Conservative Party policy on local generation of electricity and heat

The Conservative Party published a policy paper in early December on decentralised production of energy. It argues for heavy subsidy for small-scale generation of electricity. The report is useful in focusing on the need to minimise the finance and administrative burdens on small generators. However, it omits any consideration of the costs of the scheme it proposes. It is woefully ill-informed about developments in other countries. The Conservatives have subscribed to a romantic view about micro-generation and are choosing to ignore the huge costs of subsidising inefficient local generators. If they want large-scale low-carbon generation they should either back nuclear, remove the planning problems with wind, subsidise tidal or biomass power, or invest in CO2 capture.


The Conservative Party has sought to improve its policies on climate change. It is also trying to position itself as a party that supports local initiatives and local decision-taking. Its enthusiasm for micro-generation arises from the combination of these two strands in its current thinking.

The Conservative Party in the country often opposes mid-sized wind power developments. One of the latest schemes, a single turbine next to the M4 in rural Berkshire, is just about to be turned down by the Tory-dominated district council. Building a national policy on renewable energy has to bear in mind that local Conservative groups will usually fight against renewable energy developments in their areas. The national party is also worried that local Tories are opposed to nuclear power. What does this leave? Only micro-generation. It is therefore unsurprising that the Tories have been backed into a policy corner and have decided to push for subsidy of the electricity output from very small-scale generators.

The principal proposal is to set up a system of ‘feed-in’ tariffs that pay high prices for electricity generated in small installations. This policy mirrors the German approach which pays over 50 cents per kilowatt hour. Unlike the Lib Dems (see Carbon Commentary Newsletter #2), the Tories have not committed to any figure, so we cannot cost the policy; but it will be expensive. If the UK were to match the German prices, it would be paying about 8 times the current average wholesale price of electricity.

The faults of the current subsidy system The UK’s Renewable Obligation system pays qualified generators for the electricity they generate. The incentive is valuable and roughly doubles the wholesale price that they receive. (The system will soon be changed to vary the amount of subsidy according to the type of technology used.) It applies to large generators and to small. So the solar photovoltaic panels on my roof attract a payment of about £46 per megawatt hour, about the same as a wind farm. To become Generator 1274 on the UK’s national electricity distribution system I had to fill in complex forms almost identical to those that will used by the 300-turbine London offshore array.

The Conservatives rightly say that this is intolerably complex. But they fail to point out that the regulator Ofgem now allows the electricity distribution companies to act as the agents of householders. This hugely simplifies the requirements on tiny generators. The distribution companies also handle the installation of the meters necessary to record the power exported into the street by my solar panels.

Getting planning permission was wearisome. However, most local councils now allow micro-generation installations without requiring full planning applications.

In effect, there are now no significant obstacles to local generation, except those imposed by the poor financial returns.

The Conservative plans for domestic microgeneration The Tories intend to replace the Renewable Obligation with feed-in tariffs for small generators. At the moment, I get paid £45 per MWh for my exported electricity, roughly the current wholesale rate. So for Scottish and Southern, the purchasers, my electricity costs roughly the same as the price it pays to Drax. But it bears some considerable overhead cost, so the payment to me is extremely generous.

If a Conservative government adopted the German feed-in rate, I would be paid £350 per MWh. This would be very nice, but highly uneconomic to Scottish and Southern. The International Energy Agency’s 2007 report on Germany says as follows:

The country’s feed-in tariff for renewables has resulted in rapid deployment of new electricity capacity, but has done so at a high cost. Estimates show that between 2000 and 2012, the feed-in tariff will cost EUR 68 billion in total [over £4bn a year]. In particular, the subsidies provided to solar photovoltaics are very high in relation to output; they will eat up 20% of the budget but contribute less than 5% of the resulting generation. In comparison, many energy efficiency measures cost multiples less in terms of their reductions in carbon dioxide emissions. The feed-in tariff has been a success at building renewable electricity capacity in the country, and we now urge the government to focus on creating sustainable market pressure to bring down the costs of operating and further developing its renewable energy resources.

Although the UK typically gets a little more sun than Germany, the economics of solar photovoltaics would be as dire here as they are in the Federal Republic. The Conservative report nevertheless praises Germany’s 300,000 solar roofs. What would be the consequences of establishing a similar programme here?

  • 300,000 roofs of 2 kW maximum output each
  • Cost – about £3bn
  • Electricity generated – about 0.6 TWh per annum(just over 0.1% of UK electricity)
  • Capital cost per yearly MWh – about £5,000

Compare this with a small commercial wind farm. (Numbers from the Fens Co-op, discussed in Carbon Commentary Newsletter #6.)

  • Expected generation – 11,200 MWh per year
  • Capital cost – about £4m
  • Capital cost per yearly MWh – about £350

If we are worried about the cost of mitigating climate change, why would we, the inhabitants of one of the windiest countries in the world, invest huge sums in inefficient solar panels on domestic roofs?

The only justification offered by the Tories is that some electricity is lost in long-distance transmission, making local generation more economic. This is easy to exaggerate. Though this number is not included in the report, the average losses in the UK transmission system (national and local) are about 7%: not enough to begin to outweigh the huge advantages of large scale generation of most forms of renewable electricity.

More domestic micro-generation sounds a very good idea. But no one should be in any doubt that it will cost many billions even to get to 1% of UK electricity generation. Five decently sited large offshore wind farms would generate more than all the homes in the UK covered in solar panels.

Combined heat and power The Conservatives also like combined heat and power. Along with the example of German solar, the policy paper focuses on the Dutch encouragement of combined heat and power. In the 1990s the Netherlands pushed CHP hard and it rapidly became an important source of electricity.

A CHP plant burns a fuel – usually gas but it could be wood or coal – and generates electricity. Electricity generation almost always involves a significant loss of waste heat. A CHP plant uses that heat for heating buildings or commercial installations such as glasshouses. Like micro-generation, this sounds like a very good idea. A coal-fired power station may waste 70% of the energy in the fuel and using the heat productively is an attractive thought.

But look closely and CHP is not quite as effective as it might appear, particularly in very small installations. (For more details, see Carbon Commentary Newsletter #1 on the proposed Ceres Power domestic CHP generator.) CHP works well when the operator faces a stable demand for heat and for power. This happens, for example, in some industrial applications which need heat for a manufacturing process and electricity to power motors and provide lighting. Very small-scale CHP will always struggle because the plant cannot adapt to varying heat and electricity needs. Every kilowatt hour of electricity will always produce about two kilowatt hours of heat, whether the heat is needed or not. In domestic installations outside the heating season, CHP will have to dump heat in the same way as a big power station.

The Tories don’t mention this, but CHP grew in the Netherlands because the Dutch rigged gas prices to advantage the technology. I suspect the reason was that the Dutch wanted to keep their ludicrously energy-intensive horticultural greenhouses supplied with cost-effective heat and power. Since 2000, this advantage has been unwound, and there is no longer any reason to install new CHP plants. The Conservative paper uses quotations from Netherlands sources (wrongly stating that they are written by the Dutch government) but omits to use more recent commentary that notes that CHP is now stalled because of a change in the relative prices of gas and electricity.

The lesson from Holland is not that CHP is a solution for large-scale generation of local electricity but rather that technologies will move in and out of use depending on the prices of input fuels.

It may make sense to subsidise small-scale generation of electricity, but the Tories proposal is uncosted, and it principally relies on analogies with Germany and the Netherlands. Even a limited acquaintance with these markets should have shown the Conservatives that the party’s plans for micro-generation and CHP would be quite as costly as the current Renewables Obligation.

If the UK is to produce low-carbon electricity in large amounts, we can either use nuclear, wind, biomass or tidal; or we can invest in large amounts of urgent R+D on carbon capture. The Tories need to recognise that the politically attractive route of domestic generation of electricity can never deliver large-scale decarbonisation of UK electricity.