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Decarbonisation and the European economy: Submission to the House of Lords EU sub-committee D

 

EU energy: decarbonisation and economic competitiveness

A submission to the House of Lords European Union Sub-Committee on Agriculture, Fisheries, Environment and Energy

 

Energy’s contribution to economic growth

How can energy policy make its contribution to both decarbonisation and to economic growth? In what specific ways can energy drive economic growth in the EU?

1.      A rational and well-considered energy policy is vital for any developed society, but the need for a secure and affordable supply is incompatible with the present decarbonisation agenda, which has arisen from international agreements and, in the particular case of the UK, the Climate Change Act. The only low carbon renewable generating technologies currently capable of deployment on a large enough scale to make a significant impact on carbon dioxide emissions are the horizontal axis wind turbine, photovoltaic panels and solar thermal systems. These requires both subsidy for the operators (currently provided by means of feed-in tariffs, paid via energy bills by consumers and business) and a matching reserve of conventional generating capacity to maintain a balanced grid and continuity of supply. True costs are difficult to estimate except by analysing the total generating and supply network with and without renewables, but there seems little prospect of wind or solar being a significant part of the generating mix without continuing public subsidy unless real progress is made in the development of economic, efficient, large-scale energy storage technologies.

2.      If decarbonisation is the objective, this can be achieved most effectively using a combination of gas and nuclear generating capacity. Although arguments continue to rage over the true cost of nuclear power, the best estimates put it below the price of even on-shore wind (and well below that of off-shore wind or solar)[1]. It remains the only proven way of reliably delivering low-carbon base load electricity.

3.      If economic growth is to come from industry, it requires a secure energy supply at a cost broadly similar to that of competitive economies. The danger is that EU countries will continue to export jobs to lower-cost economies, particularly where energy is a significant part of their overall cost base. Using public subsidy to expand otherwise non-viable generating options will hold back the economy rather than contribute to its growth. Germany has a large installed renewable energy generating capacity in the form of both wind and solar systems, and its domestic electricity prices are the among the highest in Europe (second only to those in Denmark)[2]. However, Germany puts more of the burden on domestic consumers, with industrial competitiveness being protected to some degree via lower energy prices.

4.      Claims of ‘green’ job creation appear to be overstated[3]. Many of the jobs come at the expense of existing ones and may be relatively short-term in nature (eg, erection of turbines or installation of insulation). Even plans for developing facilities in Hull and elsewhere to service the off-shore wind farms – promoted as analogous to the growth of Aberdeen as the hub for the North Sea oil and gas industry – are highly dependent on government policy and public subsidy.

5.      Some countries – notably Denmark – have enjoyed the growth of industries which make generating equipment sold both domestically and round the world. Vestas, a Danish company, is a leading manufacturer of wind turbines, but manufactures in a number of other countries and has recently also suffered a severe drop in profitability as demand for its products has fallen[4]. There is little chance of the UK or other EU member states not yet directly involved developing a competitive manufacturing base in the wind sector; no European country has any real comparative advantage or novel technologies to challenge the dominance of Vestas and others. The best that could be hoped for is the supply of components and development of an installation and maintenance capability. In the meantime, wind turbines and solar panels are increasingly being sourced from China.

A common EU approach to transforming the energy system

To what extent will a common European approach help keep the costs of transforming the energy system down and assure security of EU energy supply? Where do you see economic growth and decarbonisation benefitting from a common approach to generation, transmission, distribution and storage? And what are the risks?

6.      Those in favour of a large expansion of renewable energy generating capacity often argue for the development of a Europe-wide ‘supergrid’ to balance supply and demand on a regional basis. This is in effect a massive expansion of the situation in Denmark, where the large percentage of capacity provided by wind is balanced by integration into a wider Scandinavian and Germany grid, providing a mix of hydro, coal, nuclear, gas, wind and solar power.

7.      Over a wider scale, the argument is that, if wind speeds are low (or too high) in one area, they will be balanced by moderate winds elsewhere thus to some extent smoothing the pattern of generation over time. Similarly, electricity generated from solar panels in favoured areas can be distributed more widely if local demand is insufficient. However, it is not acceptable for this situation to pertain 75% or even 95% of the time; unless the installed renewables can provide a guaranteed minimum output at all times, conventional generating capacity must be held on standby to avoid voltage drops and power cuts. It is not uncommon for large stationary areas of high pressure to sit across most of the continent at times. Under these circumstances, which occur both in high summer, leading to heat waves, and winter, where very cold, clear weather becomes established, the output from wind farms is minimal.

8.      Reductions are made in carbon dioxide emissions as wind and solar generating capacity increases, but experience in Ireland and Denmark shows that this relationship is not a linear one. Above a certain percentage of total generating capacity coming from wind or other renewables, no further emissions reduction can be expected[5]. This figure, which is in the region of 10-20%, could be higher if a supergrid was in place, but we are never likely (with current technology) to approach a situation where the majority of consumption is from renewables.

9.      The costs of achieving these emissions reductions would also be rather high, taking account of the public subsidies needed plus the vast expenditure necessary to construct the Europe-wide grid, using high voltage DC transmission lines. A far more cost-effective approach would be to build new nuclear and gas-fired stations to replace ageing coal-fired capacity. Concerns about reliance on imported gas and price volatility can be addressed most effectively by facilitating exploitation of known shale gas reserves. A common EU policy would be less necessary for this approach.

Reducing the costs of energy for business and consumers

Is it appropriate to seek to reduce the costs of energy in order to boost EU competitiveness and, if so, how can it be achieved in addition to energy efficiency? To what extent might price reductions jeopardise attempts to decarbonise? What implications, if any, do consumer preferences over the energy mix, such as onshore wind and nuclear power, have for price?

10.  Large swathes of European industry, including steelmaking, coal mining and shipbuilding, have been lost to more competitive Asian economies. The centre of gravity of consumer product manufacturing also lies in China. None of these rapidly growing countries is burdened with the decarbonisation plans the EU is committed to. If the dash for wind continues, then so will the export of jobs. Europeans enjoy high rates of pay and can compete globally only in areas where they can add real value, but high and increasing energy costs jeopardise even these parts of the economy.

11.  The fact is that ‘decarbonisation’ in one country makes no difference to global carbon dioxide emissions unless it is matched in all significant economies. All the efforts made in the EU simply push the emissions offshore. Suggestions of imposing tariff barriers based on ‘carbon content’ of manufactured goods would simply start a trade war and depress the entire world economy. The recent decision to delay the inclusion of the global airline industry into the European carbon trading system via levies on all flights within or through Europe is a good illustration of the global reality. If Chinese and American companies refuse to pay, the EU has no option but to back down.

12.  In these circumstances, the target of decarbonisation at any cost is deeply misguided. It is in everyone’s interest to be energy efficient. Companies and individuals are very happy to save money, even if they care little about reducing emissions. Encouraging further savings makes sense, but this should not be by continuing to raise prices and forcing more people into fuel poverty. With current technology, a move towards a reliance mainly on nuclear and gas generation would reduce emissions from their current levels while providing secure and affordable electricity to industry and consumers.

Gas

Do you agree with the Commission that “Gas will be critical for the transformation of the energy system”, until at least 2030 or 2035? What mechanisms are required to boost the role of gas, securing appropriate investments, but on the proposed interim basis? Does an active renewables policy require gas in support of it? Should the EU encourage the development of unconventional gas?

13.  We agree that gas will be critical over this time period and, frankly, it is difficult to look with any degree of certainty any further ahead than that. Gas stations are relatively quick to build and represent a modest investment compared with some alternatives. However, at present coal is the most economic fuel to burn in Europe, which accounts for the apparently bizarre situation in Germany where the recent decision to run down nuclear stations means they will be replaced by coal-fired stations, in many cases burning (highly polluting) lignite.

14.  We are not in favour of markets being rigged unnecessarily to achieve an apparently desirable aim, so artificially favouring gas over coal does not seem a sensible step. However, facilitating exploration and extraction of shale gas deposits in countries which wish to do so would be a very sensible move which could deliver an assured supply of domestic gas and, based on experience in America, bring energy prices down significantly. Equally, there is every reason to begin to look at how offshore methane clathrates could be exploited economically.

Research and innovation

15.  Research and innovation on novel or improved energy generation and storage technologies should certainly be facilitated and incentivised (eg via tax credits and grants), but in a competitive way rather than by backing ‘winners’. Likely research areas would include:

·         Options for large-scale, economic means of storing energy over extended periods. The availability of such technology would potentially transform the contribution which renewable energy could make to a secure supply.

·         Alternative, potentially more efficient and less intrusive wind technologies, including vertical-axis turbines which can be grouped much closer together without reducing output.

·         Realistic options for large-scale wave and tidal power generation, with the proviso that these would be no more useful than wind farms until effective energy storage is available.

·         Novel ways of harvesting solar power, the ultimate source of all our energy. These could include cheaper, higher-efficiency photovoltaic cells and ‘artificial leaves’ which use the principles of photosynthesis to produce liquid fuel.

·         Advanced nuclear reactors capable of extracting the 99% of energy currently left unused in uranium fuel, and burning highly radioactive actinide by-products to eliminate high-level nuclear waste.

·         Ways to extract gas from offshore methane clathrates economically and safely.

·         Continued improvement in design and construction of new homes and commercial buildings to make them as energy efficient as possible at minimum cost.

 

Martin Livermore

Scientific Alliance

St John’s Innovation Centre

Cowley Road

Cambridge

CB4 0WS                                                                                             23 November 2012