Onshore wind subsidies spared with 10% cut, as DECC also announces gas power has a 'key role' beyond 2030
- 25 Jul 2012, 08:13
- The Carbon Brief Staff
Newest posts are first. We're updating throughout the day so do
send us your reflections and any interesting articles.
17:05
An interesting article has just been published by the FT. The
piece argues that the Treasury is "adamant in its resistance" to
the idea of a 2030 decarbonisation target "believing that it would
put off investors in gas plants."
The FT quotes an unnamed government official:
"What George Osborne cares about most is
a credible gas strategy...Gas investors are worried that if the
scope of renewables subsidies could make gas unviable, which is why
we don't want any new decarbonisation targets."
The article adds "Osborne believes that his refusal to endorse a
2030 target means that the decision can be delayed
indefinitely".
Read more (£)
16:30
BusinessGreen has pulled together a summary of Ed Davey's press
conference, with some useful quotes.
On politics vs evidence:
"[Ed Davey said] that prospective
investors in onshore wind farms and solar projects should be
"reassured" that any new reviews would be entirely
"evidence-based", rejecting outright the suggestion the second
investigation into the cost of onshore wind energy in the past year
is a politically-motivated exercise offered as a sop to those right
wing Conservative MPs who are opposed to wind energy."
On the 2030 decarbonisation target:
"When we published the draft Energy Bill
in May we said we would be looking at whether there should be a
decarbonisation target specifically for the power sector... I
believe that debate should continue," he said. "We've got to
respond to the Committee on Climate Change and the Energy and
Climate Change Select Committee, both of which have suggested there
should be a decarbonisation target and I think it would be
presumptuous to take a position without having done the analysis on
that."
On gas policy:
"[DECC and the Treasury] have agreed
something on renewables, on gas, and on energy policy more widely,
and we're working well together...this department, this Secretary
of State, believes there is a big, important role for gas. That is
not new. Maybe there are colleagues in the Treasury, certainly
officials, who hadn't really understood the role we see gas
playing. Hopefully, they do now."
On whether support for gas threatens carbon targets:
"In our carbon plan there are different
scenarios on how we will deal with our energy and carbon objectives
over the next few decades... Inevitably there's a huge amount of
uncertainty in these scenarios, there has to be, because we don't
how fast
costs will fall in different technologies; we don't know what's
going to happen with respects to nuclear costs; we don't know
what's going to happen with CCS costs; we don't know what's going
to happen on the price of gas. I'm sorry there are all these
uncertainties, but that is the real world. In order to manage those
uncertainties the best approach is to take an approach which is
diversified, which is a balanced approach."
On the £500m in tax breaks for offshore gas drilling:
"I welcome the North Sea announcement...
It's about security of supply. It would be quite wrong for any
government to not want to seek to exploit gas reserves that are off
our shores and have to become ever more dependent on imported gas.
It surely makes sense to exhaust the potential that you have in
your own country."
15:30
Some questions were raised in Ed Davey's press conference today
about the role of gas in the future energy mix.
DECC's press release says
"The Government … is today confirming
that it sees gas continuing to play an important part in the energy
mix well into and beyond 2030, while meeting our carbon
budgets."
So the government believes that gas can play an important part
in the energy mix, and that we can meet our carbon budgets.
As we
noted earlier, this is quite a challenging brief. The Committee
on Climate Change (CCC)
reccommends that if the government is going to meet its carbon
budgets, emissions from the power sector need to be "virtually
decarbonised" by 2030.
The CCC says this would require that the carbon-intensity of the
electricity we use to fall from around 500 gCO2/kWh today to around
50 gCO2/kWh in 2030. In 2009, the average carbon intensity of UK
gas was 405 gCO2/kW - so logically, we're looking at a lot less gas
by 2030.
But what if gas is used to backup renewables, or if it is has
carbon capture and storage (CCS) fitted to reduce emissions? DECC's
press release also says
"We do not expect the role of gas to be
restricted to providing back up to renewables"
but doesn't give any more details or timeline. It adds (perhaps
just a little vaguely)
"...and in the longer term we see an
important role for gas with CCS."
According to Davey, the debate around a possible
decarbonisation target for 2030 is still in play. So it appears
that the government believes that we can have an unspecified amount
of gas providing our power in 2030, fitted (at some point) with
carbon capture and storage - and still be in with a chance of
decarbonising the power sector by 2030 and hitting our climate
targets.
Is this theoretically possible? In today's press conference, Ed
Davey pointed to
DECC's carbon plan, released in December 2011, as evidence that
we could still have a lot of gas on the system in 2030 and hit our
climate targets.
The plan does say:
"Government modelling suggests that
unabated gas could retain a significant role in electricity
generation through the 2020s, potentially still producing up to two
thirds of today's generation levels in 2030."
...but so far we have been unable to locate more detailed
modelling backing this up in DECC's documents, and DECC hasn't got
back to us on it.
It also says
In the longer term, there will be a more
fundamental shift in the role of gas in electricity supply. From
2030 onwards, a major role for gas as a baseload source of
electricity is only realistic with large numbers of gas CCS
plants.
Even if, under the government's modelling, unabated gas could
play a role in 2030, the same plant will need to be fitted with CCS
technology over the next few years. The 2030s may seem a long way
away, but it matters because investors in energy infrastructure
think on such long timescales. If they are going to have to fit
carbon capture and storage technology in the 2030s, they probably
need to know that now.
We'll update this once again when we know more about DECC's
carbon plan....
14:45
Politics or evidence?
The Telegraph has done a piece on the political row underlying
today's announcement. The Telegraph says that
"Under the terms of collective cabinet
responsibility, it is unusual for senior figures within government
to admit to discord over individual policies, and although the
particular circumstances of the Coalition mean that the convention
has come under strain, Mr Davey has gone further than before in
admitting to "arguing."
On the
Today programme this morning, Davey said "There needs to be a
debate," adding: "we are arguing."
In today's press conference, Davey repeatedly stressed that the
announcements are "evidence based" - with the clear implication
that they are not based on political horse-trading.
James Murray of
BusinessGreen has just tweeted:
Listening back to Davey press conference
- bit of a masterclass on downplaying DECC-Treasury tension and
squaring gas-carbon budget circle
Read the
Telegraph article here.
13.40
More on the gas tax break
The Financial Times reports on the press conference DECC gave
mid-morning, focusing on the coalition's plans to encourage more
investment in new UK offshore drilling. The FT spoke to an energy
department official, who said this would be in addition to the £3
billion oil field tax benefit the chancellor announced in the March
budget.
Click
here for more.
13.26
Latest reaction
BusinessGreen has rounded up reaction from business, politicians
and green groups. RenewableUK's Maria McCaffery points out that
while the announcement gives certainty up to 2014, this isn't a
particularly long timeframe. She's calling for longer-term
certainty from the government.
Friends of the Earth's Andrew Pendleton points out that DECC
appears to have made some pretty serious concessions on gas. John
Cridland of the Confederation for British Industry and a Siemens
spokeswoman welcome the announcement as good news for investors,
meanwhile.
Click
here for more.
10.49
The greenest government ever - at an affordable
price
Ed Davey has posted a blog on Conservative Home on the
announcement, saying he must ensure energy is affordable and
reliable as well as green.
On the energy mix, he says:
We need more of our electricity
generated from low carbon technologies but that does not just mean
renewables. It also means nuclear power, if it is cost competitive
with other low carbon technologies. And I also see an important
role for gas. As our high carbon emission coal plants are withdrawn
over the next few years gas will help to fill the gap. It will also
play an important role in back up for the intermittent power supply
coming from some renewable generation such as windpower. Longer
term after 2030 gas can continue to play an important role when
combined with carbon capture and storage technology.
Davey also sounds a note of caution about putting faith in the
exploitation of shale gas in the UK to bring down energy prices. He
warns demand from developing countries will still cause energy
prices to rise, saying the government won't be doing consumers any
favours by going all-out for shale.
Click here for the
full blog
10.13
£500 million tax break for gas industry
The banding review isn't all about wind - it contains a surprise
£500 million tax break for the gas industry to explore new fields
in the UK Continental Shelf - the waters off the UK where the
country claims mineral rights.
Gas will continue to play an "important part in the energy mix
well into and beyond 2030, while meeting our carbon budgets". If
gas is cheap enough, the announcement says, the government wants it
to play a "key role" in backing up renewables, and also as a
standalone generation fuel. In the "longer term", DECC says it sees
an "important role for gas with CCS".
There'll be more detail in the Autumn when the government
announces its gas generation strategy, but in the meantime DECC is
trying to tempt investors to put money into domestic gas
exploration with the "£500m field allowance for large shallow water
gas fields".
Attempting to boost UK gas production may not be easy - gas
company Centrica says in recent years, "the
decline of UK domestic gas production has been material". Since
2006, when the UK became a net importer of gas, prices have
continued to rise to
all-time highs. DECC says in the announcement it wants to pass
on any reductions in gas prices to the consumer - is it hoping
revitalised domestic production (well, and shale gas from the US)
will help achieve this?
Twitter reaction to the gas tax break
BBC environment correspondent Roger Harrabin isn't impressed. He
writes:
roger harrabin
@RogerHarrabin G8 says end fossil fuel subsidies. UK govt
announces £500m for marginal gas fields. Treasury thinks gas prices
will fall. Work it out.
Ditto Keith Allott, head of climate at WWF:
Keith Allott
@KeithAllott HMG throws £500m at the gasindustry to squeeze
more carbon out of the ground, squabbles over £20m support for
wind#couldntmakeitup
Political consultant Jessica Lennard suggests this latest break
is just one of several the current government has given to oil and
gas:
jessica lennard
@JessicaLennard Since March: £3bn for O&G in the Budget,
gas EPS grandfathered to 2045, £400m for motorists, £500m today for
gas exploration
10.07
A Lib Dem victory?
The
Guardian and the
Telegraph both present the announcement as a victory for the
Lib Dems.
The new level for onshore wind subsidies is only guaranteed until
2014. The government has also announced a call for evidence on
onshore costs will be launched in the Autumn, to report in early
2013. DECC's announcement says
"If the findings identify a significant
change, the Government will initiate an immediate review of ROC
levels with any new support arrangements taking effect from April
2014"
Ed Davey told the
Today programme that he "can hold the line" over the 10 per
cent wind subsidy reduction figure in the Autumn.
On the Today programme Mr Davey insisted that there was "cross
government agreement" on the need to cut emissions. He added
that
"what we're arguing about is how we're
going to do it. Now we're going to have a debate about it and
decide on whether there should be an intermediate target to reduce
emissions within the power sector."
The 'intermediate target' - a reference to the Climate Change
Committee's
recommendation of virtual decarbonisation of the power sector by
2030 - is now likely to become the focus of lobbying. Since the
CCC made the recommendation governments have refrained from
committing to any firm target around it.
09.00
Reaction
Some reaction on twitter from greens to the government's
statement
"The Government will set out its gas
strategy in the Autumn, and is today confirming that it sees gas
continuing to play an important part in the energy mix well into
and beyond 2030, while meeting our carbon budgets."
WWF campaigner Jenny Banks writes:
Jenny Banks
@BanksJenny
"Gas" section of @DECCgovuk press is
clearly ridiculous. Please explain how we "meet carbon budgets"
whilst "not restricting gas to backup"?
No reaction from the Committee on Climate Change yet, but it
will be interesting to see what it says. The CCC - which advises
the government on how to reach its carbon budgets - has advised the
government to resist the "dash
for gas" and that, in order to keep to the targets of the
climate change act, emissions from the power sector need to be
reduced by 90% by 2030. Their key graph looks like this:
The CCC says this would require that the carbon-intensity of the
electricity we use to fall from around 500 gCO2/kWh today to around
50 gCO2/kWh in 2030. The average carbon intensity of UK gas in 2009
was 405 gCO2/kWh.
So it's pretty hard to see how this level of emissons reduction
could be squared with the government's new approach of lots of gas
playing "an important role in the energy mix well into and beyond
2030".
08.15
Onshore wind spared deeper subsidy cuts
This morning the government announced
levels of subsidy for renewable power over
the next few years. It plans to slightly reduce the Renewables
Obligation subsidy for most renewable power technologies, including
a 10% cut in subsidies for onshore wind which was
consulted on earlier in the year and was
widely expected.
In the same statement, DECC has signalled its stronger support
for continued electricity production from gas power.
Subsidies to onshore wind have been the subject of disagreement
between DECC and the Treasury over the past few months. The 10% cut
will be presented as a victory for either DECC, energy secretary Ed
Davey or the Lib Dems - the Chancellor George Osborne reportedly wanted a
deeper 25% cut in subsidies, and the Telegraph had
effectively announced that this was already a done
deal. Apparently not.
Most technologies will see a small subsidy cut in the new regime -
support for offshore wind to 2017 will fall but be higher than was
previously planned. Subsidies to small wave and tidal power plants
will rise.
However, in light of
a letter from Osborne to Davey that was published
this week, it appears the influence of the Treasury has been felt
on the announcement. In the same statement, DECC has underlined
that they see a continued important role for gas power in the UK's
energy mix "well into and beyond 2030":
The Government will set out its gas
strategy in the Autumn, and is today confirming that it sees gas
continuing to play an important part in the energy mix well into
and beyond 2030, while meeting our carbon budgets. Through the
2020s, and beyond if gas proves cheap, we expect it to continue to
play a key role ensuring that we have sufficient capacity both to
meet everyday demand and complementing an increasing amount of
relatively intermittent and inflexible generation. We do not expect
the role of gas to be restricted to providing back up to
renewables, and in the longer term we see an important role for gas
with CCS.
It's been a drawn-out process to get to this point, and
there's likely to be a lot of reaction today. We'll be adding
reactions and additional analysis to this post as we go.