Renewables met 100% of global electricity demand growth during the first half of 2022. So says the ‘Global Electricity Mid-Year Insights 2022’ from Ember, a global energy think tank. In fact, it says there was a 389 TWh increase in the demand for electricity in the first half of 2022 compared to the first half of 2021, whereas the rise in renewables supply was actually a bit more – 416TWh. That’s not surprising given that renewables are getting so cheap- including in the UK, with wind and solar the most prolificate new sources across world.
However, that in turn may create a bit of a problem for older renewables, set up under quite lucrative subsidy schemes, based on now high gas prices, like the Renewables Obligation in the UK. As I have noted in earlier posts, there is pressure on them to switch to the more competitive CfD system. Certainly the RO system is based on adding a subsidy to wholesale gas prices, so something has to change, since gas prices are now so high. But there are issues- will every supplier be happy to accept less earnings? They may drag their feet.
Some sort of compromise may be needed: after all the Truss government has resisted wind-fall taxes on fossil energy derived power suppliers: so it is arguably a bit unfair to apply them to renewables. But then again, it’s provocative that some green power is getting over the odds.
Be that as it may, Jacob Rees-Mogg is now business and energy secretary, and change is certainly underway. In addition to the UK price freeze system, legislation is afoot to sever the link between renewables, nuclear and gas prices in a new Energy Prices Bill. It enshrines the support measures announced over the last few months into law, including the Energy Price Guarantee for domestic consumers and Energy Bill Relief Scheme for businesses and non-domestic properties. In addition, it sets out concreate plans to decouple the cost of low-carbon electricity from that of prices through a new temporary ‘Cost-Plus Revenue Limit’ in England and Wales. The precise mechanics of the limit are still subject to consultation, which will be launched shortly, but it will set a revenue limit that curbs the amount generators can make.
To that end, the Bill will include legislating to allow the government to consider running voluntary Contracts for Difference auctions. These would take place in 2023, and offer contracts to generators that would provide them with longer-term revenue certainty, as well as helping to safeguard consumers. These so called ‘Pot Zero Contracts for Difference’ were originally proposed by the UK Energy Research Centre, and, as a concept, have gained broad support from the renewables sector, with the likes of RenewableUK, Energy UK and Solar Energy UK throwing their weight behind it.
Though there may also be impacts on renewables from the price caps. RenewableUK’s CEO Dan McGrail said: ‘We are concerned that a price cap will send the wrong signal to investors in renewable energy in the UK. A price cap acting as a 100% windfall tax on renewables’ revenue above a certain level, while excess oil and gas profits are taxed at 25%, risks skewing investment towards the fossil fuels that have caused this energy crisis’.
There are other politically imposed changes which may have an impact on UK renewables. For example, the new DEFRA environment secretary, Ranil Jayawardena, is understood to oppose solar panels being placed on agricultural land, arguing that it impedes his programme of growth and boosting food production. To this end, according to the Guardian, he has asked DEFRA officials to redefine ‘best and most versatile’ land (BMV), which is earmarked for farming, to include the ‘middling-to-low’ category 3b. Land is graded from 1 to 5, and currently BMV includes grades 1 to 3a. Planning guidance says that development on BMV land should be avoided, although planning authorities may take other considerations into account. The Guardian says that ‘currently, most solar farms are built on and planned for 3b land, so this move would scupper most new developments of the renewable energy source. Extending BMV to grade 3b would ban solar from about 41% of the land area of England, or about 58% of agricultural land. Much of grade 4 and 5 land is in upland areas that are unsuitable for solar developments’.
So could it be that PV solar will be at least partly squeezed out by this DEFRA ban? It does seem that Liz Truss is still against most solar farms- she was when she was a minister. And back in Sept. she reportedly said again she didn’t like putting solar panels on productive agricultural lands. Hence the major DEFRA block.
However, Climate minister Graham Stuart told the environmental audit committee in parliament that his and Rees-Mogg’s Department for Business, Energy and Industrial Strategy opposed the ban. Indeed Jacob Rees-Mogg, perhaps surprisingly, says he is keen on solar: ‘we are exploring options to support low-cost finance to help householders with the upfront costs of solar installation, permitted development rights to support deployment of more small-scale solar in commercial settings and designing performance standards to further encourage renewables, including solar PV, in new homes and buildings.’
So with Truss and DEFRA on apparently the other side, there seems to be a bit of Departmental confusion, with Stuart talking in terms of a ‘British energy security strategy set out an expectation for a fivefold increase in solar’, and that it was ‘it’s clear that we need significant growth in both ground-mount and rooftop solar to meet this ambition’.
Hard to know what to do about nuclear though. Or if it’s really a ‘wind fall’ tax. The RO needed changing, but as Keith Anderson, chief executive of Scottish Power, said ‘this crisis has been caused by the cost of gas and it's strange the proposed solution is to cap the price of low-carbon generation and to leave the gas sector untouched.’
It doesn’t have to be that way, as an Ember study of the UK showed, although of course, it is easier in the EU, with there being full windfall tax (€140bn). But, RenewableUK’s CEO Dan McGrail says, we have avoid making the UK ‘less attractive to investors than the EU.’
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