Derivation of an Energy Policy

Derivation of an Energy Policy

Derivation of an Energy Policy

1Energy Demand Scenarios

Given the uncertainty about the future, estimates of future demand are probably best presented in the form of scenarios with varying levels of assumptions. These should include:

• Economic growth

The range of potential growth in the economy.

• Technology changes

Changes which may affect the volume and form of the demand for energy, eg electric cars.

• Tax and legislative issues

Changes which may affect the demand for energy, eg a carbon tax.

• Resource issues

The availability and pricing of natural resources, in particular the price of oil.

Such scenarios have been extensively developed in the work of the Infrastructure Transitions Research Consortium (ITRC).

2Energy Sources

The UK possesses a wide range of potential energy sources with varying degrees of availability and viability. The overall supply could include a mix of the following sources and different times in the future.

• Fossil fuels

Fossil fuels will continue to play a significant part in the energy mix at least in the short term. Although environmental factors mitigate against the longer term continuing use of fossil fuels, the introduction of carbon capture and storage may prolong the life of coal and gas burning power stations.

• Nuclear

The current generation of UK nuclear power stations are considered to be coming to the end of their operational lives, although proposals have been made to extend their lives. Plans for new nuclear power stations have been hindered by problems with technology reliability and high costs. In addition, the issue of the safe disposal of nuclear waste is yet to be satisfactorily resolved.

• Wind

Wind energy, both onshore and offshore, is already making a contribution to the energy mix although onshore installations may be subject to a degree of local public resistance. However, the variability of the wind may mean that this source will only provide a marginal contribution to the overall energy supply.

• Tidal barrages/lagoons

As an island, the UK has a major opportunity to derive energy from the sea. The tides encompass vast amounts of energy and, unlike the wind, they are totally predictable. However, tidal barrages for the Severn estuary and, to a lesser extent, for the Mersey estuary and Morecambe Bay have been debated for well over 30 years and, until the recent initiative for a Swansea lagoon, nothing has happened. This would appear to be a major opportunity which is being neglected.

• Wave and tidal energy

Wave and tidal energy are further forms of marine energy available to the UK. Whilst wave energy is subject tothe same issues of variability as wind energy, tidal flow energy is much more predictable. Although technologies to utilise wave and tidal energy are still at the developmental stage, these two forms of power generation may eventually provide a significant contribution to the energy mix.

• Solar

The falling costs of photo-voltaic panels is making solar power an increasingly viable option. Although large scale ‘solar farms’, as seen in some countries, may not be a major option for the UK, at the individual householder level solar installations have the potential to make a significant contribution to the overall energy supply.

• Energy from waste

Since the waste exists and must be disposed of, it makes sense to use the ‘two birds with one stone’ argument and consider deriving energy from waste, particularly as widespread use of land fill is no longer socially acceptable. Increasing levels of recycling of materials, such as metals and glass, and composting of organic materials will leave a residue suitable only for incineration and energy generation. Suitable treatment of exhaust gases will be an issue determining public acceptability.

• Biomass

Although a major power station at Drax is making the transition from coal to biomass, it is using material imported from north America. Thus this technology may be more suited to areas where there is a local supply of rapidly growing wood and other organic material and it may only provide a minor input to UK requirements.

• Inland hydroelectric schemes

Most existing hydroelectric schemes have been sited in mountainous regions of Scotland and it may be that the potential for such schemes has been largely exploited. However, there may be scope for further small scale low head schemes in other parts of the country.

In the longer term new sources of energy, such as nuclear fusion, may become available but, at present, these remain in the area of basic scientific research.

3Evaluation criteria

The potential energy sources need to be subject to a thorough evaluation. The criteria to be used in such evaluation fall into two categories, those which specify a basic level to be achieved and those which allow a comparison to be made. The criteria should include the following.

• Timescales

The various sources of energy may be available over different time periods and an energy policy should ensure sufficient energy is continuously available over a significant time period. Thus a variety of sources is likely to be required. The life of existing assets needs to be assessed and the potential, means and feasibility of extending the life of these assets estimated. This applies particularly to coal and gas fired power stations and the potential for carbon capture and storage and also to the potential life of existing nuclear power stations. In the case of newer technologies, such as wave or tidal power, the time required to bring these technologies to an acceptable level of matureness must be estimated. In the case of large scale projects, such as tidal barrages or new nuclear facilities, a realistic estimate of the lead times and construction periods is required. Analysis of the timescales may present options over certain periods of time or necessary courses of action at others.

• Safety

The achievement of an acceptable level of safety is a basic constraint and one which will drive the cost of providing an energy source. This applies particularly to nuclear power and the necessity of providing an acceptable method of disposing of nuclear waste. Since absolute safety can never be guaranteed, the assessment of safety requires the definition of what level of risk may be considered to be tolerably safe.

• Security of supply

Security of supply has three elements, natural,technological and political. Wind, wave and solar power are at the mercy of the elements and thus there are natural constraints on their availability. The newer technologies which are not yet fully developed, such as wave and tidal and also newer nuclear technologies, may be subject to reservations about their operational reliability. Energy generation which depends on imported fuel, particularly oil, will be subject to uncertainties in price and supply depending on a broad range of international relationships and events. Thus an energy policy will have to take account of the risks associated with each source of energy.

• National issues

National issues such as self-sufficiency and independence may need to be taken into account. When the UK generated much of its power from coal it was largely insulated against foreign conflicts which could lead to supply or price uncertainty. Now, with much of the world’s oil supply coming from regions of political turbulence, there is a higher level of uncertainty. Thus it may be prudent to maintain a significant capacity for sources such as marine or wind energy to partially mitigate this uncertainty.

• Environmental issues and public acceptability

In addition to the larger environmental issues, particularly climate change and the consequential wish to move away from the use of fossil fuels, there are also more localised issues such as the effects of tidal barrages or wind turbines on the bird population or the unacceptability of onshore wind turbines to some members of the public. Where a planned project adversely affects certain sections of a community, consideration should be given to whether this constitutes an absolute constraint on the project or whether the situation should be dealt with by adequately compensating those adversely affected.

• Economic viability

The above criteria largely represent the need to achieve acceptable levels of performance and lead to absolute constraintson actions or the need to incur specific costs to meet the criteria. After applying these criteria, it is likely that a set of options may be produced. Economic analysis may then be used to compare the options to derive the best value approach. It should be noted that techniques such as cost benefit analysis are based on assumptions about the future. Since the future cannot be known with certainty, these assumptions are based on judgement and, therefore, there are no right or wrong answers to an economic analysis, only results with a greater or lesser degree of credibility.

4Structural issues

In 1956 the United Kingdom Atomic Energy Authority opened the world's first commercial nuclear power station. Now, with a privatised energy supply industry, when a new nuclear power station is planned for Hinkley Pointit is proposed that the facility should be developed by a joint venture comprised of French and Chinese state owned organisations. This raises a number of issues.

• What should be the role of the state in the development of future energy supplies?
• Is it prudent to be dependent on foreign investment for the development of such a fundamental national requirement?
• Do our fragmented,privatised energy companies (largely foreign owned) have the ability, resources and incentives to develop new energy sources?
• Who will develop the new and emerging technologies in power generation and what incentives do they require?

Although these issues are political in nature, they require a pragmatic rather than a dogmatic approach to the creation of a framework in which future energy supplies may be developed and operated.

5Availability of finance

The availability of finance is clearly a key component in the development of an energy strategy, particularly with a privatised energy supply industry. Constraints on the availability of funding include the volume of funding required, in the case of major projects such as nuclear power stations or tidal barrages, or the technical feasibility of new systems, such as wave or tidal generation. Potential sources of funding may include the following.

• EU grants

Assuming we remain within the European Union, of the EU grants available, the ones with the most likely application to energy projects appear to be research and innovation grants, regional developmentgrants for projects in the supported areas and grants to small businesses developing small scale energy projects. The grants are usually available via a UK government department.

• UK government support

The UK government offers a range of funding schemes relevant to energy projects, although these are often sub-sets of EU programmes (and therefore subject to continuing membership). Schemes currently open for applications include the EU Horizon 2020 Energy programme, with a budget of around €6bn for energy technology research, development and demonstration, the EU Bioenergy Demonstrator funding scheme and funding schemes for nuclear innovation. On a smaller scale there is the Urban Community Energy Fund, a £10m fund for renewable energy generation projects in urban communities in England.

In addition to capital grants, the government may also provide revenue support to a low carbon electricity generator through a Contract for Difference in which a generator is paid the difference between the ‘strike price’, a price for electricity reflecting the cost of investing in a particular low carbon technology, and the market price for electricity, thus giving greater certainty to investors and lenders to a project.

The Feed-in Tariffs scheme is a government scheme designed to encourage the installation of small-scale (up to 5MW) renewable and low-carbon electricity generation systems such assolar panels, wind or hydro turbines. It is thus aimed more at the householder, who will receive payments from their energy supplierfor the electricity generated, rather than at industrial scale generation. The government has recently modified the scheme making it less attractive.

In addition to considering what support the government does offerit may be worth considering what it should offer to ensure a continuous, viable energy supply for the UK.

• Bank funding

Energy lending by the European Investment Bank focuses on energy efficiency, renewable energy, energy networks, as well as related research and innovation. Recent lending to the UK includes financing of two offshore wind farm transmission networks and a loan of €510mto support the installation of 7 million smart meters for British Gas customers. Commercial bank lending is, of course, dependent on normal banking criteria but would be made more likely by the availability of a Contract for Difference held by the borrower.

• Venture capital

Venture capital for new technology start-ups is problematic in the UK, with many of the longer established venture capital companies moving away from early stage venture capital and into private equity buyouts of established businesses. However, there are smaller venture capital funds which will invest in ‘clean energy’ and these investments may benefit from tax advantages offered through the Enterprise Investment Scheme and the Venture Capital Trust Scheme.

6Derivation of a strategy

The derivation of an energy strategy could follow the following structure.

• Presentation of the demand estimates, year by year, possibly in the form of the best, worst and most likely scenarios.
• A timeline of supply estimates for all of the potential sources, possibly in the form of similar best, worst and most likely scenarios.
• An analysis of supply versus demand, highlighting any shortfall or possible problem areas.
• A comparative review of the financial viability of the potential sources.
• A consideration of the reliability of, or uncertaintywithin, the results of the analysis and the consequences of the spread between the best and worst case scenarios.
• Derivation of conclusions from the analysis and a set of recommendations for action.
• Derivation of an energy strategyand implementation plan.
• Formulation of a case to present to government and the general public, giving a clear explanation of the results and the development of the logic which underlies them.

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