the renewable heat technologies comes down.
About half of the UK's carbon emissions come from heating, but only a tiny proportion of buildings have renewable heat sources, partly because there are only a small number of such sources that are practical and available.
These include biomass boilers, which burn wood pellets, and air or ground source heat pumps, solar thermal heating and boilers that generate electricity at the same time as heating.
However, some of these are difficult to use. Biomass boilers require more attention and refuelling than standard fossil fuel boilers. Ground source heat pumps need to be installed underground and tend to cover a wide area, which makes them difficult to retrofit, particularly in urban areas, so installing them in new houses is easier.
Greg Barker, climate change minister, said the scheme would create "local energy economies", for instance in the sale of wood for biomass boilers. Only about 10% of the UK's available wood biomass is currently used.
The renewable heat incentive has been beset by problems, as the government has struggled to decide how to structure the scheme and how much money should be made available to households.
Unlike the feed-in tariffs for renewable forms of electricity, which are paid for through higher energy bills, the renewable heat incentive will be paid for from government coffers.
The microgeneration industry welcomed the announcement. Dave Sowden, chief executive of the Micropower Council, said: "This scheme marks a world-first long term commitment to a rapid growth in renewable heating."
Philip Sellwood, chief executive of the government-funded Energy Saving Trust, said: "As we have seen with feed-in tarifffs, an attractive renewable heat incentive rate will be a real boost for householders and industry."
But some were disappointed that householders would have to wait until October 2012 to receive the subsidy. Juliet Davenport, chief executive of renewable energy supplier Good Energy, said: "We are concerned that the full scheme won't start until October 2012, a lengthy gap which may spook potential investors. We are also concerned that excluding agents from supporting RHI customers will increase the volume of enquiries Ofgem will face, which may result in delays and confusion similar to those currently experienced by Feed-in Tariff customers. And we don't understand why Ofgem cannot pay customers monthly – which is in the best interests of consumers."
The Renewable Energy Association said the rates of subsidy for solar heating systems was too low.
The government's announcement on Thursday morning was part of a series of environmental announcements aimed at burnishing the coalition's green credentials.
Q&A: Renewable heat incentive
Fiona Harvey guardian.co.uk, Thursday 10 March 2011 11.43 GMT
Homeowners, schools and businesses will be able to apply for a slice of £860m government funding to help them install wood boilers and solar water heaters under new plans unveiled on Thursday morning.
The "renewable heat incentive" is the first financial scheme of its kind in the world to subsidise low-carbon heating, and over the next decade could reduce carbon dioxide by 44m tonnes – equivalent to taking 20 gas fired power stations off the grid, according to government estimates.
Businesses and public sector organisations are expected to be the biggest beneficiaries of the plan at first, as households will have to wait until October 2012. But up to 25,000 homeowners will be eligible from this July for a special grant to cover the cost of installing green heating.
Ministers also expect the scheme to generate thousands of new jobs.
"This is not marginal ... this is a big, big scheme," said Chris Huhne, energy and climate change secretary.
People taking up the subsidies will receive a rate of return on their outlay of about 12%, according to government calculations. For instance, a large ground source heat pump installation costing about £300,000 would receive a subsidy payment of £27,600 a year.
However, the subsidies will be reviewed over time and are likely to be reduced as the cost of the renewable heat technologies comes down.
About half of the UK's carbon emissions come from heating, but only a tiny proportion of buildings have renewable heat sources, partly because there are only a small number of such sources that are practical and available.
These include biomass boilers, which burn wood pellets, and air or ground source heat pumps, solar thermal heating and boilers that generate electricity at the same time as heating.
However, some of these are difficult to use. Biomass boilers require more attention and refuelling than standard fossil fuel boilers. Ground source heat pumps need to be installed underground and tend to cover a wide area, which makes them difficult to retrofit, particularly in urban areas, so installing them in new houses is easier.
Greg Barker, climate change minister, said the scheme would create "local energy economies", for instance in the sale of wood for biomass boilers. Only about 10% of the UK's available wood biomass is currently used.
The renewable heat incentive has been beset by problems, as the government has struggled to decide how to structure the scheme and how much money should be made available to households.
Unlike the feed-in tariffs for renewable forms of electricity, which are paid for through higher energy bills, the renewable heat incentive will be paid for from government coffers.
The microgeneration industry welcomed the announcement. Dave Sowden, chief executive of the Micropower Council, said: "This scheme marks a world-first long term commitment to a rapid growth in renewable heating."
Philip Sellwood, chief executive of the government-funded Energy Saving Trust, said: "As we have seen with feed-in tarifffs, an attractive renewable heat incentive rate will be a real boost for householders and industry."
But some were disappointed that householders would have to wait until October 2012 to receive the subsidy. Juliet Davenport, chief executive of renewable energy supplier Good Energy, said: "We are concerned that the full scheme won't start until October 2012, a lengthy gap which may spook potential investors. We are also concerned that excluding agents from supporting RHI customers will increase the volume of enquiries Ofgem will face, which may result in delays and confusion similar to those currently experienced by Feed-in Tariff customers. And we don't understand why Ofgem cannot pay customers monthly – which is in the best interests of consumers."
The Renewable Energy Association said the rates of subsidy for solar heating systems was too low.
The government's announcement on Thursday morning was part of a series of environmental announcements aimed at burnishing the coalition's green credentials.
Energy policy role at No 10 for former BP man
Ben Moxham on shortlist of one for new adviser post, as David Cameron looks to bulk up policy unit
Allegra Stratton, political correspondent guardian.co.uk, Thursday 10 March 2011 18.34 GMT
Downing Street is set to appoint former BP employee Ben Moxham to head up its energy and environment policy, as one of nine new policy advisers due to beef up No 10.
Moxham is currently employed at the Riverstone private equity group run by former BP boss Lord John Browne, which specialises in oil and renewable energy investment.
The 31-year-old has been put forward on a shortlist of one to David Cameron and Nick Clegg for approval, having been vetted by an impartial civil service appointment process. The two party leaders will meet six civil service candidates and three private sector recruits, of which Moxham is one, in the final round of the process to bring nine extra policy experts into government. All will be appointed as civil servants in order not to breach Cameron's stipulation on the number of political appointees.
The new advisers are intended to bulk up the No 10 policy unit. Cameron had said he wanted his tenure as prime minister to be hands-off but recent fiascos over the attempted sell-off of forests and the concern about the NHS convinced him to reinforce his policy specialists at the heart of government. The new recruits will "man-mark" their respective ministries and draw up policies for the second half of the current parliament, when the coalition agreement will have run out of specific policy road.
Downing Street is happy with Moxham's shortlisting by the civil service, pointing to his experience heading up the alternative energy department at BP under Browne. The government regards its energy policy increasingly to be the implementation of the kind of renewables agenda Moxham took charge of when at BP.
Moxham was a founding member of the team of BP Alternative Energy as its director of policy, looking after BP's interests in renewables, gas power, and carbon capture and storage.
While Moxham will have been key in helping BP move "beyond petroleum", as its strapline became, there were some concerns among environmental campaigners that BP's alternative energy department was ill-fated. The unit run by Moxham was shut down in June 2009.
Allegra Stratton, political correspondent guardian.co.uk, Thursday 10 March 2011 18.34 GMT
Downing Street is set to appoint former BP employee Ben Moxham to head up its energy and environment policy, as one of nine new policy advisers due to beef up No 10.
Moxham is currently employed at the Riverstone private equity group run by former BP boss Lord John Browne, which specialises in oil and renewable energy investment.
The 31-year-old has been put forward on a shortlist of one to David Cameron and Nick Clegg for approval, having been vetted by an impartial civil service appointment process. The two party leaders will meet six civil service candidates and three private sector recruits, of which Moxham is one, in the final round of the process to bring nine extra policy experts into government. All will be appointed as civil servants in order not to breach Cameron's stipulation on the number of political appointees.
The new advisers are intended to bulk up the No 10 policy unit. Cameron had said he wanted his tenure as prime minister to be hands-off but recent fiascos over the attempted sell-off of forests and the concern about the NHS convinced him to reinforce his policy specialists at the heart of government. The new recruits will "man-mark" their respective ministries and draw up policies for the second half of the current parliament, when the coalition agreement will have run out of specific policy road.
Downing Street is happy with Moxham's shortlisting by the civil service, pointing to his experience heading up the alternative energy department at BP under Browne. The government regards its energy policy increasingly to be the implementation of the kind of renewables agenda Moxham took charge of when at BP.
Moxham was a founding member of the team of BP Alternative Energy as its director of policy, looking after BP's interests in renewables, gas power, and carbon capture and storage.
While Moxham will have been key in helping BP move "beyond petroleum", as its strapline became, there were some concerns among environmental campaigners that BP's alternative energy department was ill-fated. The unit run by Moxham was shut down in June 2009.