Germany To Cut Down Ancient Forest For Coal Mining
In this newsletter:
1) First Poland, Then Germany, Now Spain: Europe Rejects Coal Phase Out
EurActiv, 24 November 2017
2) Germany To Cut Down Ancient Forest To Clear For Coal Mining
Associated Press, 25 November 2017
3) Poland Turns To Coal Soulmate Trump
Reuters, 20 November 2017
4) Charles Moore: Germany’s Green Energy Drive Left Merkel Vulnerable
The Spectator, 26 November 2017
5) Francis Menton: In Germany, Reality Is Triumphing Over Political Posturing On Climate
Manhattan Contrarian, 21 November 2017
6) A Germany Energy Solution
The Wall Street Journal, 21 November 2017
7) Jonathan Ford: A Greener Energy Market Requires Ruthless Control Of Costs
Financial Times, 26 November 2017
8) John Constable: The United Kingdom’s Budget 2017 In Global Context
GWPF Energy, 25 November 2017
Full details:
1) First Poland, Then Germany, Now Spain: Europe Rejects Coal Phase Out
EurActiv, 24 November 2017
The Spanish government is challenging a decision by its main electricity provider to shut down two coal-fired power plants. An attitude that contravenes the Paris Agreement on climate change.
The Spanish government has engaged in a strange stand-off over Iberdrola’s plan to phase out coal, announced at climate talks in Bonn last week. The company’s CEO, Ignacio Sánchez Galán, pledged to close Iberdola’s coal power plants, including the two Spanish power stations, in Lada in Asturias and Velilla, in the autonomous community of Castilla y Leon….
Rather than encourage the country’s biggest electricity provider, the energy ministry drafted a decree on the procedure of closure of energy facilities, which poses new and very restrictive conditions to close an electricity production site: a site cannot be closed if it is profitable, or if its closure is a threat to the security of supply, or if the prices of electricity may climb…
Spain is a signatory, like the rest of the EU, of the Paris Agreement, which commits the EU to cutting 40% of its emissions by 2030 and, above all, to revising the ambition of each country to be able to limit the rise of the temperatures between 1.5° and 2°.
The European Commission, whose climate commissioner is Spanish, does not seem overly concerned about this situation. “The Commission is analysing the draft decree and will react in due course,” a spokesperson told EURACTIV.
Spain’s Energy Minister Álvaro Nadal fears that closing power plants will create power cuts. But the reasons seem more complex.
Full story
see also: Coal Emerges As Surprise Winner Of UN Climate Conference In Germany
2) Germany To Cut Down Ancient Forest To Clear For Coal Mining
Associated Press, 25 November 2017
A court in western Germany says an ancient forest near the Belgian border can be chopped down to make way for a coal strip mine.
FILE - In this Nov. 28, 2016 file photo a lumberjack saws a tree at the Hambach forest near Kerpen, Germany. Cologne’s administrative court ruled Friday, Nov. 24, 2017 against a legal complaint brought by the environmental group BUND that wanted to halt the clearance of much of Hambach forest. The ancient forest near the Belgian border can be chopped down to make way for a coal strip mine. (Henning Kaiser/dpa via AP, file)
Cologne's administrative court ruled Friday against a legal complaint brought by the environmental group BUND that wanted to halt the clearance of much of the Hambach forest.
The group said it would appeal the decision and seek an injunction to prevent energy company RWE from clearing the trees in the meantime.
Hambach forest has become a focus of environmental protests against the expansion of a vast mine that supplies much of the coal used in nearby power plants.
The coal, a light brown variety called lignite, is considered one of the most polluting forms of fossil fuel.
3) Poland Turns To Coal Soulmate Trump
Reuters, 20 November 2017
"Whenever you need energy, just give us a call," US President Donald Trump said on a visit to Poland in the summer. Now, with winter setting in, Warsaw is taking him up on the offer.
Poland's state coal trader Weglokoks is to due receive its first ever shipment of US coal imminently and industry sources expect state or private buyers to take at least three more cargoes over the next seven months, even though Europe as a whole is shifting away from the most carbon-intensive energy source.
With both countries led by fossil fuel advocates, the benefits are mutual.
Poland has to meet a shortfall left by the failure of national mining giant PGG to achieve its production targets, while US miners are relying on export growth as power utilities at home switch to cheaper, cleaner alternatives.
Poland's government, which like the Trump administration is championing its national mining industry, came to power in 2015 promising energy self-sufficiency for the European Union's biggest coal-burning nation.
Energy Minister Krzysztof Tchorzewski rejects any suggestion of crisis due to the problems at PGG, even though smaller traders have often queued for coal in recent weeks.
"A psychosis related to coal shortages has appeared on the market," he told reporters. "I can say that this winter no one will be cold in their homes because of a lack of coal."
Full story
4) Charles Moore: Germany’s Green Energy Drive Left Merkel Vulnerable
The Spectator, 26 November 2017
For a very long time, Angela Merkel successfully appealed to the post-war German longing for consensus. She hugged potential rivals in her motherly embrace. The rise of Alternative für Deutschland (AfD) makes this much more difficult.
As its name suggests, it really does offer something different. Given its pariah status, people assumed that parties would happily coalesce against it after its electoral breakthrough. But in fact its presence opens up two big discontents — mass immigration and energy prices — forcing other parties to consider their positions. Immigration gets most of the headlines here, but the energy issue is almost equally problematic.
Germany’s consumers have to pay huge bills because of their government’s determination to go green. The country’s carbon emissions are ordered to fall by 40 per cent from their 1990 level by 2020 — Mrs Merkel’s target being twice as exacting as that of the EU. This is unachievable, but even the process of failing to achieve it is shockingly expensive, and lays the country open to massive dependence on Russian gas.
The refusal to use Germany’s plentiful coal to give the country cheap energy is controversial, especially in the former East Germany, where AfD is strong. In the election campaign, the FDP (Liberal party) made strong noises against high energy prices. It dare not unsay them all now in order to enter coalition.
In the current revolt against the elites in the West, few issues more divide the many from the few than energy prices and the bogus religion which is forcing them up. Strange that this issue should give the right its chance.
This is an extract from Charles Moore’s Spectator Notes, which appears in this week’s magazine
5) Francis Menton: In Germany, Reality Is Triumphing Over Political Posturing On Climate
Manhattan Contrarian, 21 November 2017
Germany — that’s the place where there really is a 100% consensus on the need for immediate action to solve the supposed “climate crisis.” It’s the land of the “Energiewende” — the forced transition to the use of intermittent renewables like wind and solar to generate electricity.
It’s the place where — as I noted in this post back in September — no major political party has dissented on the need to act on the “climate” issue. It’s the place that has happily driven its usage of renewables to generate electricity up to about 30% of the supply, and therefore its cost of residential electricity up to more than triple the average U.S. price. It’s a place where anyone questioning the so-called “science” underlying the warming scare can expect to be greeted with derision and scorn. And yet, somehow reality still seems to be intruding.
Over the weekend, the talks among political parties in Germany to form a coalition government collapsed. As of now, nobody seems to know what is going to happen next. And — even though there is little overt dissent on the virtue of reducing carbon emissions — it seems like the ever-more-evident costs of this “climate” program are starting to drive events. […]
In Germany, a political party needs to get 5% of the vote in an election to get any seats in the Bundestag. As an indication of how correct Båtstrand was, in the previous (2013) election, the only party that could remotely be considered a climate dissenter, AfD, got only 4.7% and no seats. Another party, FDP — a free market classic liberal party and not really climate dissenters, but legitimately concerned about the costs of “climate” policies — got 4.8% and also no seats.
In the recent elections in September, those two parties suddenly got, between them, 23.3% of the vote and 24.6% of the seats. And suddenly Angela Merkel needs one or both of them to form a coalition government. Oh, and she also needs the Green Party. How is that playing out? An impasse! Benny Peiser of the Global Warming Policy Foundation reports this morning:
Most remarkable: Germany’s failed and increasingly unpopular climate policies are at the core of the crisis. It also signals the collapse of Germany’s decade-old climate consensus. While the Green Party demanded the immediate shut-down of 10-20 of Germany’s 180 coal power plants, the Liberal Party (FDP) stood by its manifesto promise of a radical reform of the Energiewende, advocating the end to subsidies for renewable energy….
Climate business as usual is no longer an option for the Liberals [aka FDP]. The party fears that a fast exit from coal-fired power generation, as demanded by the Greens, would result in severe social, economic and political problems. A continuation of radical climate policies would affect Germany’s main coal regions, not least in Eastern Germany where the right-wing protest party Alternative für Deutschland (AfD) had gained significant support in the federal elections in September.
So, if you were to go around the streets of the major cities of Germany and take an opinion survey, you will find very close to one hundred percent agreement on the need to “take action” on climate change immediately. But what? Does this mean that we will be putting thousands of coal miners out of a job, and more thousands of utility workers at coal plants out of a job, and driving the cost of electricity from three times the U.S. average to five times or maybe ten, and making our electric grid not work right any more, and by the way also “partially de-industrializing” Germany? Wait, you didn’t tell us about those things!
Full post
6) A Germany Energy Solution
The Wall Street Journal, 21 November 2017
Regarding your editorial “Germany’s Green Energy Meltdown” (Nov. 18): I am sitting within two miles (straight down) of enough natural gas to fuel the entire U.S. for well over 100 years. We here in western Pennsylvania would be more than happy to liquefy and export some of our excess to help lower Germany’s energy costs. Truly a win-win proposition. Let’s roll.
Richard J. Krauland
Pittsburgh
7) Jonathan Ford: A Greener Energy Market Requires Ruthless Control Of Costs
Financial Times, 26 November 2017
We have all heard the stories. The privately financed hospital where it costs hundreds of pounds to change a single lightbulb. The time the army paid £103 for inch-long screws that were actually worth just £2.60.
But is Britain’s energy market that different from a poorly thought-through PFI scheme?
Just as the state enters into these contracts for schools and hospitals, so a single state buyer dominates the procurement of electricity. It either fixes or auctions prices for all new generation that is commissioned, selecting specific technologies and foisting their costs stealthily on a large body of ill-informed consumers. For that pricey lightbulb? Well, it might not be so extreme, but read the costly power we’ll get one day from the reactors at Hinkley Point.
It has dawned on the state that this is not necessarily the cheapest or most flexible way to decarbonise Britain’s electricity. Prices have gone up, while the capacity margin to keep the lights burning has eroded. So finally the Treasury has intervened to curb the subsidies that can be extracted from households and businesses.
Existing contracts with low-carbon generators worth an estimated £10bn a year in subsidy by 2020 will be honoured. A further dollop of £557m will be distributed through an already-planned auction due to take place in 2019. But beyond that, the total amount will be kept within bounds, with any new largesse only coming as and when the overall burden is falling. Essentially that means when more renewables subsidies are running off than new ones are starting to be paid — a date the government estimates should arrive in 2025.
At a time of squeezed incomes and simmering anger about energy bills, a pause is sensible. Ever-rising subsidies sit uncomfortably with government policies that are publicly committed to capping the charges that retail electricity suppliers can impose on the public.
Nor will it exactly pauperise the suppliers of renewables — which, along with nuclear, are the main source of Britain’s low-carbon electricity. Thanks to the party they’ve enjoyed since the introduction of the subsidy regime just after the millennium, they already receive a cheque annually that Centrica, one of the UK’s biggest distributors, thinks adds about 20 per cent to customer bills. And that may rise in coming years, as more of the contracted renewables are delivered and come on stream.
The industry warns that by restricting subsidies, the government risks impeding progress towards cutting the costs of low-carbon technologies. Contractual prices have been falling. The first round of offshore wind auctions in 2015 saw these struck at between £110-£150 per megawatt hour. The latest one, just completed, saw these fall as low as £57.50/MWh, although the projects have yet to be built and may depend on as yet undelivered technological advances.
There is no reason, however, why the gains should not continue. The market for renewables technology is a global one, and developments don’t depend on British support alone. Despite its considerable outlay, the UK accounts for no more than about 7 per cent of the world’s renewables subsidy, based on the latest estimate of global subsidies from the International Energy Agency. Anyway, the government does not believe that the action it has taken should prevent the UK from achieving its green goals.
Applying a corset to subsidy, however sensible, is only part of the answer. The aim must also be to use more sparingly whatever support is dished out in future to achieve the UK’s climate goals. The timing of these targets could also be usefully reviewed.
In the absence of a carbon tax, another way must be found to move away from the flawed PFI model, where a single state buyer coddles favoured generation technologies. In his review of electricity prices, the energy economist Dieter Helm suggests moving to a system of auctions — where producers bid for payments to provide a reliable supply of energy to the system.
These payments would not be restricted to any particular type of producer — conventional, nuclear or green. This is necessary because a prudent system with lots of renewables needs a measure of conventional back-up simply to cover for when climatic or tidal conditions aren’t conducive. The system operator would select the bids that allowed it both to keep the lights on and hit climate goals at the lowest cost — an outcome that would almost certainly be better for consumers than that provided by the present system.
Britain has created a statist electricity market in a fit of absence of mind, which imposes significant costs on households and businesses. There is no simple way to change this. Hence the imperative need to chisel away at costs.
8) John Constable: The United Kingdom’s Budget 2017 In Global Context
GWPF Energy, 25 November 2017
Dr John Constable: GWPF Energy Editor
The latest release of the International Energy Agency’s World Energy Outlook (2017), and the UK government’s Autumn Budget (2017) are recriprocally illuminating. The global context revealed in the WEO’s data, but not in its commentary, explains in part the Budget’s retrenchment on renewable electricity subsidies. The stern reluctance of the Budget to increase spending on renewables reveals the WEO’s upbeat headline message to be less than firmly connected to reality.
The United Kingdom’s Autumn Budget (2017), published on the 22nd of November, is an important watershed in the correction of errors in British energy policy. In effect it states that until spending on subsidies to renewables and indeed to other low carbon energy sources falls below current promised levels no further new subsidies will be introduced. This does not mean that spending cannot rise above current levels, since the existing Contracts for Difference may, in fact, result in higher subsidies if wholesale prices fall.
The real news here is that the existing schemes are now of historical interest only. The Renewables Obligation, of course, has been closed to new entrants since the 1st of April 2017, the Feed-in Tariff for small scale renewables is now subject to deployment caps and is steadily winding down. The Budget announcement suggests that this wind down will now end in firm closure. Even the flagship of Electricity Market Reform (EMR), the much discussed Feed-in Tariffs with Contracts for Difference, is now, with the exception of the intention to honour a previous commitment to issue further contracts worth £557 million a per year, be closed to new entrants.
In the context of the very low bid prices made for offshore wind in the last round of auctions that can hardly be regarded as surprising. – Government has every ground for saying that if the industry is willing to make such low bids then there would appear to be further long term need for to the sector in general.
However welcome, and important, this reorientation is not of recent origin. The first significant signs that the penny had dropped appeared as long ago as 2010/11, when the Treasury moved towards a Carbon Price Floor (CPF), a shift initially intended to be offset by substantial cuts to subsidies under the Renewables Obligation. It was rumoured that Treasury wanted to see cuts of up to 25% for onshore wind for example to offset the CPF. These were successfully resisted by the then Secretary of State for Energy and Climate Change, Ed Davey, and reduced to 10% for onshore wind.
Treasury did not, however, give up on the CPF, and as a result the consumer ended up shouldering the burden both of the Price Floor and high levels of subsidies.
However, as is well-known on the mean streets of Whitehall, inter-Departmental conflict over expenditure can be summarised as years of bickering that ends only when the Treasury wins. This year’s Budget confirms this view. The subsidies are now on hold, and no new ones are likely to be introduced until 2025 at the earliest, plenty of time for Treasury to ensure that it has taken complete control of this agenda, probably limiting it to carbon taxation at the most.
This long run commitment to the reduction of renewables subsidies is impressive, but also calls for an explanation. Why go to so much trouble? The answer is found in section 6.3.8 of the 2017 release of the International Energy Agency’s (IEA) World Energy Outlook. The IEA here describes its estimate that global income support subsidies to renewables totalled $140 billion in 2016, an increase of 20% on the 2015 figure. A striking 80% of that $140 billion in 2016 was received by the wind and solar industries.
But the aspect of global subsidies that would be troubling the cool heads in Treasury is the fact that, as the IEA says, “support for renewables remains concentrated in a small number of countries”. Indeed, 45% of global subsidy support for renewables is accounted for by the European Union, with the biggest subsidisers being German, Italy, France, Spain and the United Kingdom. The IEA does not provide an estimate of the UK’s share in global subsidy, but reference to the tables in the Treasury’s Autumn Budget text, “Control for Low Carbon Levies”, suggests that UK could be accounting for considerably more than 5% of the global total, significantly more than its share of global GDP. That alone is sufficient to suggest that the UK is doing more than its fair share, and given the need to reinforce competitiveness post BREXIT, needs to limit its contribution.
Furthermore, the IEA projects that in its New Policies Scenario global subsidy spending on renewables will rise to a peak of approximately $225 billion (in 2016 prices) in 2030, with the vast bulk of that increase being taken by offshore wind, bioenergy, and solar, the latter of which alone is expected to be in receipt of about $100 billion dollars a year in subsidy in 2030 (See Figure 6.23, which for copyright reasons is not reproduced here).
With subsidy on that scale it is not surprising that the IEA thinks the future of the renewables sector is one of very significant growth:
Renewables capture two-thirds of global investment in power plants as they become, for many countries, the least-cost source of new generation. Rapid deployment of solar photovoltaics (PV), led by China and India, helps solar become the largest source of low-carbon capacity by 2040, by which time the share of all renewables in total power generation reaches 40%. In the European Union, renewables account for 80% of new capacity and wind power becomes the leading source of electricity soon after 2030, due to strong growth both onshore and offshore. Policies continue to support renewable electricity worldwide, increasingly through competitive auctions rather than feed-in tariffs […]. (“Executive Summary”, World Energy Outlook 2017, p. 2 ).
But the Autumn Budget shows that the UK government is unwilling to be part of this subsidy boom. One imagines that it is not the only national government having considering its position. This had to happen sooner or later. The only justification for subsidies to renewables is to accelerate cost reduction. If those cost reductions have materialised then the subsidies should be cut. If, on the other hand, after twenty years of major global support for this sector they are still not able to compete unaided, expectations should revised downwards and subsidies at the very least be put on hold and probably cut altogether.
Feedback: john.constable@thegwpf.com
In the current revolt against the elites in the West, few issues more divide the many from the few than energy prices and the bogus religion which is forcing them up. Strange that this issue should give the right its chance.
This is an extract from Charles Moore’s Spectator Notes, which appears in this week’s magazine
5) Francis Menton: In Germany, Reality Is Triumphing Over Political Posturing On Climate
Manhattan Contrarian, 21 November 2017
Germany — that’s the place where there really is a 100% consensus on the need for immediate action to solve the supposed “climate crisis.” It’s the land of the “Energiewende” — the forced transition to the use of intermittent renewables like wind and solar to generate electricity.
It’s the place where — as I noted in this post back in September — no major political party has dissented on the need to act on the “climate” issue. It’s the place that has happily driven its usage of renewables to generate electricity up to about 30% of the supply, and therefore its cost of residential electricity up to more than triple the average U.S. price. It’s a place where anyone questioning the so-called “science” underlying the warming scare can expect to be greeted with derision and scorn. And yet, somehow reality still seems to be intruding.
Over the weekend, the talks among political parties in Germany to form a coalition government collapsed. As of now, nobody seems to know what is going to happen next. And — even though there is little overt dissent on the virtue of reducing carbon emissions — it seems like the ever-more-evident costs of this “climate” program are starting to drive events. […]
In Germany, a political party needs to get 5% of the vote in an election to get any seats in the Bundestag. As an indication of how correct Båtstrand was, in the previous (2013) election, the only party that could remotely be considered a climate dissenter, AfD, got only 4.7% and no seats. Another party, FDP — a free market classic liberal party and not really climate dissenters, but legitimately concerned about the costs of “climate” policies — got 4.8% and also no seats.
In the recent elections in September, those two parties suddenly got, between them, 23.3% of the vote and 24.6% of the seats. And suddenly Angela Merkel needs one or both of them to form a coalition government. Oh, and she also needs the Green Party. How is that playing out? An impasse! Benny Peiser of the Global Warming Policy Foundation reports this morning:
Most remarkable: Germany’s failed and increasingly unpopular climate policies are at the core of the crisis. It also signals the collapse of Germany’s decade-old climate consensus. While the Green Party demanded the immediate shut-down of 10-20 of Germany’s 180 coal power plants, the Liberal Party (FDP) stood by its manifesto promise of a radical reform of the Energiewende, advocating the end to subsidies for renewable energy….
Climate business as usual is no longer an option for the Liberals [aka FDP]. The party fears that a fast exit from coal-fired power generation, as demanded by the Greens, would result in severe social, economic and political problems. A continuation of radical climate policies would affect Germany’s main coal regions, not least in Eastern Germany where the right-wing protest party Alternative für Deutschland (AfD) had gained significant support in the federal elections in September.
So, if you were to go around the streets of the major cities of Germany and take an opinion survey, you will find very close to one hundred percent agreement on the need to “take action” on climate change immediately. But what? Does this mean that we will be putting thousands of coal miners out of a job, and more thousands of utility workers at coal plants out of a job, and driving the cost of electricity from three times the U.S. average to five times or maybe ten, and making our electric grid not work right any more, and by the way also “partially de-industrializing” Germany? Wait, you didn’t tell us about those things!
Full post
6) A Germany Energy Solution
The Wall Street Journal, 21 November 2017
Regarding your editorial “Germany’s Green Energy Meltdown” (Nov. 18): I am sitting within two miles (straight down) of enough natural gas to fuel the entire U.S. for well over 100 years. We here in western Pennsylvania would be more than happy to liquefy and export some of our excess to help lower Germany’s energy costs. Truly a win-win proposition. Let’s roll.
Richard J. Krauland
Pittsburgh
7) Jonathan Ford: A Greener Energy Market Requires Ruthless Control Of Costs
Financial Times, 26 November 2017
We have all heard the stories. The privately financed hospital where it costs hundreds of pounds to change a single lightbulb. The time the army paid £103 for inch-long screws that were actually worth just £2.60.
But is Britain’s energy market that different from a poorly thought-through PFI scheme?
Just as the state enters into these contracts for schools and hospitals, so a single state buyer dominates the procurement of electricity. It either fixes or auctions prices for all new generation that is commissioned, selecting specific technologies and foisting their costs stealthily on a large body of ill-informed consumers. For that pricey lightbulb? Well, it might not be so extreme, but read the costly power we’ll get one day from the reactors at Hinkley Point.
It has dawned on the state that this is not necessarily the cheapest or most flexible way to decarbonise Britain’s electricity. Prices have gone up, while the capacity margin to keep the lights burning has eroded. So finally the Treasury has intervened to curb the subsidies that can be extracted from households and businesses.
Existing contracts with low-carbon generators worth an estimated £10bn a year in subsidy by 2020 will be honoured. A further dollop of £557m will be distributed through an already-planned auction due to take place in 2019. But beyond that, the total amount will be kept within bounds, with any new largesse only coming as and when the overall burden is falling. Essentially that means when more renewables subsidies are running off than new ones are starting to be paid — a date the government estimates should arrive in 2025.
At a time of squeezed incomes and simmering anger about energy bills, a pause is sensible. Ever-rising subsidies sit uncomfortably with government policies that are publicly committed to capping the charges that retail electricity suppliers can impose on the public.
Nor will it exactly pauperise the suppliers of renewables — which, along with nuclear, are the main source of Britain’s low-carbon electricity. Thanks to the party they’ve enjoyed since the introduction of the subsidy regime just after the millennium, they already receive a cheque annually that Centrica, one of the UK’s biggest distributors, thinks adds about 20 per cent to customer bills. And that may rise in coming years, as more of the contracted renewables are delivered and come on stream.
The industry warns that by restricting subsidies, the government risks impeding progress towards cutting the costs of low-carbon technologies. Contractual prices have been falling. The first round of offshore wind auctions in 2015 saw these struck at between £110-£150 per megawatt hour. The latest one, just completed, saw these fall as low as £57.50/MWh, although the projects have yet to be built and may depend on as yet undelivered technological advances.
There is no reason, however, why the gains should not continue. The market for renewables technology is a global one, and developments don’t depend on British support alone. Despite its considerable outlay, the UK accounts for no more than about 7 per cent of the world’s renewables subsidy, based on the latest estimate of global subsidies from the International Energy Agency. Anyway, the government does not believe that the action it has taken should prevent the UK from achieving its green goals.
Applying a corset to subsidy, however sensible, is only part of the answer. The aim must also be to use more sparingly whatever support is dished out in future to achieve the UK’s climate goals. The timing of these targets could also be usefully reviewed.
In the absence of a carbon tax, another way must be found to move away from the flawed PFI model, where a single state buyer coddles favoured generation technologies. In his review of electricity prices, the energy economist Dieter Helm suggests moving to a system of auctions — where producers bid for payments to provide a reliable supply of energy to the system.
These payments would not be restricted to any particular type of producer — conventional, nuclear or green. This is necessary because a prudent system with lots of renewables needs a measure of conventional back-up simply to cover for when climatic or tidal conditions aren’t conducive. The system operator would select the bids that allowed it both to keep the lights on and hit climate goals at the lowest cost — an outcome that would almost certainly be better for consumers than that provided by the present system.
Britain has created a statist electricity market in a fit of absence of mind, which imposes significant costs on households and businesses. There is no simple way to change this. Hence the imperative need to chisel away at costs.
8) John Constable: The United Kingdom’s Budget 2017 In Global Context
GWPF Energy, 25 November 2017
Dr John Constable: GWPF Energy Editor
The latest release of the International Energy Agency’s World Energy Outlook (2017), and the UK government’s Autumn Budget (2017) are recriprocally illuminating. The global context revealed in the WEO’s data, but not in its commentary, explains in part the Budget’s retrenchment on renewable electricity subsidies. The stern reluctance of the Budget to increase spending on renewables reveals the WEO’s upbeat headline message to be less than firmly connected to reality.
The United Kingdom’s Autumn Budget (2017), published on the 22nd of November, is an important watershed in the correction of errors in British energy policy. In effect it states that until spending on subsidies to renewables and indeed to other low carbon energy sources falls below current promised levels no further new subsidies will be introduced. This does not mean that spending cannot rise above current levels, since the existing Contracts for Difference may, in fact, result in higher subsidies if wholesale prices fall.
The real news here is that the existing schemes are now of historical interest only. The Renewables Obligation, of course, has been closed to new entrants since the 1st of April 2017, the Feed-in Tariff for small scale renewables is now subject to deployment caps and is steadily winding down. The Budget announcement suggests that this wind down will now end in firm closure. Even the flagship of Electricity Market Reform (EMR), the much discussed Feed-in Tariffs with Contracts for Difference, is now, with the exception of the intention to honour a previous commitment to issue further contracts worth £557 million a per year, be closed to new entrants.
In the context of the very low bid prices made for offshore wind in the last round of auctions that can hardly be regarded as surprising. – Government has every ground for saying that if the industry is willing to make such low bids then there would appear to be further long term need for to the sector in general.
However welcome, and important, this reorientation is not of recent origin. The first significant signs that the penny had dropped appeared as long ago as 2010/11, when the Treasury moved towards a Carbon Price Floor (CPF), a shift initially intended to be offset by substantial cuts to subsidies under the Renewables Obligation. It was rumoured that Treasury wanted to see cuts of up to 25% for onshore wind for example to offset the CPF. These were successfully resisted by the then Secretary of State for Energy and Climate Change, Ed Davey, and reduced to 10% for onshore wind.
Treasury did not, however, give up on the CPF, and as a result the consumer ended up shouldering the burden both of the Price Floor and high levels of subsidies.
However, as is well-known on the mean streets of Whitehall, inter-Departmental conflict over expenditure can be summarised as years of bickering that ends only when the Treasury wins. This year’s Budget confirms this view. The subsidies are now on hold, and no new ones are likely to be introduced until 2025 at the earliest, plenty of time for Treasury to ensure that it has taken complete control of this agenda, probably limiting it to carbon taxation at the most.
This long run commitment to the reduction of renewables subsidies is impressive, but also calls for an explanation. Why go to so much trouble? The answer is found in section 6.3.8 of the 2017 release of the International Energy Agency’s (IEA) World Energy Outlook. The IEA here describes its estimate that global income support subsidies to renewables totalled $140 billion in 2016, an increase of 20% on the 2015 figure. A striking 80% of that $140 billion in 2016 was received by the wind and solar industries.
But the aspect of global subsidies that would be troubling the cool heads in Treasury is the fact that, as the IEA says, “support for renewables remains concentrated in a small number of countries”. Indeed, 45% of global subsidy support for renewables is accounted for by the European Union, with the biggest subsidisers being German, Italy, France, Spain and the United Kingdom. The IEA does not provide an estimate of the UK’s share in global subsidy, but reference to the tables in the Treasury’s Autumn Budget text, “Control for Low Carbon Levies”, suggests that UK could be accounting for considerably more than 5% of the global total, significantly more than its share of global GDP. That alone is sufficient to suggest that the UK is doing more than its fair share, and given the need to reinforce competitiveness post BREXIT, needs to limit its contribution.
Furthermore, the IEA projects that in its New Policies Scenario global subsidy spending on renewables will rise to a peak of approximately $225 billion (in 2016 prices) in 2030, with the vast bulk of that increase being taken by offshore wind, bioenergy, and solar, the latter of which alone is expected to be in receipt of about $100 billion dollars a year in subsidy in 2030 (See Figure 6.23, which for copyright reasons is not reproduced here).
With subsidy on that scale it is not surprising that the IEA thinks the future of the renewables sector is one of very significant growth:
Renewables capture two-thirds of global investment in power plants as they become, for many countries, the least-cost source of new generation. Rapid deployment of solar photovoltaics (PV), led by China and India, helps solar become the largest source of low-carbon capacity by 2040, by which time the share of all renewables in total power generation reaches 40%. In the European Union, renewables account for 80% of new capacity and wind power becomes the leading source of electricity soon after 2030, due to strong growth both onshore and offshore. Policies continue to support renewable electricity worldwide, increasingly through competitive auctions rather than feed-in tariffs […]. (“Executive Summary”, World Energy Outlook 2017, p. 2 ).
But the Autumn Budget shows that the UK government is unwilling to be part of this subsidy boom. One imagines that it is not the only national government having considering its position. This had to happen sooner or later. The only justification for subsidies to renewables is to accelerate cost reduction. If those cost reductions have materialised then the subsidies should be cut. If, on the other hand, after twenty years of major global support for this sector they are still not able to compete unaided, expectations should revised downwards and subsidies at the very least be put on hold and probably cut altogether.
Feedback: john.constable@thegwpf.com
The London-based Global Warming Policy Forum is a world leading think tank on global warming policy issues. The GWPF newsletter is prepared by Director Dr Benny Peiser - for more information, please visit the website at www.thegwpf.com.
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