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Energy: Renewables (Economic Affairs Committee Report)

My Lords, I am very pleased to introduce the debate. I should emphasise at the outset that our report was entitled The Economics of Renewable Energy. We stuck to our last. We did not enter the debate about climate change or how to respond to it, a subject that had already been covered in an earlier report. We took as a given the Government's wish to reduce carbon emissions. By the time we began our inquiry the European Union was committed to a binding target that 20 per cent of its energy consumption should be from renewable sources by 2020. To meet this target the European Commission proposed that 15 per cent of Britain's energy should come from renewables by that date. The Government seemed ready to accept this proposal, which represented a huge increase from the 1.8 per cent of energy that comes from renewables today. We should bear in mind that about two-fifths of the UK's energy use is in transport, two-fifths in heat and only one-fifth in electricity. But the Government expect much of the increase in renewable energy needed to meet their target to come from the smallest sector, that of power generation. So in order to produce 15 per cent of our energy from renewable sources by 2020, we will need by then to produce around 34 per cent of our electricity from renewables, compared to about 6 per cent today. Our report does not set out to contest these targets; it aims instead to examine their economic implications. How much would it cost to achieve them and how would the effort affect security of energy supply given that the economic costs of inadequate supply could be formidable? Would focusing on European Union targets divert resources from other, perhaps more promising, means of reducing carbon emissions in energy production? These are the main issues our report addresses. The committee began to hear evidence in its inquiry in the spring of 2008. Since then the economic background has changed radically. Then global economic growth was strong and the price of oil was rising through $140 a barrel. Now there is recession and the price of oil is scarcely $40 a barrel. The price of carbon, as evidenced by the EU's Emissions Trading Scheme, has collapsed and finance for infrastructure projects is very much harder to come by. These changes reaffirm the committee's concerns. Those centre on the affordability and practicability of the EU target for a near tenfold increase in 10 years in Britain's share of energy from renewable sources and, in particular, on the Government's plans for the vastly increased use of intermittent wind power for electricity generation. Recent changes strengthen our report's main conclusions. Renewable energy costs significantly more than energy from other sources, conventional or nuclear. The intermittent nature of most renewable power suggests that it should be regarded largely as additional capacity to that which will need to be provided in any event by more reliable means. It does not of itself offer an adequate solution to the urgent need to replace old conventional and nuclear generating plant with sufficient capacity to meet demand. A focus on wind power for electricity risks blinding us to other ways of reducing carbon emissions that might prove more economic and effective—for example, a much greater emphasis on renewable heat. Let me expand a little on those conclusions. Costs were a prime concern of our inquiry from the outset in view of the scale of investment needed, not least in wind farms, to meet EU targets. There are several elements, not all obvious from the outset. First, there are the capital and running costs of the turbines, higher offshore than onshore. Then there is the cost of integrating the turbines and their intermittent output into the national electricity grid. Then there is the cost of reserve, non-intermittent generating plant to meet demand when the wind turbines are inactive. This reserve plant is indispensable as little electricity can be stored. It will have to be very substantial indeed as the capacity credit of wind turbines—that is, the share of their output capacity which can be relied upon—is very low. Other forms of renewable power generation tend to be even more expensive than wind although less unpredictably intermittent. We are clear that the full costs of wind generation, though declining over time, remain significantly higher than those of conventional or nuclear generation. We are also clear that no significant investment in wind power would occur without government financial support. Our report includes an estimate of the cost of moving in line with the Government's targets from 6 per cent to 34 per cent in the share of electricity generated from renewable sources. We concluded that the extra annual cost in 2020 would be £6.8 billion, an increase of 38 per cent. In terms of the average household bill, that would mean an extra £80 a year. As regards security of electricity supply, building, commissioning and integrating by 2020 the large numbers of wind turbines and other renewable sources needed to meet the Government's targets will be a major undertaking, especially for offshore wind and tidal projects. Furthermore, as we have seen, a great deal of reserve conventional plant will be needed to allow for the intermittent nature of renewable power generation. To make matters even more demanding, by 2020 about one-third of the UK’s stock of conventional and nuclear electricity generating capacity falls due for replacement. All this represents a huge financial and engineering challenge for the industry. It is by no means clear that it is achievable in the time available, particularly under current economic conditions. There is no need to spell out the potentially grave economic and other consequences if we fall short and end up with insufficient capacity to meet demand. Furthermore, in what a number of our witnesses felt was the unlikely event that the Government's target is met, we would then be dependent on intermittent renewables for our electricity supply to a degree quite unprecedented anywhere else in Europe. We would move into uncharted waters. I now turn from the 20 per cent of energy consumption represented by electricity to the wider picture. We normally prefer our debates to generate more light than heat, but I hope that this debate helps to generate a good deal more heat from renewable sources as an alternative means of reducing carbon emissions. As we have seen, EU targets and the relatively ready availability of wind turbines have concentrated efforts at compliance on electricity generation. But the dash for wind should not pre-empt reductions in carbon emissions across the remaining four-fifths of the United Kingdom’s energy spectrum. Renewable heat sources, in particular, could make a significant contribution more cheaply and our report recommends that the Government should put at least as much emphasis on exploiting renewable heat as on renewable electricity generation. The report also suggests that the Government should keep their eye on the longer term and substantially increase the resources applied to research and development across renewables as a whole. We also need to bear in mind that renewable energy sources are by no means the only way to reduce carbon emissions while ensuring security of supply. Low-carbon sources of energy can also play an important part, as can energy efficiency. The most reliable and lowest cost low-carbon alternative to renewable electricity is nuclear power and we should not lose sight of conventional fossil-fuel generation with carbon capture and storage as and when it becomes available. Noble Lords will have seen that the Government’s response to the committee’s report has been published. They express agreement with many of our conclusions, though in most cases in somewhat general terms. Can the Minister tell us specifically when the Government’s renewable energy strategy will emerge? In the mean time, will he update the House on a number of important aspects which have evolved over recent months? First, what is the current position on EU targets and in particular of the 15 per cent renewables target proposed for the UK? Does it still stand? Do the Government still think that it is achievable? Secondly, what is the impact on targets of the current economic turmoil, including the collapse of the price of carbon in the EU Emissions Trading Scheme? In recent months there have been many press reports of potential investors walking away from wind farm projects or demanding more government subsidy to go ahead. Do the Government plan to commit more resources to meeting their targets or to relax them? Thirdly, what can the Minister tell us about the performance of those wind turbines already in operation during the recent prolonged period of cold weather? Specifically, what proportion of wind turbines’ output capacity does recent experience suggest that we can rely on when we need it at times of peak demand? What does that indicate for security of supply when in 2020 more than a third of our electricity supply is expected to come from intermittent, renewable sources? Since the Government agree with the committee that we cannot consider renewable energy in isolation from the rest of the UK energy system, can the Minister assure us that commitment to specific renewable energy targets will in no way detract from other, potentially more economic, means of meeting the objective of reducing carbon emissions? Before I close, I want to thank our specialist adviser to our inquiry, Professor Richard Green of Birmingham University. I commend the committee’s report to the House.