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If you were prime minister and faced the need to cut UK greenhouse gas emissions by at least 80%, which policy would you support? Taxing the high profits of the energy companies or obliging them to invest a £1bn in energy-saving measures targeted at the houses with the worst insulation? Put this way, there shouldn’t be much argument. If we are to reduce CO2 output, the government must focus on improving the dreadful waste of energy in British homes. Our houses are far more important emitters of greenhouse gases than our car or even our holiday flights. About 25% of UK emissions come from running our homes, most of them badly insulated and leaky. The scope for improvement is immense.

By contrast, applying an unexpected windfall tax might actually increase emissions. The current profits of the utilities are going to be partly used to make the huge investments in renewable energy that we urgently need. E.ON, for example, faces the need to find at least £500m to build its share of the 1-gigawatt London Array, the biggest offshore wind farm in Europe. A raid on its bank account by the Treasury is not going to help E.ON pay for the new turbines.

If our only interest is climate change, Darling’s focus on energy efficiency is absolutely appropriate. The proposed £1bn home insulation scheme is the nucleus of a set of policies that might start reducing domestic energy use. About 8 million homes in the UK don’t have cavity wall insulation. Almost all households could profitably improve their loft insulation. Full double-glazing would benefit a large percentage of UK homes.

In fact, eco-renovation is probably the most effective and cheapest way of reducing UK energy use. Simple measures will cut 30-50% from the heating bills of most homes. We should welcome Darling’s proposals. In fact, we need to encourage the government to go much further, copying the German government’s commitment to improve the energy performance of its entire housing stock by 3% a year. Backed by grants and soft loans, the German scheme is substantially reducing energy use in over 200,000 homes a year. Many of the most successful schemes have reduced energy use by nearly 85%. We could easily do the same in the UK. It might also pull a hundred thousand people into good jobs.

‘But what about fuel poverty?’ people will say. Twenty thousand more people die in the UK’s winter than in summer, many because of inadequate indoor temperatures. Shouldn’t the government’s real priority be to increase the affordability of gas and electricity above every other objective so that people can heat their homes? No: it actually makes far more financial sense to improve the energy performance for decades to come than to temporarily reduce the price of fuel. A targeted investment of a few hundred or even a thousand pounds will typically pay for itself within three or four years in lower fuel bills. It may seem harsh, but this is far better than a short-run discount on prices.

Environmental groups led by Green Alliance have complained last week that the main political parties have begun to ignore climate change as they focus on the financial pressures faced by householders and business. Darling’s policy of not subsidising fuel costs or arbitrarily penalising the energy companies is a striking counter-example. He should be congratulated for his courage, not criticised for his inhumanity or berated for his obeisance to big business.

This article was originally published in the Guardian on Wednesday 10 September 2008.

Community-owned wind farms are a rarity in the UK, despite their popularity in other parts of northern Europe. So should we welcome an opportunity for individual investors to invest in a newly built wind project in northern Scotland? Yes and no. The prospectus promises reasonable returns. But the protections to investors are limited and the information about the mechanism by which shareholders get their returns is sadly lacking. Even enthusiasts for individual investments in wind power need to be very cautious about investing in the Great Glen Energy Co-operative.

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Buy a share in a conventional company and you normally acquire a right to participate directly in its success or failure. The Great Glen Energy Co-operative is different. It is raising up to £1.8m so that it can buy what it calls a ‘Royalty Instrument’. The Great Glen prospectus says that this Instrument gives the company the right to some of the profits from a big new wind farm, owned by an unrelated third party, Millenium, a wholly-owned subsidiary of Falck Renewables. This is a financial contract that gives the holder payments dependent on the performance of the third party. In effect this is a ‘derivative’ arrangement.

There’s nothing necessarily wrong with this scheme. If a reasonable share of the profits of the wind farm flow to Great Glen and its shareholders, no one will complain. But the Great Glen prospectus is very unusual. It states that the company is trying to raise £1.8m but it never actually says what rights the Instrument is buying with this money. You would expect that the prospectus might say that the £1.8m buys, for example, a 3% share in the profits of the Falck wind farm. But the prospectus makes no such statement. It does contain a simple financial table that provides an illustration of the returns to members, but provides very little detail on how these projected returns are calculated. At one point the prospectus implies that the backers of the Great Glen Co-op do not even know the price which Falck believes it will obtain for the electricity from the wind farm. Frankly, anyone putting money into the Great Glen Co-op is investing on trust.

The table of projected returns shows shareholders in Great Glen achieving an average yearly return of 10% on their money over the 25-year life of the wind farm. The prospectus further states that the parent company, Falck Renewables, guarantees a minimum return of 6.5% per annum, even if the wind farm itself is unable to pay its obligations under the Royalty Instrument. Based on today’s wholesale power prices, I calculate that the returns to Falck from this investment are about 27%, vastly greater than the returns offered to Great Glen investors.

I have asked Great Glen and its backers for details of what the Royalty Instrument is buying and how the projections in the prospectus are calculated. I have been told that all the terms of the Instrument are confidential. Shareholders and potential investors are not entitled to know any of its contents. This means that even simple questions about the risks and returns to Great Glen shareholders cannot be answered. Here’s a list of entirely reasonable queries which potential investors in Great Glen will never know the answer to:

• a) What share of the profits of the Falck wind farm is Great Glen entitled to?
• b) What assumption is made about the sale price of the electricity generated from the site?
• c) What happens to shareholder’s returns if the price of electricity falls from today’s historically high levels?
• d) What would be the impact of a fall or a rise in the price of Renewable Obligation Certificates, the second principal source of revenue from a wind farm?
• e) Is the return to Great Glen ‘geared’ in any way to the performance of the wind farm? If, for example, Falck decided to raise a substantial amount of debt secured on the wind farm’s revenues, would this affect the flow of cash to Great Glen?

These are crucially important questions, vital to an understanding of the likely financial performance of Great Glen. Great Glen’s backers, Energy4All, told me that one of the reasons was that the Royalty Instrument contained intellectual property that Falck wanted to keep secret. Energy4All also says that Falck insisted that the full wind speed projections for the wind farm site were confidential, although the average projected wind speed is contained in the prospectus. So outsiders cannot even check that the projected electricity generation figures for the site are reasonable.

These are serious issues, particularly since the Great Glen investment opportunity is targeted at ordinary people living close to the wind farm and not professional investors. But perhaps more important, I am concerned that the prospectus is misleading in the way it describes the investment. The prospectus implies that the offer enables investors to own a stake in the wind farm. For example, it states that:

• a) ‘Great Glen Energy Co-op was established in 2008 for the specific purpose of owning a stake in a wind farm being constructed in the hills north of Invergarry in the Great Glen, Scotland’.
• b) ‘Falck wished to offer a degree of local public involvement in the Project and approached Energy4All at the beginning of 2003 to explore the idea of offering partial ownership of the Wind Farm to local people’.
• c) ‘The Royalty Instrument provides Great Glen Energy Co-op with the right [...] to purchase a stake in the Wind Farm’.
• d) ‘The Royalty Instrument Agreement provides for a[n] interest in the Wind Farm [...]’.
• e) ‘Falck approached Energy4All at the beginning of 2003 to explore the idea of offering partial ownership of their Wind Farms in the North of Scotland’.
• f) ‘Community ownership of part of a wind farm is good from a social and environmental perspective’.

It seems to me that actually the Royalty Instrument does not give the Great Glen investors a stake in the wind farm. Rather, it provides for Great Glen to have certain rights over a portion the cash flow from the operation. This is very different from owning a share in the business itself. Falck remains in total control of the wind farm. In particular, as far as one can tell, it can sell the wind farm at any time and simply repay the money invested by Great Glen. It also appears to be able to raise debt secured on the wind farm without restriction, and the bankers involved could refuse to allow further payments to the Co-op. (Falck has however guaranteed the minimum return of 6.5% if this happened.)

These are very unusual terms for people who have a ‘stake’ in a business. I think it would be much more accurate to say that the Great Glen shareholders are, in effect, unsecured creditors of the wind farm company, ranking behind banks and other financiers. This would be acceptable if fully explained to shareholders and if Great Glen shared in the upside if the wind farm did well. But the upside appears to be limited: although Great Glen appears to benefit if electricity prices rise (though we don’t know this for sure), shareholders will not benefit if the wind farm is sold at a profit.

This is an attractive deal for Falck. The Great Glen investment gives it the prospect of cheap financing (the guarantee of 6.5% is far less than it would pay for unsecured debt in today’s capital markets) and it appears to have unrestricted rights to sell the wind farm or to load it with debt at any debt, much like a householder might remortgage a house. (I may be exaggerating the poor quality of the protection afforded to Great Glen, but the lack of detail in the prospectus makes it impossible to tell.)

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Energy4All has responded to these criticism by saying, inter alia, that I am wrong to focus on Falck and Great Glen. Falck is the only significant wind farm developer in the UK willing to grant any participation to community interests. It is therefore unfair to comment unfavourably on their arrangements with Great Glen. I hesitate to say this because of the admiration I have for Energy4All, but I think that this is the wrong attitude. Although the Great Glen arrangement may have been the best one Energy4All could obtain from Falck, this does not make it necessarily a good deal or one that is robust enough to present to private individuals.

This article looks at the composition of energy demand in the UK. The figures are then broken down by sector and by fuel. The numbers are used in the introduction to Ten Technologies to Save the Planet (Profile Books, November 2008), where I try to assess whether we are likely to be able to use technology to reduce fossil fuel demand substantially.

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Over a year, continuous energy use of five or six kilowatts by the typical European means a total consumption of around 50,000 kilowatt hours per person. (A kilowatt hour is power of one kilowatt maintained for one hour. There are 8,760 hours in the year.) The figures for North America are approximately double the European level. Japan is lower than Europe, and the fast-industrialising countries of Asia and elsewhere are lower still, at perhaps a quarter of the European level.

The 2,000-Watt Society project is an initiative to try to reduce European consumption down from five or six kilowatts (5,000 to 6,000 watts) down to 2,000 watts, a reduction of up to two-thirds from current levels. Even 2,000 watts is probably incompatible with stable global temperatures if the world achieved this level and still used fossil fuels. The 2,000-Watt Society project thinks that no more than a quarter, or 500 watts, can come from use of non-renewable carbon fuels.

So the engineers backing the 2,000-Watt Society think that the world needs both to use less energy and ensure that three quarters of the reduced amount of energy supplied to homes and businesses is provided by sources other than fossil fuels. Any sensible set of public policies will certainly try to find ways of reducing the total demand for energy in the modern economy as well as minimising the use of non-renewable sources of fuel. However, some societies may decide that the continuation of normal life requires large amounts of continuing energy use. What really matters is not the precise figure for total energy need but rather that we find the best ways of almost completely phasing out the use of fossil fuels.

It is not just about energy use. Global warming gases are also produced by the way we use the world’s lands. In addition to decarbonising energy use, we will also be obliged to reduce the emissions of CO2 from deforestation and agriculture and radically cut the production of the main other greenhouse gases, such as methane and nitrous oxide, from agriculture.

The table below gives approximate figures for the amount of continuous energy use per person in the UK. This table and the others in this article are generated from numbers contained in the compendious Digest of United Kingdom Energy Statistics (‘DUKES’) published by the UK government.

Table 1

Of course, electricity is not itself a fossil fuel, but most power is generated from carbon-based sources, of which the most important are gas and coal. In the UK, almost 80% of coal and about a third of the gas used is employed in power stations to make electricity. I have calculated the amount of other fuels used to make electric power and then allocated these numbers to electricity. It is important to do this because much of my book, Ten Technologies to Save the Planet, deals with alternative, non-carbon, means of generating electric power.

Almost half of all energy use is a direct consequence of how individuals run their lives.

Table 2

It may be easier to replace fossil fuel sources in the home and in personal transport than in many industrial applications. For example, in my book, the chapter on electric cars shows how we should be focusing on switching to vehicles powered by batteries. Natural gas use for home heating can be replaced by renewable liquid fuels in fuel cells or by biomass-based district heating plants. Or we can use electric heaters.

Other chapters look at how fossil fuel electricity can be replaced by renewable sources such as wind and solar power. The remaining coal and gas power stations can be equipped with carbon capture plants. The figures below show approximately how the energy directly used by individuals in the UK is split between various activities.

Table 3

Eight of the ten technologies assessed in the book will help reduce the use of fossil energy sources. Acting together, they can replace the large part of existing energy sources. A single large wind turbine in a good location can typically substitute for the total energy needs of about five hundred people. Of course the wind doesn’t blow all the time, and the chapter dealing with this technology looks in some detail how we can cope with unreliable sources such as this.

Decarbonising our sources of electricity is relatively simple challenge. Renewable electricity is well understood, and we will learn how to capture carbon from power plants, although widespread adoption of the technology is at least a decade off. Combined heat and power plants, whether using renewable fuels such as cellulosic ethanol or woody biomass, will also contribute substantially.

Reducing gas demand by a large percentage is more difficult. The cheapest route will be through improved building insulation but fuel cells and district heating plants will also have a role to play. Additionally, it may make good sense to use renewable electricity and replace gas for heating of homes and other buildings.

Most oil is refined into diesel and petrol and used for transport purposes. We can replace oil with cellulosic ethanol for petrol-driven cars, and switch to electric vehicles for many forms of transport. We will not find it as easy to replace aviation fuel or diesel for heavy vehicles. Although plant-based diesel substitutes can be made from any oil-bearing seeds, biodiesel is problematic because its production generally involves the switch of either virgin forest or crop-producing land. Cutting down forests to make fuel has a substantial carbon cost and reducing the food production area in order to meet the demand for diesel has obvious detrimental effects. It may be that we will eventually be able to create bio-kerosene in huge refineries without using oil seeds as a feedstock, but the search for a sustainable source of jet fuel has made little progress as yet.

Table 4

In addition to reducing the total amounts of oil, coal, and gas needed, we can expect to see a switch towards electricity and away from the ‘primary’ fuels extracted from the earth’s crust. If our cars are eventually powered by batteries and not petrol, we will need to increase the total amount of electricity generated. Similarly, it may make good sense to heat many of our buildings using electricity, rather than gas or oil.

Table 5

Why does oil use fall by 300 watts as car travel is powered by batteries, but electricity use only increases by 100 watts? The reason is that cars powered by internal combustion engines are must less efficient than battery powered electric cars at transferring energy into motion. The same amount of driving requires less energy.

The impact of the technologies discussed in my book will depend on the assiduity with which they are pursued, the price of fossil fuels, and the level of any carbon tax. They could replace a large fraction of all existing carbon-based energy use. There are two main exceptions to this conclusion:

• Some liquid fuels for transport, particularly including kerosene for aviation.
• Large scale heat requirements in industry. Manufacturing processes sometimes require huge amounts of heat. Gas and oil currently provide the large majority of this energy need. Although electricity can substitute for gas and oil in some applications, industry will continue to use fossil fuels.

Table 6

So even if we successfully replace fossil fuels in all home uses, we are left with a minimum of nearly 1,000 watts of energy use that is difficult to replace with non-carbon energy. To get to a net figure that corresponds to the 2,000-Watt Society’s recommended level of 500 watts of fossil fuel use, we will therefore need to find ways of offsetting, or counterbalancing, the irreplaceable emissions from transport and industrial use.

We could choose to offset the remaining emissions by ensuring that the total forested area of the planet is continually increased. Reforestation will extract carbon dioxide from the air and trap it in wood. Or we could increase the levels of carbon in the world’s soils. The last two chapters of my book on biochar and soil improvement demonstrate that this is relatively easy and probably not expensive although it will undoubtedly be difficult to organise on a large scale. Of equal importance to the climate change benefits, storing more carbon in the soil will probably improve the agricultural productivity of the world’s land, increasing the amount of food that can be harvested.

How much extra carbon do we need to store in the soil to offset completely 1,000 watts of fossil fuel energy so that the total amount of carbon dioxide in the air remains the same? This calculation is quite simple. Much of the remaining fossil fuel consumption will be of oil (primarily for aviation and heavy road vehicles). 1,000 watts of oil consumption implies a total of 8,760 kilowatt hours a year. This amount of energy would mean using about 800 litres of oil, which would add about 2 tonnes of CO2 to the atmosphere when burnt, containing somewhat less than 600 kg of carbon.

The chapters on soil improvement and biochar in Ten Technologies to Save the Planet suggest that we can reasonably aim to supplement soil carbon levels by 1%. We need less than 100 square metres (ten metres by ten metres) for a 1% improvement in soil carbon levels to offset completely all the emissions from 1,000 watts of a year’s continuous fossil fuel use. Even the UK, which is one of the most densely populated countries in the world, could offset the emissions from 1,000 watts from every person in the country for nearly 35 years by adding 1% to the levels of soil carbon in the country’s soils. In other parts of the world, the numbers would be even more striking: Australia could sequester the carbon from 1,000 watts of fossil fuel use for several thousand years just by improving soil carbon levels by 1%.

No single technology will provide us with the solution. We need to make progress across a number of fronts. I hope that the important conclusion of my book is that technological advances are making it possible for our societies to continue to have access to the ease and convenience of energy without imposing the huge costs of runaway global warming on our descendants.