Britain aims for radical power market reform in push for low-carbon energy

LONDON -- The U.K. power market is about to face the most radical reform in decades as it becomes increasingly clear that progress toward decarbonizing its energy system in the face of climate change is moving at a snail's pace when it really needs to move like the wind, experts say.

While the Obama administration struggles in Washington to find a way to convince Congress to set targets for more low-carbon power, politicians in London are peering at the next question: Once you do that, how do you phase in the changes and keep the lights burning at the same time?

Next week, the government will produce a consultation paper on what needs to be done to bring forward the new low-carbon power plants the country urgently needs as many old ones face closure and with emission reduction targets that ministers say, with increasing signs of desperation, are seriously challenging.

Today, the Committee on Climate Change -- set up under the 2008 Climate Change Act to monitor government progress toward the 80 percent carbon emission cut from 1990 levels by 2050 stipulated in the legislation -- issued its most urgent call for action to date.

To meet the 2050 target, the country had to cut emissions nationally by 60 percent from 1990 levels by 2030 and another 62 percent over the following 20 years, the committee said. And in order to do that, the power generation sector had to decarbonize by 90 percent by 2030 to just 50 grams of carbon dioxide per kilowatt-hour from 500.


The committee's last recommendation on the overall 2030 target was a cut of 34 percent. Speaking recently, the committee's chief executive David Kennedy, said progress to date had been far too slow, and urgent acceleration was necessary.

"Power is at the heart of decarbonization. The sector needs radical reform. Evolutionary change won't do it," he told a meeting in London. It was a sentiment echoed by climate change Secretary Chris Huhne, who said in a brief response to the committee's recommendations that maintaining the status quo was not an option.

One of the committee's more radical proposals is for the government to offer long-term guaranteed price contracts to low-carbon electricity generators, although it offers no detail on how this would work in practice.

Wrestling with 'fuel poverty'

One suggestion is for a new government body to buy the power and then sell it to the networks for onward sale to consumers. But that presents a potential major problem. If the sale is at market rates and those fall below the guaranteed price, that would trigger a subsidy. If, on the other hand, it was at or above the guaranteed price, that would penalize consumers already facing high and rising bills.

"There are already more than 5 million households in fuel poverty in this country. This could push that figure far higher," Oxford University economist and climate expert Dieter Helm told ClimateWire. "That is highly politically sensitive."

Fuel poverty is defined as a household's having to spend 10 percent or more of its income on power. The government is known to favor a full system of feed-in tariffs for low-carbon energy, extending the current household scheme that came in nine months ago to cover utilities, as well, offering an attractive price for producing electricity to the grid, but at the same time pushing up prices for consumption. There is no ducking the dilemma.

Under the European Union's Large Combustion Plant Directive -- at cutting not carbon emissions but those of sulfur dioxide -- about one-third of the United Kingdom's coal-fired power stations will have to be closed by 2016 or have their operations severely curtailed.

At the same time, by 2023, all but one of the country's aging nuclear power plants -- which currently supply some 16 percent of the nation's power -- will also have been closed.

Echoing the policy of the Labour government it defeated in elections in May, the Conservative-Liberal Democrat coalition has called for new nuclear stations to be built to keep the lights burning, reduce carbon emissions and increase energy security.

How to finance new nukes?

One of the reasons behind the market reforms proposed by the Climate Committee and those that will be included in the government's discussion paper next week is that while three major European utilities -- France's EDF and Germany's RWE and E.ON -- have all expressed an interest in building new nuclear plants, none of them has so far made a concrete move.

All three are insisting on some form of price guarantee before they commit to the billions of dollars in upfront capital that a new nuclear power plant will cost.

The coalition has said it favors some form of floor price for carbon that would support low-carbon energy by penalizing high carbon fuels such as coal. But it has also pledged that there will be no public money involved.

It is a high-stakes game of chess, with consumers as the pawns.

Also following the Labour government, the coalition is pinning many of its hopes on a massive expansion in wind power -- some 33 gigawatts in total -- partly driven by the need for energy diversification and low carbon, and partly by an E.U. commitment to get 15 percent of the country's energy from renewables by 2020, which equates to some 35 percent of the nation's electricity.

By September, the United Kingdom had 5 gigawatts of wind power installed -- a milestone, but still far short of the target, with even the government estimating that up to 10,000 more wind turbines will be needed -- equivalent to an average of three new turbines a day, every day, for the next nine years.

"My view is that we are heading for a train crash in about 2016. That is when the true cost of wind will start to come through, and it will be in consumers' bills," said Helm. "The government's strategy, such as it is, will produce very expensive energy, and you and I will be paying for it."

"That is politically highly charged. Already, opinion polls are showing that 45 percent of people don't believe in global warming, and an even higher percentage don't believe they should pay for it," he said.

"The government is banking on a massive increase in energy efficiency so that by 2020, household bills will only have risen by about 1 percent. That is very fanciful," he added.

Shale gas to the rescue?

For Helm, the answer lies in a significant switch from burning coal to generate electricity to firing gas instead -- a commodity that produces half the carbon of coal and that has suddenly become in plentiful supply thanks to the technological breakthroughs that have turned shale gas into a power bonanza and transformed the global gas market.

Such is the size of the shale gas reserves discovered in the United States that the planned development of the gigantic Shtokman gas field in Russia, whose output was to be aimed primarily across the Atlantic, has already been delayed by three years, with no specific start date in sight.

Qatar has also become a major player in the liquefied gas market, with giant tankers carrying huge cargoes across the world, including regular shipments to the United Kingdom.

That, and market forces, would prevent the United Kingdom's lights from going out as the old coal and nuclear power plants start to close down, said Helm.

It is an analysis shared, at least in part, by campaigner Simon Bullock of environmental lobby group Friends of the Earth. But it is not one shared by the government, which fears another "dash for gas," as happened with U.K. power generators in the 1990s.

"There are already about 7 gigawatts of gas-fired power plants that have got planning permission, and many more in the pipeline waiting for the government to streamline the planning process, so there will be ample power," Bullock said.

"But we can also win major benefits from smart meters and developing smart energy grids. The government has a lot of work to do there. They are trying to do it without public subsidy, but they have no money, so it is quite difficult," he said.

There has been much talk of a subsea grid across the North Sea to link the current and planned offshore wind farms so as to carry the power they produce to where it is needed. Ministers from countries bordering the North Sea signed last week an agreement to develop such a grid.

But in the United Kingdom, there is also another problem -- one highlighted last week by Parliament's Public Accounts Committee. It pointed out that the Department of Energy and Climate Change was responsible for making sure the country met its renewable energy and carbon reduction targets but had few specific plans in place and didn't even have control over the budget to support renewable technologies.

Not only was the country well off-course from the aim to get 10 percent of its electricity from renewables by the end of this year -- only likely to get there in 2012 -- but DECC had no plans in place to meet the even more challenging and legally binding E.U. 2020 goal.

"New, and substantially more demanding, targets are now in place," said Public Accounts Committee Chairwoman Margaret Hodge. "The department will have to have a greater sense of urgency and purpose if it is to achieve the dramatic increase in renewable energy supplies needed to meet them."

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