The Department of Energy and Climate Change (DECC) just released an online simulation tool that gives the public a chance to make big decisions over the UK’s energy future. Launched Thursday 3 March in London, My2050 is a user-friendly web application that is designed to allow the public to try out a variety of scenarios for bringing the UK to a secure, low carbon economy, and voice their input on what 2050 should look like.

Choices include such options as increasing the number of nuclear power stations, solar panels, wind turbines, or electric vehicles in order to hit the 2050 target of an 80 per cent carbon emission reduction.

The Government also updated its 2050 Calculator, the more technical counterpart to My2050 that gives a detailed look at the energy and emissions system in the UK based on physical and technical limits of various technologies. The updated 2050 Calculator is based on extensive discussions held with engineers, energy producers, and environmental groups, along with other stakeholders, in order to obtain an accurate picture of the UK’s future energy potential.

On Monday 7 March, in promotion of the launch of My2050 and 2050 Calculator, the DECC will open discussion to the public in order to bring to light the difficult energy issues that the UK will face in the coming years.

According to Chris Huhne, Energy and Climate Change Secretary, “There’s no silver bullet solution to the UK’s energy future. This project is all about getting to grips with the hard choices and trade-offs which need to be made, choices which will affect our homes, communities and the way we travel. We can’t afford to leave it till tomorrow – so get involved today.”

So, check it out and share with us your thoughts.

The UK’s Chancellor of the Exchequer, George Osbourne, led the announcement of the Comprehensive Spending Review last week, introducing what’s expected to be one of the most challenging economic periods in the history of the UK. Whilst spending cuts were inevitable from any Government, Ed Milliband, Leader of the Opposition, claims that the Coalition’s Government’s ‘slash and burn’ approach will hit those on the lowest incomes hardest, and risk the prospect of a double-dip recession in the UK.

With significant cuts announced across the board, the prospects for proactively transitioning towards a low carbon economy seem lost in the ashes, along with the Coalition’s claims to be the “greenest Government ever”. The Department for Environment, Food and Rural Affairs was the hardest hit Government department, an will be expected to reduce resource spending by 29% (including funding for biodiversity protection and climate change adaptation) and capital spending by 34%. Rises in public transport fees are also expected, but the Department of Transport has deferred these until next year. On the other hand, the Department for International Development (DfID) will see a 50% increase by 2015, making the UK the first major nation to spend 0.7% of GDP on international aid, as recommended by the UN – a controversial move in light of the major cuts in jobs and services across the UK.

The Department of Energy & Climate Change (DECC) suffered a number of changes, including:

1. Most controversial, was the Government’s U-turn on the Carbon Reduction Commitment energy efficiency scheme (CRC). The CRC requires small and medium emitters to buy permits to cover their energy emissions, with proceeds handed back to those who cut the most carbon, and penalising those who cut the least. However, the Comprehensive Spending Review shocked participants by announcing that all revenue raised from the emissions trading scheme (£1bn/year), which began earlier this year, will be used to support the public finances, instead of being recycled back to participants.

Steve Radley, director of policy at manufacturer’s group EEF, said: “If the private sector is going to play a greater role in increasing investment and growth it needs clarity. By changing the rules six months after the game has started and landing business with an unsignalled £1bn tax rise, the government has sent an unwelcome signal.”

Business and investment communities have been rallying Government for clarity on carbon policy, and this last minute ‘change of the rules’ is not expected to instill any confidence in the UK renewables market. Many participants also felt that the Government’s decision has punished the preparedness of hundreds of participants, which had already signed up to a number of initiatives, including the Carbon Trust Standard certification and others. Whilst the reputational advantages of performing well in the CRC are still expected to incentivise emissions reduction, the decoupling of the financial gain from recycled revenues has completely altered the investment equation. The pay back period and economics of existing investments will no-doubt be delayed, or even eliminated.

Climate Minister Greg Barker, said the decision had not been taken lightly, but was as a result of the “catastrophic” deficit inherited from the Labour government.

The Government now expects to raise around £3.5B (US$5.5B) over the next four fiscal years from the scheme in a move that means the CRC will effectively act as a carbon tax mechanism. Participants must reevaluate their financial budgets, to collectively raise to £1m each year to meet the Treasury’s estimation of £1bn/year (an implied price of £15/tonne of carbon).

Whilst these changes will simplify the incredibly complex scheme, designed to cut carbon, it has left participants, including the NHS and other businesses facing additional budget cuts, reeling with the potential implications. Whilst it is good news for the environment, it calls into question the equity of taxing small to medium GHG emitters, as the largest emitters, such as power stations, evade their carbon costs through the weak carbon price signals set by the EU ETS. The cap in the EU ETS remains ineffectually low as a result of the recession, and participants frequently make large windfall profits from the sell their share of surplus emissions allowances on the carbon market, over-allocated to them by the European Commission. Furthermore, weak political commitment for emissions reduction in the EU ensures that the carbon price remains low.

2. Osbourne announced a meagre £1bn for the proposed Green Investment Bank, which is expected to offer funding for investment in low carbon projects and industry development. Ongoing debate suggest that the bank will need a minimum of between £2-6bn to yield the investment power appropriate for the development of new energy infrastructure, to support the achievement of the UK’s CO2 targets.

Chris Huhne, Climate Secretary, has suggested that further funds may come in the form of the potential sale of the Government’s one-third stake in Urenco, the company, which makes enriched uranium for nuclear power. The previous Government’s attempt to sell its stake in Urenco as blocked by shareholders, raising questions over how long fundraising from the sale of assets could potentially take.

The final design of the ‘bank is still unclear, and there is much speculation about whether it will be a ‘real’ bank – independent and able to raise bonds etc – or simply a Government funding pot.

3. The Government’s commitment to the programme for the commercialisation of Carbon Capture & Storage has been reduced from the construction of four demonstration plants, to just a single one. However, the announcements confirmed that there is “up to” £1bn of public funds on the table for the first. DECC will have a challenge on its hands in restoring confidence as uncertainty around the policy environment and economics of the CCS projects has led to the withdrawal of all but one of the companies bidding for the Government funds, with E.ON pulling out last week.

Building and running four till 2015 would have cost about £10bn but the government still has the power – voted in with cross-party agreement – to charge a levy on consumer power bills to pay for the CCS demonstration. Watch this space.

4. DECC’s central budget is cut by 20%, though capital expenditure will increase by 28% by 2014-15 – most likely on nuclear decommissioning, carbon capture and storage and the renewable heat incentive for green home heating.

The state of the deficit has delivered a huge blow to the economics of the UK’s ambitions to transition to a low carbon economy. The introduction of a ‘carbon tax’ in the guise of the CRC, will mark a challenging time for the economy, as they struggle to internalise the carbon costs of their operations. The fact that revenues raised will not even feed into the Green Investment Bank signifies a significant lost opportunity, threatening risks to the economic sustainability of the UK economy.

It’s been almost a month since the UK’s newly elected, and historic, Coalition Government was formed, introducing an interesting partnership between the Liberal Democrat and Conservative parties. With over 22 bills announced in last week’s Queen’s speech, the Coalition certainly has its work cut out over the next 18 months.

Without doubt, the biggest concern of this Government is the reduction of the national deficit, which stands at a colossal 12% of GDP. However, the newly elected PM, David Cameron, and his Liberal Democrat deputy, Nick Clegg, have pledged that the urgent need to develop a low-carbon economy will remain a key issue and focus amidst deficit reduction plans. To affirm his commitment, one of Cameron’s earliest announcements included a target to reduce central government carbon emissions by 10% within next 12 months. In the same vein, the PM has also committed to push the EU to demonstrate leadership in tackling international climate change, including by supporting an increase in the EU emission reduction target to 30% by 2020.

The Energy Security and Green Economy bill announced in the Queen’s speech last week is expected to deliver some of the pledges made in the Coalition Government’s manifesto (see below). The Bill will focus on maximising energy efficiencies and renewable energy generation through a range of innovative policy measures, including ‘green loans’ for buildings and businesses, designed to increase investment in green technologies and efficiency measures across the UK. Importantly the loans are associated with the building or business and not the individual, enabling owners to transfer payments to new owners if the property/businesses are sold.

However, this Green Deal is the only part of the government’s low-carbon agenda that is currently certain to make it into the final version of the Bill after DECC announced that a host of other legislative measures “may” be included in the legislation. The Department is still finalising proposals for legislation to regulate emissions from coal-fired power stations (with uncertainty around the baseline for performance), provide a framework to govern the rollout of smart grid technologies, lay the foundations for a green investment bank, reform energy markets to enhance security of supply and competition between operators and ensure North Sea infrastructure is open to companies operating in smaller oil and gas fields. Whilst the latter option remains controversial, the Government has made suggestions that it will seek to maximise opportunities for the continued extraction of fossil fuels and opencast mining, ironically exhausting carbon intensive energy resources to build the ‘foundations’ of a renewable and low carbon economy. This has dismayed some environmentalists, who remain skeptical about how this Coalition will set itself apart from the previous Labour Government.

However, the proposals put forward will have to contend with the £6.25bn of public spending cuts also announced last week by George Osborne. Whilst the Department for Energy & Climate Change (DECC) won’t suffer as much as some other Government departments, it is set to lose £85M from its budget, with DEFRA losing as much as £162M. In what he has described as the “fastest and most collegiate spending review in recent history” Osbourne plans to recover the remaining savings in £20.2M cuts to the department’s delivery bodies and a further £26m from other efficiencies, including £6M by targeting lower impact spend in the Regional Development Agencies. In addition, £34M will be cut from business support programmes including moving forward the closure of the Low Carbon Buildings Programme (LCBP), which provides grants to households and businesses installing renewable energy technologies. A new feed in tariff incentive, launched in April 2010 is expected to replace the LCBP and provide incentives for microgeneration of renewable technologies, however with the launch of the Renewable Heat Incentive (RHI) not expected until next year, there are concerns that some parts of the market are exposed to a lack of policy clarity or incentive.

Leonnie Greene of the Renewable Energy Association said producers of biomass systems, ground source heat pumps and other renewable heat technologies now urgently needed clarity on when the proposed Renewable Heat Incentive (RHI) scheme will be introduced.

Whilst many of these cuts are likely to deliver emissions reductions, the Government is faced with the risk of stifling long term green investments, which would inevitably deliver economy wide savings in the future.

Interestingly, two of the government’s most controversial environmental policies – its proposal to enforce a floor price for carbon and reform renewable energy incentives by extending the feed-in tariff – were noticeably absent from the list of measures to be included in the final bill. Whilst the Government has demonstrated some ‘fresh thinking’ on this agenda, there is a sense that there is much thinking still to be done. Inevitably the next 12 months will be critical, and comprehensive consultation, speedy implementation, and strong political direction will determine how well Cameron guides the UK through its worst debt crisis, and critical energy reforms to better position the nation in a future low carbon economy.

The Coalition Government’s vision for decarbonising the UK

1. The establishment of a smart grid and the roll-out of smart meters;
2. The full establishment of feed-in tariff systems in electricity – as well as the maintenance of banded ROCs;
3. We will instruct Ofgem to establish a security guarantee of energy supplies.
4. Measures to promote a huge increase in energy from waste through anaerobic digestion;
5. The creation of a green investment bank to support low carbon projects to transform the economy. As part of the creation of a green investment bank, the Government intends to create green financial products to provide individuals with opportunities to invest in the infrastructure needed to support the new green economy.
6. The provision of home energy improvement paid for by the savings from lower energy bills;
7. Retention of energy performance certificates while scrapping HIPs;
8. Measures to encourage marine energy;
9. The establishment of an emissions performance standard that will prevent coal-fired power stations being built unless they are equipped with sufficient CCS to meet the emissions performance standard;
10. The establishment of a high-speed rail network;
11. The cancellation of the third runway at Heathrow and the refusal of additional runways at Gatwick and Stansted;
12. The replacement of the air passenger duty with a per-flight duty;
13. The provision of a floor price for carbon, as well as efforts to persuade the EU to move towards full auctioning of ETS permits;
14. Measures to make the import or possession of illegal timber a criminal offence;
15. Measures to promote green spaces and wildlife corridors in order to halt the loss of habitats and restore biodiversity;
16. Mandating a national recharging network for electric and plug-in hybrid vehicles;
17. Continuation of the present government’s proposals for public sector investment in CCS technology for four coal-fired power stations; and a specific commitment to reduce central government carbon emissions by 10% within 12 months.
18. Intention to seek an increase in the target for energy from renewable sources, subject to the advice of the climate change committee.

Ministerial Arrangements in the new Coalition Government

Chris Huhne MP has been appointed Secretary of State for Energy and Climate Change in the new coalition government.

Charles Hendry MP and Gregory Barker MP have been appointed as Ministers of State for Energy and Climate Change.

Lord Marland has been appointed as Parliamentary Under Secretary of State for Energy and Climate Change.

A Calm North Sea

According to UK’s  Department of Energy and Climate Change (DECC) the North Sea has potential to store over 100 years worth of UK power station CO2 emissions.

In the build up to the Carbon Sequestration Leadership Forum (CSLF) in London on 13^th October, DECC has launched a UK wide consultation to explore the idea to develop and manage the potential carbon storage sites under the North Sea, to harness the huge potential for storing CO2.

According to the Energy and Climate Change Secretary, Ed Milliband says:-

“There’s enough potential under the North Sea to store more than 100 years worth of CO2 emissions from the UK’s power fleet.  We are also working closely with Norway and other North Sea Basin countries to ensure the North Sea fulfils its potential in the deployment of CCS in Europe. We want to get the UK regulatory framework in place so we can harness that potential and make the North Sea part of the CCS revolution.”  (Source: DECC)

The future talks of The Carbon Sequestration Leadership Forum (CSLF), which is made up from a private and public member (including Ministers from 23 countries) will build on the foundations of the G8’s ambition to launch twenty CCS demonstration projects globally by 2010; and prospects of a global agreement on CCS prior to the UN Climate Change conference in Copenhagen this December. (Source: DECC)

 “Without CCS there is no solution to climate change.   As well as getting things in place in the UK and Europe we need that consensus at the global talks in Copenhagen.   The meeting in London will be a pivotal part of moving the discussion on CCS forwards.”  (Quote: Ed Milliband).

Subject to the outcome of this consultation, DECC aim to make and lay regulations in the first quarter of 2010 in order to bring the regime into force in April 2010. (Source: DECC)

This CCS target will form part of the UK’s Low Carbon Transition Plan which was first introduced in 2008, it sets out how the UK will meet the 34 percent cut in emissions on 1990 levels by 2020.  The plans set out to reach the following target by 2020:

• More than 1.2 million people will be in green jobs
• 7 million homes will have benefited from whole house makeovers, and more than 1.5 million households will be supported to produce their own clean energy.
• Around 40 percent of electricity will be from low-carbon sources, from renewables, nuclear and clean coal.
• UK will be importing half the amount of gas that we otherwise would.
• The average new car will emit 40 percent less carbon than now. 

In times of financial and economic instability, the government has committed a very large sum of £405 million towards developing low carbon technologies to meet the Transition Plan targets. This commitment to CCS is prevalent in the recent announcement to support a multimillion-pound research facility in Yorkshire, The Centre for Low Carbon Futures.  This is an innovative £50m research centre that combines the expertise and research power of the Yorkshire universities, with funding from Yorkshire Forward.  The centre aims to build a competitive, sustainable and carbon-efficient regional economy, while providing climate change solutions of national and international significance in collaboration with local business.

So far, the Centre has already identified its first four pilot research projects, which include:

• The regional economics of climate change
• Low carbon supply chains
• Biorenewables
• Carbon Capture Technology

In September 2009, the UK government has also injected £20m into early stage works for developing advances in wave, tidal, fuel cells, solar and energy efficiency technologies.   Announced in September, the ‘clean energy technologies fund’ will be like the ‘Dragons Den’ Venture Capitalists TV series, aiming to attract private sector finance in coming forward to fund new innovative clean technology projects.

 Simon Walker, Chief Executive of the British Venture Capital Association, said:

“Low carbon energy technologies backed by venture capitalists will play an important role in creating a sustainable energy future for the UK. In 2009 we have seen a dramatic fall in the amount invested into clean energy companies in the UK. We welcome any initiative which boosts the supply of capital into this crucial sector.”

Penny Shepherd MBE, Chief Executive of UK Sustainable Investment and Finance said:

“Government support now is vital to develop the UK low carbon technology businesses that we need for lasting prosperity. This commitment shows that the Government is serious about promoting a low carbon economy and sustainable investment in the UK.”

With the financial commitment from government and the new opportunities exposed by the CCS storage capacity in the North Sea emerging, the academic support is absolutely paramount into driving UK’s commitment to achieving further gains in meeting not only the UKs carbon reduction targets, but also to share these technologies with the rest of the world at the UN Summit in Copenhagen to contribute to the global efforts needed.

The G20 has just been and gone, but another London summit last month saw Prime Minister Gordon Brown, business secretary Lord Mandelson and climate change secretary Ed Miliband, talk of the danger that Britain would get left behind in the “global race” towards a low-carbon economy.

The flipside, they said, was an opportunity to create hundreds of thousands of jobs in renewable energy and other areas of carbon reduction at a time when unemployment is surging in the wider economy. Despite this, just four days after the summit, the government announced the suspension of funding for solar power schemes under its Low Carbon Buildings Programme (LCBP); which provides grants of up to £2,500 for the installation of microgeneration technologies in homes, community organisations and other public and private buildings, with PV the most popular type of application.

Britain has committed just £1.5 billion of its £25bn reflationary measures to green stimulus, according to HSBC. However, Jemma Robinson of the Renewable Energy Association (REA) comments that “They keep talking about this new green deal but there’s nothing concrete to grab hold of.”

A final strategy, based on responses from the summit and a consultation, is expected this summer. However, scepticism about the government’s resolve and ability to pay runs deep, not least in view of recent funding decisions.

The Department of Energy and Climate Change has said Phase 2 of the LCBP will not be extended and remaining funds, thought to total about £8 million, will be returned to the Treasury when the LCBP ends this June.

In contrast, the association is demanding £625 million be spent immediately to safeguard the UK’s existing renewables industry and to ensure 2020 targets on carbon cuts are met. It says £10 billion is needed in the long term to match the sums spent by other countries including Germany, France, the US and China – proportionate to GDP – and to meet investment levels recommended in the Stern report.

James Cameron, executive director of Climate Change Capital, said the government should issue “carbon bonds” along the lines of war bonds in the Second World War to bridge the gap in funding for renewable energy. The REA also backs the idea.

Despite the recession spurring people to save, the government may successfully encourage people to invest in bonds, which would appear more attractive investments as other financial instruments are viewed as risky or discredited.

Climate Change Capital has proposed this idea to the government, and Cameron comments “…in broad terms you either create a government bond for, say, a specific renewable energy project. Or you put a bunch of assets together linked to renewable energy, and the government provides some underwriting for that.”

Martin Berg, vice president, carbon emissions originator at Merrill Lynch in London, said the sums needed to develop the UK’s renewables infrastructure and meet renewable energy targets were too large to rely only on public borrowing alone.

“My view is that the UK has to unleash private sector money into this market but also get entrepreneurial money flowing in.”

He discusses that carbon bonds could take two forms:

1.     They could either operate in exactly the same way as gilts (UK government bonds), but with different branding. In theory investors would be content with slightly lower returns because they would have the satisfaction of knowing the money was ring-fenced for green development. 

OR as an alternative they could be

2.     linked to specific projects. Here the returns for investors would depend on the success of the revenue steam in question – often via carbon credits in the emissions market – but also on the level of risk associated with a particular project. As always, a higher-risk project would need to pay a higher return.

The details will need further attention to attract investment, but one things for sure – we need investment and we need it as soon as possible.

The Climate Change Act 2008 has committed the UK to reach a target of 20% renewables by 2050, whilst at the same time the UK has pledged to achieve 15% of this by 2020 as part of the European climate deal.

However, whilst such plans to catalyse the renewables industry are generating further interest from private sector investors, there remain a number of limiting factors which must be ironed out for timely project development and completion.

The wind power sector presents a key example of this, as 262 projects representing seven giggawatts are held up due to lengthy planning delays. Government officials from the Department of Energy and Climate Change (DECC) recognize the major barriers presented by the Planning Act for wind projects, and plan to launch a renewable energy strategy to understand methods of overcoming existing challenges in the system. But should we have seen this coming? Wind power represents the strongest renewable power source across Europe, and was the fastest growing renewable energy sector last year.

The British Wind Energy Association (BWEA) highlights that in order to meet the 15% renewable target, Britain must generate 30GW of wind capacity – 20GW of which could be generated offshore. The remaining 10GW must be generated onshore, building upon the existing 2.5GW we currently generate, but ongoing planning delays have made investments in the UK less attractive. The average timescales of gaining planning permission in England range from 15-20 months. This along with mounting construction costs which threaten the economics of many wind projects have already forced Shell and BP over to the United States, and Centrica (which owns British Gas) is becoming increasingly concerned over the fate of their 250-megawatt scheme off the Lincolnshire coast.

Europe’s biggest onshore wind farm became operational in early December, providing enough energy for up to a million people in northern Portugal – putting them well on the way to developing an oil-free energy infrastructure. Whilst the project represents only 1% of national consumption, it is a great step forward and has highlighted Portugal’s government enthusiasm, subsidies and special tariffs to make it happen. Something for the UK government to carefully consider in such difficult times.