British journalists use the expression ‘reverse ferret’ when identifying changes in an organisation’s stance on an important issue. An important feature of a good reverse ferret is that the abrupt switch must never be acknowledged. In the last week the Department of Energy (DECC) reversed five years of British policy in two crucial ways. First, it has abandoned any pretence of technology neutrality in sponsoring additions to electricity generation capacity and now supports nuclear and gas in preference to renewables. Second, it has indicated that gas powered generation is no longer assumed to be accompanied by Carbon Capture (CCS) by 2030.
A successful reverse ferret is usually accompanied by a decoy: a story that distracts journalists attention while the U-turn is carried out. In this case DECC allowed a minor competing story about the rate of change in wind subsidies to attract press coverage. Masterly work, at least if you don’t worry too much about climate change.
The end of the orthodoxy of technology neutrality.
In its Carbon Plan of December 2011, published less than eight months ago, DECC wrote ‘In the 2020s, the government wants to see nuclear, renewables and CCS competing to deliver energy (meaning electricity) at the lowest possible cost. As we do not know how costs will change over time, we are not setting targets for each technology..’.
This summarised the energy policy of the UK government. It would set not targets but treat each potential source of low carbon electricity equally. Whichever technology forced down costs fastest would end up as the dominant provider of electricity. That’s all changed. The ministerial announcement on support for renewables on 25th July reduced support (as expected) for wind and for large scale solar PV. Onshore wind now gets 0.9 Renewable Obligation Certificates (ROCs) worth about £40 a megawatt hour. PV will no longer be eligible for ROCs and will have to rely on the feed-in tariff of about £68 a megawatt hour, a figure which will be cut to about £41 by 2015. (In both cases, these subsidies will be supplemented by payment for electricity, probably at about £45 per MWh.)
Where does this leave onshore renewables compared to nuclear? Nuclear will benefit from a different form of subsidy, the so-called ‘contract for difference’. In all important respects this is a feed-in tariff disguised to enable government ministers to be able to claim that nuclear receives no direct subsidy. The Times recently reported that the nuclear industry was demanding feed-in tariffs of £165/MWh. Denials rapidly followed from both government and electricity generator and the level at which the tariff will be set will probably be around £130/MWh. This support will continue for several decades.
Total payments for low-carbon electricity
|Solar farms||£123/MWh (falling sharply to around £96 by 2015)|
Nuclear power is going to be subsidised far more heavily than low-cost renewables.. This may well be a logical decision by government. Without baseload nuclear power, guaranteeing electricity supply is going to be very tricky. But let’s be clear: nuclear is going to receive a higher rate of financial support, guaranteed for longer, than the currently lowest cost renewables. In order to make the nuclear renaissance happen, we now see huge subsidies to draw in EdF and Chinese money. Financial neutrality has gone. We now have an industrial policy that incentivises one technology against another.
Support for gas
Until a few months ago, government policy documents routinely asserted that almost all electricity production would be low-carbon by 2030. The amount of CO2 emitted from power stations would have to fall to an average of a fifth or even a tenth of current levels. If gas or coal were used, they would have to be accompanied by CCS. The December 2011 Carbon Plan said ‘Fossil fuels without CCS will only be used as back-up electricity capacity at times of very high demand’.
That commitment has gone. The 25th July ministerial statement said ‘We do not expect gas to be restricted to providing back up to renewables’. If gas remains cheap ‘we expect it to continue to play a key role ensuring that we have sufficient capacity to meet everyday demand and complementing relatively intermittent and inflexible generation’. It is only ‘in the longer term (that) we see an important role for gas with CCS’. The statement didn’t admit this, but the carbon targets for 2030 have in consequence been abandoned.
Accompanying the new explicit support for gas was a nice sweetener for the offshore exploration industry. A fund of £500m was announced to back investment in less financially attractive gas fields. We should put that in context. The current support regime for marine renewables is expected to provide £50m for wave, tidal and offshore wind R+D over the next four years. In other words, offshore renewables will get one tenth the help given to offshore gas.
That’s how it stands – high and guaranteed support for nuclear and subsidy for gas. Renewables are to have financial help withdrawn. These extraordinary reverse ferrets were largely ignored by the press, which focused on whether the UK Treasury or DECC ‘won the battle’ over the precise level of support for onshore wind. Did Chancellor Osborne or Energy Secretary Davey beat the other into pulp? A great tactic from the DECC press office, ensuring that a minor skirmish attracted attention while huge policy changes were left unnoticed.