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Climate Change and the UK Energy Sector: the Review Report

DateJun, 2006
Pages71
Price / format€6094 / Electronic (PDF)
€6703 / Site License
€12187 / Enterprisewide

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Abstract:
 This brief provides analysis on how the energy sector is facing up to climate change. We has previously published three briefs on this subject, titled: Increasing supplier power on the RO may reduce its success; Green energy: consumers arent buying it; and Executives are not sure if the sector is ready to face climate change. This is the fourth and acts as a summary.

Scope of this title:
- A summary of how the energy sector is facing up to climate change.
- A good summary of the issues, including; the Renewables Obligation; Energy Efficiency Commitment; Green tariffs; policy and nuclear.
- The EU ETS (Emissions trading scheme) is not covered in this brief

Highlights of this title:
- Consumer demand is not making the energy sector respond to climate change.
- The RO may stimulate renewables but does not engage consumers.
- As the UK debates, not acts, climate change is embroiled in security of supply.

Reasons to order your copy:
- Understand how the energy sector is not adequately responding to climate change.
- Understand how the energy sector has to manage climate change, yet consumers are not being involved.
- Gain a summary of the main strategies [and opinion on them] in the energy sector that are focusing on climate change.









Table of contents:
 OUR VIEW 1

CATALYST 1

SUMMARY 1

METHODOLOGY 1

REVIEW REPORT 6
Climate change and the UK energy sector series 6
Consumer demand is not making the energy sector respond to climate change 7
Little potential exists for energy suppliers to exploit green energy tariffs. 7
Existing policies are stopping energy efficiency and microgen being exploited. 8
A plethora of policies have failed to engage customers in climate change. 9
The energy sector, not the consumer, is the main target for cuts in emissions. 10
By involving the consumer, policies can force the energy sector to respond. 11
The RO may stimulate renewables but does not engage consumers 12
The renewables obligation creates supply but not consumer demand. 12
The RO subsidy does not guarantee that the UK will meet renewable targets. 13
Integrated energy suppliers are penalised for over investing. 14
As the UK debates, not acts, climate change is embroiled in security of supply 15
Security of supply is perceived to be the energy sectors greatest challenge. 15
A carbon-focused energy sector will not produce carbon-focused consumers. 16
Discounting the value of nuclear build in combating emissions may be foolhardy. 17
Contradictory views exist as to what the sector should do to manage climate change. 18

RENEWABLE POWER: THE SUPPLY AND DEMAND BALANCE 19
Increasing supplier power on the RO may reduce its success. 20
Most renewable power is generated through landfill gas and co-firing biomass 20
The most productive stations are co-firing biomass and off-shore wind farms. 21
To date, the majority of assets have been with merchant generators. 22
14GW of new capacity is planned, principally wind farms. 23
Half of the potential capacity remains with merchant generators. 25
8.6GW of existing and proposed capacity is with merchant developers. 26
Suppliers are exercising greater control over the RO and the sector. 27
For suppliers the RO remains a burden rather than an opportunity. 28
RO provides a subsidy by forcing suppliers to pay for renewable power. 28
ROC price is dictated by the buy-out price and payments to ROC-holders. 29
RO is split three ways: buy-out fund
suppliers generation
and bilateral ROCs. 30
By paying into the buy-out fund, the RO is a burden for most suppliers. 31
Some suppliers have a big advantage in having assets under planning. 32
This analysis has three scenarios in commissioning new capacity. 32
In the FAST scenario the RO is met by 2010/11 through large wind projects. 33
In the FAST scenario the RO is met through merchant generators. 34
In the SLOW scenario the RO is a distant target with wind farms delayed. 35
In the SLOW scenario generators have not commissioned enough plants. 36
The best thing for a supplier is to own assets, and hope others do not. 37
Only two suppliers have their future RO covered by own capacity. 37
Suppliers must buy up merchant generators or their RO position will worsen. 38
All suppliers will have to buy assets to keep up with other suppliers. 39
If the RO remains unfulfilled, it benefits suppliers with assets. 40

APPENDIX 41
Extended methodology 41

GREEN ENERGY: CONSUMERS ARENT BUYING IT. 42
Demand for green energy is yet to be stimulated by the wholesale market 43
Disjuncture between wholesale and supply is caused by the RO subsidy. 43
Suppliers need to enter the wholesale market
generators do not need to supply. 45
Taxes and subsidies do little to encourage renewable energy tariffs. 46
Suppliers should stimulate green energy demand to recoup the cost of the RO. 47
Green energy is niche as suppliers are not "pushing" it to consumers 48
Only 5% of the renewable power is being supplied to residential consumers. 48
Fuel mix disclosure should increase consumer interest in green tariffs. 49
Levy exemption certificates create I&C demand for renewable power. 50
Residential consumers are not actually buying "real green" power. 51
Green tariffs are peripheral because suppliers only market them at a premium. 52
Green tariffs have evolved, but have a long way to go 53
Suppliers are now starting to offer integrated environmental tariffs. 53
The EEC and the 28-day rule hinder the viability of energy saving tariffs. 54
Appendix: green energy tariffs, by supplier 56

CLIMATE CHANGE AND THE ENERGY SECTOR: OPINION 59
Security of supply is thought to be a greater challenge than CO2 emissions 60
Security of supply is considered to be the greatest challenge. 60
High gas and power prices are attributed to security of supply. 61
New nuclear build and new gas infrastructure are the favoured solutions. 62
Increased access to gas imports is considered most likely to reduce prices. 63
Nuclear power is thought to be needed to tackle climate change 64
Hydro and wind power are considered the best renewable options. 64
Prospects for wind power are uncertain. 65
It is only visible future subsidies that make executives believe in wind power. 66
New nuclear build is considered suitable for tackling climate change. 67
Executives doubt that the sector can effectively reduce customer demand 68
Energy may not be expensive enough to stimulate energy efficiency. 68
The EEC (energy efficiency commitment) may be unsuccessful. 69
Energy suppliers may not be ideal in implementing energy saving schemes. 70

APPENDIX 71
Appendix 2: In reducing energy, the EEC was a success.
List of Tables
Table 1: Barriers to energy efficiency and microgeneration [caused by existing energy market policy]. 8
Table 2: Policies and schemes targeted to assist in managing climate change 9
Table 3: Example policies that may engage consumers in climate change. 11
Table 4: The ability of suppliers to exercise power over the renewables obligation makes it less effective
List of Figures
Figure 1: Why have green tariffs remained peripheral? Rate [1-5] (1=do not believe at all & 5=believe totally) 7
Figure 2: UK CC Programme 2006, DEFRA, Carbon dioxide emissions by source 1990 to 2020, MtC 10
Figure 3: Diagram of the interrelationship between the wholesale and supply markets. 12
Figure 4: Net cost of the renewables obligation to the major suppliers 13
Figure 5: What do you believe to be the greatest challenge facing the UK power and gas sector? 15
Figure 6: Climate change policy direction: through managing the energy sector or via consumers, indirectly altering the energy sector. 16
Figure 7: What do you believe to be the most suitable for managing climate change? 17
Figure 8: The opinion of key stakeholders in the security of supply and climate change debate 18
Figure 9: RO accredited capacity and its corresponding electricity production by plant type 20
Figure 10: Average MW and average GWh per annum generation of different RO accredited plant types 21
Figure 11: MW installed capacity of the major suppliers and merchant generators, by type of capacity 22
Figure 12: Planned cumulative generating capacity by type 2005-2011 24
Figure 13: New cumulative capacity to be developed over the period 2005-2011, by supplier 25
Figure 14: The mix of independent renewable developers [those without a supply or RO and sites where ROCs have not been sold on] 26
Figure 15: RO options for suppliers 28
Figure 16: The price of ROCs over 2002-2005 29
Figure 17: The suppliers performance in meeting the 2004/05 obligation with ROCs 30
Figure 18: The net cost of renewables to suppliers 31
Figure 19: Performance against the RO to date and forecasts 32
Figure 20: FAST: The RO commitment and ROC production by plant type, 2002/03-2010/11 33
Figure 21: FAST: The RO commitment and ROC production by supplier, 2002/03-2010/11 34
Figure 22: SLOW: The RO commitment and ROC production by plant type, 2002/03-2010/11. 35
Figure 23: SLOW: The RO commitment and ROC production by supplier, 2002/03-2010/11 36
Figure 24: RO commitment covered by ROCs produced by suppliers, 2002/03-2010/11 37
Figure 25: The net amount paid into the RO scheme for each of the suppliers in the FAST scenario, 2004/05-2010/11 39
Figure 26: Diagram of the interrelationship between the wholesale and supply markets. 43
Figure 27: ROC accredited power [%] generated by different parties. 45
Figure 28: Diagram showing how the CCL and RO subsidies provide an incentive to I&C buyers, but not residential consumers 46
Figure 29: The performance of meeting the RO with three forecasts 47
Figure 30: Our estimates of the shares of supplying renewable power to residential customers. 48
Figure 31: Fuel mix disclosure of the major energy suppliers. 49
Figure 32: Demand for levy exempt renewable power from I&C sector - modelled from MEU buyer survey. 50
Figure 33: Renewable power generated compared to ROCs and LECs issued. 51
Figure 34: Why have green tariffs remained peripheral? Rate [1-5] (1= disagree totally & 5 = agree totally) 52
Figure 35: Table and description of green energy propositions, by supplier 53
Figure 36: Performance of the energy efficiency commitment [EEC]. Homes reached by type of installation. 54
Figure 37: Exploratory diagram of microgeneration in the UK, by type of installation [2006-2010]. 55
Figure 38: Renewable power is offered by most suppliers, but price and quality vary. 56
Figure 39: CO2 neutral tariffs are starting to be offered by some of the major suppliers. 57
Figure 40: Suppliers have not yet established tariffs that favour microgeneration. 57
Figure 41: Donations to "Green funds" are offered by many of the larger suppliers. 58
Figure 42: Energy saving plans are being offered by major suppliers and fit in with the EEC. 58
Figure 43: What do you believe to be the greatest challenge facing the UK power and gas sector? [Please rank 1st to 3rd] 60
Figure 44: Which one do you believe has been most responsible for the increases in gas and power prices this year? [Please select one] 61
Figure 45: How likely is it that the following actions will help solve existing problems with UK energy markets? (1-5 where 1 = very unlikely & 5 = very likely) 62
Figure 46: Can you please rate [1-5] the likelihood of the following actions actually reducing energy prices? (1-5 where 1 = very unlikely & 5 = very likely) 63
Figure 47: What do you believe to be the most suitable sources in reducing emissions from power generation? Rate [1-5] (1= least suitable & 5 = most suitable) 64
Figure 48: Do you think that the prospects for wind power are good or bad? 65
Figure 49: Summary table of verbatim comments on the prospects of wind power. 66
Figure 50: What do you believe to be the most suitable for managing climate change? Rate [1-5] (1= least suitable & 5 = most suitable) 67
Figure 51: Do you believe that energy is actually too cheap at the moment to encourage energy efficiency? 68
Figure 52: Has the energy efficiency commitment (EEC) been successful? (Yes/No) 69
Figure 53: Do you believe that power/gas suppliers are the best companies to be implementing energy saving schemes? (Yes/No) 70
Figure 54: Appendix 1: selected statements from respondents 71








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