Offshore Wind Turbines – A financial cash cow or a political real world energy solution.

Offshore Wind Politics
Offshore Wind Politics

Would it be considered fair for the Chancellor of the Exchequer, George Osborne, to cut down the pensions of the poor while making an offer to the Duke of Roxburghe of around a million pounds a year just to let the wind industry flourish? Would it also be considered fair to make an offer of £500k to the Earl of Moray, £250k to the Duke of Beaufort, Sir Alastair Gordon Cumming and Sir Reginald Sheffield, as well as a third of a million to the Earl of Glasgow? Can it be considered fair to make a promise of around £1bn to be given to Charles Connelly over the next quarter of the century? These are just some of the questions that can be asked of anybody who is a close observer of the current renewable market sector in the United Kingdom.

It’s not really about being egalitarian, as many believe. Austerity in public finances affects nearly all of us, in one way or another and obviously, it is important to make changes for the greater good. However, some experts harbor a belief that George Osborne is going beyond the definition of smooth. If defined in a simple sentence, the energy policy of Britain is nothing short of chaotic. It is not coherent at all, moving from fashion to fad, with a large amount of taxpayer’s money available and a host of different lobbyists trying their hardest to defend it. Throughout the history of public subsidy, you wouldn’t find another example of such a vast amount of money being paid out to such a small amount of people.

The Chancellor recently made an announcement that the finances available for onshore wind turbines will be reduced so that the finances for offshore wind turbines can be increased, and even though this message was accepted with positivity, it fails to be backed by reasoning. Even though off shore wind turbines can’t be seen in the nearby surroundings, they are vastly more expensive and certainly more inefficient in the long run, than their on shore counterparts. Even though George Osborne announced a large subsidy for it, the plan to erect around 240 wind turbines straight down the middle of the Bristol Channel has been abandoned, as they were considered to be relatively uneconomic. This vast wind farm could have resulted in an investment of billions, all of which would make nuclear power look like a relatively cheap bargain.

Some experts say that they have a sympathy with the wind lobby in certain regards. The members of the wind lobby, for starters, are trying to make an honest earning, and as a result have to make plans quite far ahead into the future. Around a year ago, the wind lobby was informed by Chris Huhne, the most fanatical subsidizer of wind energy, to plan for the construction of around 10,000 on shore wind turbines. Public money to be poured into the project was considered to be ‘unlimited’. A lot of promises were made in regards to contracts. It was stated that the offshore wind sector, on its own would be able to generate more than 20,000 jobs in Britain. However, it all turned out to be fruitless.

Siemens, the German behemoth is responsible for the construction of wind turbines in Britain and primarily, it does not rely upon the policy of the British Government when it comes to investing, resulting in the absence of large-scale UK based employment on these projects. The direct competitor to Siemens, Vestas, has already stopped construction on a plant in Kent, while Doosan, a South Korean company has also stopped construction on another plant in Glasgow. It is said (and this is subject to some conjecture) that the total amount of energy that is needed in order to mine the ‘rare minerals’ required to build the off shore turbines as well as the costs of building, importing and then erecting the turbines means that there are more resources being used than could possibly be generated over the life of the turbine. Renewable UK, an industry lobby, revealed earlier that the decision to cut subsidies was deplorable, and it believed that this was probably a political decision. Needless to say, the industry lobby was spot on.

It is expected that turbines will be installed all around Cornwall and will move all through the North Devon coast. These turbines will also stretch along the Dorset shore. Another stretch will be created from Offa’s Dyke from Shropshire to Gwent, while a single large sized turbine will be installed on Clyro Hill, facing the Wye Valley. The Cambrian Mountains, which were considered to be desolate at one point, will now be used as an estate to erect a total of 840 turbines which will fill up views in all directions. Cambridge, Nottingham and Northampton are just some of the places in which the erection of turbines is already gathering pace. The turbines located in Heckington Fen in Lincolnshire are likely to be taller than the Lincoln Cathedral itself. It is expected that turbines will also be installed in the Forest of Bowland in Lancashire, while they will also be installed near the Spurn point off the Humber as well as the Bronte County of Yorkshire. Turbines are also expected to make an appearance along the coastline of Northumberland, and it is expected that around 70 turbines will be installed there.

Never before has the landscape of Britain been subjected to such a massive transformation visually. Even though industrial changes have been made to the country, both in urban and rural areas, they have never really managed to bring about such a large amount of visual changes to the environment. The problem is, these turbines often fail to produce the amount of electricity that is declared. For instance, the turbines that tower above the M4 are producing just 16% of the total electricity that they were expected to produce. However, turbines generate money, as they are subsidized heavily. So the question remains, are these large scale off shore wind farm offerings a viable solution for the future of Britain’s energy?

United Nations Climate Chief calls for the tripling of clean energy investment

The Climate Chief of the United Nations, Christiana Figueres has stated that around $1 trillion is required every year in terms of investment in the renewable energy sector. She has urged financial institutions from all over the globe to increase their investments to reach a sum of $1 trillion every year, which is the only solution that can help in averting a climate disaster. In an exclusive interview which she gave to the Guardian in the UK, Christiana Figueres stated that it is important that global financial institutions begin to construct the foundations of an economy that is based on clean energy, primarily by increasing their investments.

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At present, the global investment that is made in the clean energy industry is around $300 bn every year. However, according to Figueres, that figure is nowhere near the required mark. She stated that from the current point, the global investment needs to triple in size, and it would be best if this change was brought about in the next five to ten years. However, she stated if not during this period of time, it would be most viable to increase the investment by 2030, because after that the climate scenario might begin to change. Four years ago, in a public announcement that was made by the International Energy Agency, it was revealed that a yearly investment of $1tn was required in new infrastructure projects by the year 2030 which would help in making the transition from an economy that is based solely on coal and oil and moved towards cleaner technologies and fuels which would help in keeping the climate warming below the threshold of 2 degrees, which is still standard. However, if nothing changes, it is likely that a change of around 4 degrees will occur, which could be horrific in the long run.

However, even though the information from the International Energy Agency was revealed four years ago, investment hasn’t really caught up as yet. As stated by Figueres, globally, we are way behind the required amount of investment that is needed to stay within 2C. In a meeting that has been arranged by the Ceres investment network between Figueres and some other top Wall Street figures at the United Nations, they will try to urge global investors to step up their investments in the renewables energy sector in order to minimize the impact on the climate.

Already a number of countries have begun to take notice of the rising carbon emissions. Global emissions are rising, and countries have been asked to make changes. Australia, for instance, announced the carbon tax, which, even though abolished, did manage to make an impact in bringing down the overall emissions. The United Kingdom, on the other hand, is taking a slightly different approach. The country is slowly and gradually decreasing its dependency from coal and gas fired power stations and moving towards renewable energy. The Government has been backing private investment into the sector, and has actively helped by announcing numerous subsidies for companies in the wind and solar sector.

Only recently, the One Million Rooftops campaign was announced by the Solar Trade Association. The One Million Rooftops Campaign aims to install one million solar PV systems on rooftops all across the United Kingdom by the year 2015. At present, there are around 416,000 houses within the United Kingdom that are deriving their power directly from the sun. Similarly, numerous subsidies are also in place for those companies which are currently investing in the wind sector. Both on shore and off shore wind farms are of vital importance to the renewable industry within the United Kingdom, and even though government has been quite vocal against wind power as of late, it still hasn’t reneged on any subsidized plan as yet.

New plans have been announced all around the United Kingdom for the construction of onshore wind farms, while investments have also been made into the research category, in order to increase the overall efficiency of wind turbines. At present, most of these turbines are able to produce only around 30% of the total energy that they should be producing.

On the face of it, the largest investors in the renewable industry market, generally foundations, insurance companies, investment managers and pension funds, control a total of around $76 tn in assets, as per the figures revealed by the Organization for Economic Cooperation and Development. However, as per the estimates revealed by Christiana Figueres, these investors were putting less than 2% of the funds that they were controlling into the infrastructure of clean energy. Compare this to the ten and fifteen percent that was going into the coal and oil industry and you understand the problem. She stated that in the past year, the total amount of investment made in the exploration and mining of fossil fuels was around $600 bn, which is double that of the renewable industry. As a result, it is obvious that the ratio isn’t right. She stated that we need to overturn this ratio in order to actually keep the climate in check.

She also stated that in order to make her point to the global investors, she was going to show them the investment opportunities that were available in the clean energy industry, while simultaneously showing the risks associated with investing in the coal and oil industry. The climate panel of the UN, known as the Intergovernmental Panel on Climate Change stated for the first time that a set amount of carbon could be burnt in order to stay within the warming of 2C. Around half of that budget on carbon has already been expended, which ultimately means that most of the coal and oil that is currently present cannot be burned without crossing in to the dangerous warming sectors. Figueres stated her fears by saying that, in her mind, there was no doubt that in order to remain within the 2C warming mark, most of the fossil fuels would have to remain within the ground.

The new nuclear reactors at Hinkley are old fashioned!

Would it not be better to spend the £14Billion on renewable energy?

In order to be able to limit the rapid increase in global temperature to around three degrees, a lot of coal burning needs to be stopped. At present, coal is primarily burned to make electricity. Estimates state that if coal burning is not limited, the global temperature rise can be as high as six degrees, which would be an astounding figure. At present, there isn’t a lot of progress in this field; reusable plastic bags, recycling methods, electric cars are all pretty small on the global scale to make a decent enough impact. However, in order to prevent the massive usage of around two trillion tons of coal and gas, we need to come up with a decent alternative. Even though gas is still a better option than coal, it still produces CO2 in vast quantities.

A growing number of the UK population has been looking towards the long touted wind and solar energy alternatives for some time now. However, currently, wind and solar energy are pretty unreliable, quite expensive and as yet, quite inefficient technologies. Even though significant progress has been made in the field of both wind and solar energy, it is still a far way off being considered as a viable alternative to coal primarily because of sheer numbers / outputs required. Prof. David MacKay, a government adviser stated that to completely substitute the output power of fossil fuels with solar and wind power would require a ‘complete re-engineering’ of the entire United Kingdom, would require the use of all exposed areas to be littered with turbines, in addition to a vast amount of suitable ocean required to build offshore wind farms, all of which would require a financial investment running into the hundreds of billions of pounds.Hinkley_Nuclear

As a result, considering the current energy climate, Britain citizens have unfortunately been left with no option than to accept a new deal closed between the Government, a Chinese consortium as well as the French energy giant EDF, to construct a new set of reactors which will be situated at Hinkley Point in Somerset, the cost of which is expected to be around 14 billion GBP. It is expected that these reactors will be switched on by 2020, and each will have a capacity of 1.6 gigawatts. Moreover, by the time that these reactors are turned on, Britain will have significantly reduced the energy gap, mainly because of the shutdown of the older reactors as well as the Giga watts of coal power being taken offline. Estimates state that the new reactors will be able to supply up to 7 percent of the country’s energy, which is similar in scale to the Drax coal station, which is the largest in the United Kingdom.

However, because the Government has opted for an EPR design (EPR stands for European Pressurized Water Reactor), the Government is essentially pitting itself for decades into a technology that is likely to become outdated in the very near future. The new reactors will be reliant on a rapidly decreasing supply of uranium fuel and they’ll still be paying a significantly high amount for it. As the strike price is around 9.3p for every kilowatt hour, linked to the index, it means that Hinkley C. is by some estimates, the most expensive power station on the globe.

However, Hinkley isn’t the only new addition being planned by the government for the energy sector of the UK. Horizon Nuclear Power, a Japanese owned firm, which has announced plans for new boiling water reactors to be installed at Wylfa and Oldbury, are both going to be using older technology that is soon going to become outdated, much like that of Hinkley C. It might be a bit past the point of no return when we consider alterations to the design, but are there any better substitutes available for the rise of the Britain’s energy sector?

On the face of it, even with Hinkley C and Horizon installed, Britain still faces a very difficult period of around six years in which the overall demand of electricity is likely to go higher than the supply, and this can cause a lot of problems. Could there be a cheaper, more viable and more affordable option available in the market which can close the energy gap rather than the older uranium fuelled water cooled fission reactors?

As sad as it is, we can completely forget about the most promising long term solution to end the global energy crisis; fusion. Ever since it was discovered that the nuclear chain reactor that provides power to the Sun as well as the H bomb back in the 1950s, scientists and researchers have stated that fusion powered nuclear reactors are around 40 years away. To this day, that figure remains. Even though an experimental reactor was created in France, even though significant improvements have been made in the fields of nuclear energy, we are still quite far away from having fusion based nuclear reactors. In fact, it is likely to be around 2100s until we are able to actually generate commercial electricity from fusion based nuclear reactors.

This leaves us with two options at present; use thorium fuel, which is more readily available and also quite cheaper and on the same hand, quite effective too. Or, we could opt for the lesser known ‘fast breeder reactor’. The fuel which can be used in this kind of reactor (it can be thorium), is going to be used in a much more efficient manner than the conventional designs. The research for fast breeder reactors was completed in Britain, the US and France around the 1980s, but development of this technology was stalled primarily because the high costs associated with building a reactor were making it a very poor decision from an economic point of view. Thorium and fast breeder reactors can provide a much needed relaxation to the continuous pressure on the energy industry, because thorium is quite readily available as compared to uranium fuel. So, it remains to be seen what steps the Government is likely to take.

Renewable energy sector to increase employment levels as UK economy recovers.

More than fifty percent of the companies which are currently working in the renewable energy sector are likely to hire more staff in 2014, as revealed in a survey by Scottish Renewables, an industrial body which commissioned the research. It was also revealed that around 11,700 people were currently working in the renewable energy sector on a full time basis. This is a record in itself. This figure shows an increase of 5% from the last time that the same study was commissioned, which was in the past year. In a document revealed by Scottish Renewables it stated that the results painted a very bright picture of the future of the renewable industry sector. From an economic perspective, when a sector is looking to increase its overall employment, it ultimately means that it is likely to expand. The news comes on the back of numerous efforts that have been made on the part of the Government to excel in the field of renewable energy, as coal and gas fired power stations are coming under increased pressure due to the rising demand of electricity.

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The survey conducted by Scottish Renewables gave an indication that the Lothians, Highlands, Glasgow, Islands as well as the North East were at the top of the list, showing the regions that were hiring the maximum amount of people. As also revealed by the survey, the largest sources of employment within the renewable energy industry of the United Kingdom were onshore wind, which comprised around 39%, offshore wind, which comprised 21%, while marine and bio energy constituted around 9%. The total number of companies that were put through the survey was around 540. From these, 54% stated that they are likely to increase the total number of staff employed within the next 12 months.

42% of the companies, however, stated that they are not going to hire any further in the next year, while only 1.6% of the people stated that they were going to let go of employees. Joss Blamire, the senior policy manager at Scottish Renewables, stated that these current figures give a clear indication that steady growth is taking place in the renewables industry reflected in the total number of people employed, even though it was a pretty unpredictable year. He also stated that the numerous job opportunities afforded to ecologists, project managers as well as engineers has ultimately allowed people to perceive the renewable energy industry as a sector in which they can put their training and skills to a very viable use. Despite stating that this was one of the best positions that the renewables industry has ever been in, Mr. Blamire was quick to state that the renewables industry must avoid becoming complacent.

He stated that there were several barriers that had been identified which could hinder the future growth of the industry significantly. Certain factors that he identified from the survey included market reforms that have taken place in the electricity sector, including planning problems as well as connecting projects to the electrical grid, all of which could prove to be potential barriers which could prevent or limit the future growth of the industry.

On the other hand, these figures were well received by the environmental campaign group WWF Scotland. Sam Gardner, the Head of Policy stated that the report was a clear example that the renewable sector of Scotland was not only bringing down climate emissions as well as providing up to 40% of the overall electricity needs of the nation, but it was also proving to be a very vital employer throughout Scotland. He further stated that even though, at present, no construction had begun or was likely to begin in the near future within Scottish waters in relation to offshore wind farms, they were already proving to be the second biggest employers throughout the industry, which provides a clear idea of the huge opportunity that lies ahead for the whole of Scotland in the renewable sector.

Sam Gardner also stated that if responsible development was carried out along with meticulous planning, the country will be able to utilize all of the vast energy that can be generated from the seas, which would also create thousands of additional jobs and most importantly, will play a major role in the transition to create a low carbon economy. This news comes on the back of a very good year for the renewable energy industry, despite there being a lot of reservations about this sector. Britain, as a whole is trying, like many other countries to reduce its reliance solely on gas and coal fired power stations and move towards low carbon emitting solutions to producing electricity.

And, for that reason, solar and wind power have been touted as the major players in the renewable energy sector. However, at present, the technology that is currently being used for the mass scale generation of electricity by making use of solar and wind energy is still pretty much inefficient and cannot be used for mass scale generation. Numerous new initiatives have been taken by the Government, such as the launch of the One Million Roofs campaign which aims to install solar PV systems on one million rooftops throughout the UK by the year 2015. Even though the Government hasn’t really provided any further information or inclination to further the wind energy industry, it remains to be seen whether there will be further improvements within the sector.

At present, the wind industry is flying high, despite numerous MPs announcing that they were not in support of the wind energy industry at all. As a review of the energy bill is still underway, it remains to be seen as to what changes the government is likely to bring in this field. At present, the market is perfectly poised for international investment, and if the government can introduce improved subsidies, then local companies can also take interest in the renewable energy sector. A

Renewable energy generation to surpass nuclear by 2018

If the current rates of growth of nuclear energy persist, the renewable energy capacity of the UK is going to overtake nuclear by the year 2018. More importantly, it is expected that renewable energy will provide enough electricity to power 1 in every 10 homes in the United Kingdom by the year 2015, as revealed by new research. Compared to 2010, the energy supplied by wind farms has increased by more than a quarter, and all in all, it has been a very good year for the renewable energy industry. Even though the government has, for the large part, done a u-turn and backed away from wind energy investment, especially on-shore now (more than a hundred Tory MPs signed a petition against the construction of new wind farms, while George Osborne, the Chancellor of the Exchequer, has asked for a review of the subsidies), the industry has still managed to flourish. Investment within the offshore wind sector has gone up by 60%, standing at around £1.5 Billion in the past year. As per the information revealed by Renewables UK, approvals for onshore wind farms have increased by around fifty percent and have now reached a record milestone.

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Even though the Tory MPs have been quite verbal and active in their opposition to wind power, the overall capacity of onshore wind power increased in the past year for the first time in the past five years. The CEO of Renewable UK, Maria McCaffery stated that such positive figures clearly highlight the significance of a stable trading climate to attract stronger investment, especially during an economic downturn. She stated that as a result, it was very important that the framework which was set up by the energy bill, which is, at present, under review by the Parliament, should be spot on. She stated that even though the country was quite a bit far off in its aim to reach its targets, they were still on track and gathering speed.

The energy minister of the Conservative party, John Hayes, who has often provided quite verbal opposition to the wind farms industry, revealed to a popular newspaper in the UK that he was extremely proud of the wind energy industry in the United Kingdom. He stated that making an investment in the latest technological advancements was a very ‘British’ thing. Even though he has been quite against the idea of wind farms, John Hayes stated that he would provide support to new turbines, as long as suitable areas were chosen for their construction. He stated that the main thing was to get the support of the local people where the wind farms were being built. The coalition government is likely to bring forth a number of different measures which will make it much easier for the local communities to benefit from the wind farms, such as providing them with a financial stake in the overall revenues generated by the farm.

It was previously expected that the debate over the energy bill will be held next week, however that is now likely to be postponed until November as ministers are still arguing with each other over the implications. There is a significant divide in the Tory party when it comes to the treatment of renewable energy, as quite a few of the MPs (a figure in excess of 100) signed a letter stating their opposition towards wind farms. A new appointment was made to the energy and climate change select committee in the past week; Peter Lilley, a climate change skeptic was taken onboard. This move depicted that the government was shifting rightwards in its climate policy. However, in the past few years, the current Prime Minister of the United Kingdom, David Cameron, has stated that the renewable energy industry is going to be extremely crucial to the future prosperity of the United Kingdom.

One thing that is obvious is that if any last minute changes are made to the energy bill, it is likely to drive away investors. Manufacturers of wind turbines are already delaying decisions on whether they should make an investment in new manufacturing plants within the United Kingdom, as they all await clarification from the Government of the energy policy of the near future. A number of the largest companies in the world are pondering over decisions to construct manufacturing plants in the United Kingdom, but are unlikely to make a move until further, stronger assurances are provided by the Government. Companies such as Siemens, Mitsubishi and General Electric have all expressed an interest in building a manufacturing plant in the United Kingdom. George Osborne has been a very vocal supporter of gas and has repeatedly stated that the energy future of the United Kingdom lies within the gas industry, and as a result, the government has already paved the way for 20 new gas fired power stations.

This move however, didn’t go down very well with renewable energy power investors, and has unsettled them. A big investor in the wind energy sector, who cannot be named here, stated that the constant talk about gas was certainly not a very reassuring point for the people who were investing in other areas, such as renewable energy. A trade association by the name of Renewable UK stated that around 137,000 people were involved in the renewable sector, while an additional 654,500 jobs were taken up in ancillary industries. As a result, it remains to be seen as to what decision the government is likely to take on the energy bill. Moreover, it is obvious that support for the wind energy industry has to increase in the long run, because it is turning out to be a major player in the renewable energy sector. With investments rising in the onshore and offshore wind farm construction scene, the government will certainly have to review its stance due to the economic benefits that can be generated from wind energy. On the other hand, solar energy in the United Kingdom is also expanding significantly.

Current energy problems in the UK extend far beyond our bills

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The energy sector here in the United Kingdom has long been riddled with problems. For the past five years, the Government has been taking active steps in order to make sure that the problems which are troubling the energy market are reduced as much as possible. Now, it is expected that within the next few years, the UK will enter a stage in which the overall demand of electrical energy is expected to rise higher than the overall supply. As a result of this, the Government has been trying to diversify the energy portfolio by providing subsidies for numerous other sectors, such as the renewable energy industry. Wind and solar power have become hugely popular in the United Kingdom, and it is expected that by the year 2015, almost one in ten homes in the UK is going to be powered by renewable energy.

The question remains however, is renewable energy the viable solution to the energy sector in the long run? At present, solar and wind energy are the two main components that make up the renewables sector, and both of these are considered to be too highly expensive and inefficient to be produced on a massive scale. Even though there are numerous different companies that are establishing wind farms both off shore and on shore, wind power has yet to be seriously taken up. One of the reasons for it is probably because the Government is quite against the use of wind power on a massive scale at present. Numerous top level companies such as General Electric and Mitsubishi have expressed interest in constructing manufacturing plants in the United Kingdom which will further help develop the wind industry, as local in house production of wind turbines can be initiated.

However, all of these companies are currently dallying on their decisions to start construction on their manufacturing plants because the government has called for a review of the energy bill. The energy bill has been the point of much debate between politicians in the UK. Only recently, around 100 Tory MPs signed a statement that stated they were all against the further development of the wind energy industry, but on the other hand, a lot of politicians are voicing their support for the wind energy industry, stating that in the long run, offshore and on shore wind farms could prove to be the major catalyst in the generation of electricity.

Even though the review of the energy bill is likely to take a bit of time, any changes that are brought about at the last minute are likely to cause investors to move away. Revision to the already established policies will also mean that investors won’t be looking to make any sort of investment until firmer assurances have been provided by the government to the companies. On the part of the Government, it has been trying hard to come up with solutions that will help in the long run. Only recently, the Government, along with a Chinese consortium as well as the French powerhouse EDF, announced that they had signed a deal to construct a new uranium fueled water cooled fission reactor at Hinkley Point C in Somerset. These twin reactors are likely to be constructed at a cost of 14 billion GBP, and are expected to be completed around 2020. Each reactor will be capable of producing around 1.6 gigawatt of electricity, allowing them to provide around 7 percent of the total electricity of the United Kingdom.

As good as this sounds on paper, there are several problems associated with this project. First of all, the Government has decided to adopt a ‘European Pressurized Water Reactor’ design, which basically means that the government is essentially selecting an older technology that is likely to go out of date within a relatively short period of time. For such a big investment, this can be troublesome. The new reactors will be powered by uranium fuel, which is not only expensive, but will also significantly deplete reserves. A more viable solution would have been to opt for thorium fuel powered reactors, as thorium has become a very popular source of fuel. Moreover, the biggest factor here is that thorium is much cheaper and a lot more readily available.

On the other hand, the plight of the commoner still goes unanswered. Electricity bills have been rising steadily over the past few years, and now they have become one of the top economic issues voters have become concerned with. Ed Miliband, the current leader of the Labour Party, stated that if he was elected in 2015, he would freeze the prices of electricity for the next 20 months and promote more competition in the industry. Only recently, British Gas made an announcement that it is going to bring about an increase of 10 percent in all of its bills. Then another energy company, SSE, also made an announcement that all of its customers will have to pay 7 percent more for gas and electricity. nPower also announced the highest price rise from all the ‘Big Six’ energy producing companies in the market – an increase of 10.4 percent. However, the issues go much deeper than the price increases, as mentioned above.

In order to remove its reliance from coal and gas powered stations, the government is trying its hardest to promote solar energy as well. In the recent cuts, it was announced by David Cameron that solar and wind will not come under review, and the Government has also lent its support to the ‘One Million Rooftops’ campaign, which aims to install one million solar PV systems on rooftops all throughout the UK by the year 2015. Even though solar powered electrical energy is still a long way from being commercially produced for the larger community, such initiatives clearly show that the government is trying to make an effort to reduce the impending problems, but still has a long way to go to ensure UK consumres recieve a fairer deal and start to feel the benefit of reduced energy costs.

Current consumer problems with the UK energy market

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The average consumer in the United Kingdom often finds it difficult to get what they want when it comes to electricity. Electricity prices in the United Kingdom are rising, despite the assurances provided by the government that the prices are likely to fall. However, given the rates of inflation and current company policies, each year sees a significant price increase on our energy bills. However, the problems of the consumers do not really pertain exclusively to the rise in the energy prices. The consumer is resigned to paying the price asked by the energy companies. Only recently, almost all of the ‘Big Six’ energy suppliers within the United Kingdom announced a price increase from anywhere between 6 to 10.4%. The highest increase in price was announced by npower, which announced a hike of 10.4%. Similarly, SSE announced that on an average, consumers would have to pay 7 percent higher than what they were paying for electricity and gas. British Gas also announced that all consumers would now have to pay an additional 10 percent.

The Government has so far failed to provide any sort of relief to the consumers in this regard. Most government officials have stated that before a consumer signs a contract with a certain company over the supply of electricity and gas, they should carefully analyze the prices before signing the contract. When it comes to the supply of electricity and gas, a four part system is primarily used. The energy is first bought on the whole sale market from a generator. Then, this energy is put in to the transmission system and is then transferred to the distribution system. From the distribution system, the electrical energy is finally sent to the consumers. All prices that are related to the transmission and distribution are regulated by Ofgem, the price regulator of the United Kingdom.

However, whenever we talk about the problems in the energy market, our focus lies on just one or two aspects. This often causes a problem because we fail to truly understand the flaws of the market. There are numerous other problems in the energy market which contribute to mistrust and high prices, and in the following few paragraphs, we will see some of the main problems that really impact the consumers in the energy market of the United Kingdom:

  • One of the main problems that the energy market faces is that it is very difficult for consumers to truly understand whether the retail prices asked for by the companies are a fair reflection of the wholesale prices. If you have read any press statement that is released by companies when they announce a price hike, you will read that the main reason for the rise in prices is because the wholesale price of electricity has increased. In the recent increases announced by the companies however, the main reason that was given was due to the upgrades that needed to be made to the network. As per the information released by Ofgem, the wholesale costs of electricity generally constitute more than half of the gas and electricity bills. Yet, a very large majority of around 84 percent holds the belief that the primary reason for which the prices are increased, is primarily to increase the profit margins of these electricity retailing companies. Obviously, there is a bit of both aspects involved.
  • Now, most people who reside within Britain are perfectly happy to realize that a company has to generate profits in order to thrive. However, one very important point is often misconstrued when these prices are announced by the larger companies; these prices are not simply accepted by the energy retailing companies in the whole sale market. The Big Six, which comprise of the top six companies in the UK energy retailing industry, are responsible for supplying energy to around 98 percent of the households in all of the United Kingdom, while the generation businesses which are owned by these companies are responsible for an overall electricity generation of around 70 percent. This kind of ‘vertical integration’ makes it easier for the company to bring about efficiency, but on the other hand, the company makes it virtually impossible for the average user to really understand whether the retail prices are a fair reflection of the wholesale prices or not.
  • These companies generally get energy supplied from their own generation businesses, or they source this energy from other companies with ‘vertical integration’, or they buy it on the wholesale market. The electricity market suffers heavily from a lack of liquidity, mainly because there is very little information available about the transfer prices as well as volumes of energy, as well as risks being distributed over different aspects of the business. Numerous critics of the energy market have stated that the supply and generation arms of the energy market should be ring fenced, similar to the way it is used by the banking industry of the United Kingdom.
  • More importantly, one very big issue that consumers face is that they are often not aware of the best possible options available to them. Most consumers are generally loathe to changing their supplier, as revealed in a survey which stated that around sixty percent of the people within the United Kingdom had never changed their energy supplier, while another thirty percent had stated that they would not change their supplier again. This means that people are happy with things the way they are. Even though there are websites now which allow consumers to get an idea of the new prices by providing deep detail as well as allowing them to create comparisons, most of these websites are unable to provide accurate results. This is primarily because there is not enough information available to these websites, and as a result, their results are often skewed. Some even take introductory deals in to account and as a result, the data becomes biased in the short term. Suffice to say, the average consumer faces a lot of problems.

What is fracking and why is it getting so much conflicting press?

Fracking_Site

Hydraulic fracturing or fracking is the fracturing of rock by a pressurised liquid, generally used to harvest shale gas, tight gas, tight oil and coal seam gas. The process is achieved typically by mixing water with sand and various chemicals and injecting it at high pressure into a bore hole to create small fractures along which fluids such as gas, petroleum, uranium-bearing solution and brine water may migrate to a well. The pressure is then removed from the bore hole using small grains of sand or aluminium oxide to hold the fractures open and allow the rock pressure to return to normal.

The earliest use of hydraulic fracturing was in 1947, and the first commercially successful applications were in 1949. George P. Mitchell is considered by some as the ‘father of fracking’ because he successfully applied it to the Barnett Shale in the 1990s. As of 2012, 2.5 million hydraulic fracturing jobs have been performed on oil and gas wells worldwide, nearly half of these in the United States. With traditionally harvested fossil fuels becoming more scarce and global fossil fuel prices rising all the time, companies and governments are turning to fracking for its economic benefits. By harvesting the vast amounts of previously inaccessible hydrocarbons that the process can extract, countries like the United States of America and the United Kingdom hope to replenish their supply of these fuels and relieve their dependence on oversees supply.

Proponents of fracking are facing a great deal of opposition to the process due to a range of environmental considerations. The main concern of anti-frackers is the issue of ground water contamination and the consequential depletion of fresh water, plus the vast amount of water needed for the process to be carried out. The migration of gases and hydraulic fracturing chemicals to the water table, the probable spills and the ‘flow-back’ effect that further add to surface contamination may well have a detrimental effect on the health of the people that come into contact with them and certainly on supplies of drinking water. This and the many other arguments against fracking, ranging from noise and air pollution to fracking causing earthquakes, have led to the practice being banned or suspended in many countries. However some countries, most notably the United Kingdom have recently lifted their bans, choosing to focus on regulations instead of outright prohibition.

Environmental campaigners say that fracking is simply distracting energy firms and governments from investing in renewable sources of energy, and encouraging continued reliance on fossil fuels. “Shale gas is not the solution to the UK’s energy challenges,” said Friends of the Earth energy campaigner Tony Bosworth. “We need a 21st century energy revolution based on efficiency and renewables, not more fossil fuels that will add to climate change.”

Reserves of shale gas have been found across large areas of the UK, particularly in the north of England. No fracking is currently taking place, and drilling firms must apply for a fracking license if they wish to do so in the future. However with the US claiming to have significantly increased oil production and driven down gas prices through fracking, offering gas security to the US and Canada for about 100 years, plus the fact that fracking has presented the opportunity to generate electricity at half the CO2 emissions of coal, It seems inevitable that fracking companies will be employed here in the UK before long.

Are we letting our need for affordable fossil fuels get the better of us? Only time will tell. Some say that we need to fill the time between our dependence on fossil fuels now, and our future technology of cleaner, renewable energy sources that are yet to be developed to a point where they can sustain us. For the time being fracking is being pushed forward in this country and is set to become widespread in the not too distant future. David Cameron is offering councils that back fracking money in tax revenue and urging opponents to ‘Get on board’ saying that opposition is ‘irrational’.

What are your thoughts on this matter? We would love to hear from you. Use our comments section below to have your say.

A warm welcome to more support for the RHI (Renewable Heat Incentive)

It is expected that the support, which is provided by the Government under the Renewable Heat Incentive scheme is likely to increase in the coming months. Along with this, the Government also confirmed that air -water heat pumps as well as industrial and commercial energy which are generated from waste will also be included under the Renewable Heat Incentive scheme. This change is likely to result in the re- adjustment of the tariff levels which are likely to increase the lower levels of uptake for certain technologies included in the scheme, such as geothermal energy, biomass, solar technology as well as ground sourced heat pumps. Once the approval is received from the Parliament as well as the EU state, these new tariffs will be made available by the start of spring in 2014.

The Minister for Energy, Greg Barker, stated that it is very important that the industry raises the maximum level of confidence, which will encourage investors to make investments in the market. Moreover, this will also help in reducing costs as well as resulting in sustainable market growth. Greg Barker provided this information in a written ministerial statement. He continued by stating that the changes are being made primarily in order to instigate significant growth in order to deploy numerous renewable heating technologies in the upcoming years, and according to the Ministry of Energy, these new tariffs will help in bringing about significant deployment, ultimately allowing the industry to grow in size and with top level investor confidence.

More importantly, the Government has also published its reply to several different consultations which were undertaken recently on increasing the scope of the non- domestic Renewable Heat Incentive, which had the title ‘Improving Support, Increasing Uptake’. It also published additional details of the domestic scheme, which was recently delayed and is now expected to begin at a later date in 2014. The response given by the government provides a clear idea of its decision making, as well as the reasoning behind the expansion of the non- domestic Renewable Heat Incentive.

For those who do not know, the Renewable Heat Incentive is the primary mechanism that is used by the Government in order to deploy renewable heat on a larger scale. Within the confines of the Renewable Heat Incentive, those applicants who have been screened and approved are given long term financial incentives as well as increased fiscal support in order to help them in using and expanding eligible and industry qualified methods for deploying technology that can generate heat. Non domestic users were introduced to the first phase of the Renewable Heat Incentive back in November 2011, and payments were provided every quarter to the applicants, spread over a total period of 20 years. Numerous qualifying technologies have already been approved and put in for deployment, such as biomass boilers, ground source heat pumps as well as solar thermal panels, which are by far the largest in number throughout the United Kingdom.

The Government had published a response to a number of different consultations which were carried out as well as numerous calls for evidence which were made throughout the year. In this published response, it revealed that it had not seen the levels of uptake which it had expected when the Renewable Heat Incentive scheme was first launched. Even though significant increases have been made in the overall uptake of heat from numerous related technologies, primarily from biomass installations, as well as a 7 percent increase in the overall renewable heat that was generated back in 2012, the total amount of heat that was generated in the calendar year 2013- 2014 is anticipated to be around the 1.2 TWh mark, which is just slightly above a third of what was initially anticipated when the scheme was launched.

Numerous changes have been proposed in the Government’s response. One of these is the introduction of a new tariff which will apply to deep geothermal heat, and is set at 5p for every eligible kilowatt hour that is generated. A specific tariff has also been introduced for biomass, combined with power and heat and set at 4.1p for every kilowatt hour that is produced. Air to water heat pumps have also received backing from the government, and their tariffs are set at 2.5p for every kilowatt hour that is generated. All installations which are run on biogas and have a thermal generating capacity of anywhere between 200 to 600 kWh will be getting a tariff of 5.9p for every kilowatt hour produced. However, those biogas installations which are able to produce more than 600 kWh, will be getting around 2.2p for every kilowatt hour produced.

Moreover, larger biomass installations that have an overall generating capacity in excess of 1MWth will be getting a slightly increased tariff of around 2.2p for every kilowatt hour produced while an increase is also expected in solar thermal energy, which will take the tariff for solar thermal to 10p for every kilowatt hour produced. A single tiered tariff for ground source heat pumps has also been set at 7.2p per kilowatt hour generated, while the previous banded tariff has been repealed. No tariff support has been announced for bioliquid heat and power and none as well for heating only air to air heat pumps or direct air heating using biomass.

Because the annual budget is fixed, all of the announced tariffs will follow a regression mechanism which ultimately means that over the passage of time, these annual budgets will begin to decrease. The rate of regression is likely to be dependent upon the uptake of the particular technology for which the tariff applies. The uptake of particular technologies is going to be monitored every quarter by making use of a number of triggers. Monthly updates will be published and a notice will be issued to the industry before any cuts are made by the government.

Renewable Heat Incentive - RHI
Renewable Heat Incentive – RHI

Major changes announced for renewable energy subsidies

The government has recently announced that it is going to make a raft of significant changes to the way subsidies are given out to the renewable energy industry. The ministers have made a public announcement that the support for onshore wind and solar energy will be significantly reduced, while more backing will be provided to offshore wind power. The Chief Secretary to the Treasury, Danny Alexander, has announced that the changes which are being made to the subsidy are more of a balancing act, and are not going to bring about a radical change in the overall spending. However, the Labour Party was quick to state that the ‘changing and chopping’ pricing system was not a very viable way to do business.

As per the changes, the prices which have been promised to producers of onshore solar energy and wind power will be reduced from the start of 2015, while the total payment made for offshore wind power will see a significant jump. This shift towards wind energy generally comes as a result of the Autumn Statement which will be delivered by Chancellor George Osborn to the MPs on Thursday. There were several other changes that were announced before the statement as well, as mentioned below:

  • The details of the National Infrastructure Plan were made available, with dedicated plans that require an investment of 375bn GBP in numerous different projects related to the energy, communications, water and transport industries.
  • The National Infrastructure Plan also states that the government’s stake of 40% in the Eurostar rail service should be sold off and the proceeds should then be used to double the target which the country currently has for the sale of financial and corporate assets, between the years 2014 to 2020. It states that the current target, which is 10bn GBP, should be expanded to 20bn GBP.
  • It also states that an additional 50 million GBP should be made available for the redevelopment of the railway station that is situated at Gatwick Airport, while additional fiscal support should be provided in order to develop a new nuclear power station which would be located at Wylfa, North Wales.
  • Confirmation has also been given to a guarantee by the United Kingdom to an agreement of up to 1bn GBP for the extension of the Northern Line all the way to Battersea in London.
  • Improvements have also been announced to the A50 near Uttoxeter in Staffordshire, while improvements have also been announced for the A14 which is near the port of Felixstowe in Suffolk, as part of the road projects in the National Infrastructure Plan.
  • According to the British Broadcasting Corporation, it is expected that business rate rises are also going to be capped at 2% in Wales and England, rather than be linked to the rate of inflation, as per the plans of Mr. Osborne.

Internal sources from both the coalition parties have stated that due to the level of investment input in the projects relating to the onshore wind and solar energy, the industry no longer is reliant on support from the State. On the other hand, however, they were quick to state that offshore wind sources were still in some serious need of government subsidies in order to receive investment in the long term.

There were some suggestions being made that this move was primarily a response to the unhappiness of the Conservative MP at numerous wind farms being opened in his constituencies, which were vehemently denied by Mr. Alexander. Sources from both the Liberal Democrat parties as well as the Conservative party stated that the decision was firm from a political point of view, and made a lot of sense, as it countered a direct threat which was posed by the UK Independence Party, which is completely against the concept of wind farms and renewable sources of energy.

In order to encourage firms to invest in this sector, the government has set significantly high strike prices. Strike prices are basically the prices which the government promises to pay for every unit of electricity which is consumed, and at present, they are set at a significantly high level when compared with the current value of energy. A source from the Conservative Party stated that in the year 2015 and forward, he was expecting a very significant cut in the prices for onshore wind. Another source also stated that this was the beginning of the end for all mature renewables. Another source stated that the position of renewable energy was jolly good. If onshore energy wasn’t curtailed slightly, the problem would no longer be a financial one but would enter political territory. He stated that the same could be applied to the solar energy industry. He continued by stating that as a result of this, it made good sense in terms of the value for money provided, to constrain onshore and solar energy, as it lets them move faster than the forces in the market, and also allows them to ensure that the primary renewable technology in the United Kingdom, offshore wind energy, which can hit its full heights in the 2020s, can receive the early support that it requires in order to mature and develop significantly over the next few years.

Michael Fallon, the Minister for Energy has stated that a much fairer distribution of costs need to be set in place. A formal denial was also made by Downing Street to the rumors that the cuts were primarily announced as a response to the public’s outcry that the excessive wind farms were causing a concern for the countryside. The official spokesman for the Prime Minister stated that the decision to curtail onshore wind energy was solely based upon the falling cost of onshore wind farms. It remains to be seen whether these changes will bring about positive economic growth or not.

Renewable Energy Subsidy Change
Renewable Energy Subsidy Change