Is the UK's clean energy transition stumbling?

James Murray
Is the UK's clean energy transition stumbling?

Record clean energy results one day, plummeting investment the next - what's behind the contrasting performance of the renewables sector?

What's going on? One day there is heartening news UK renewable energy capacity has overtaken fossil fuel capacity for the first time. The next we hear that despite ever lower renewables costs UK clean energy investment fell 46 per cent in the third quarter of the year, as concerns over Brexit started to bite.

This juxtaposition is indicative of a host of wider challenges being faced by the clean energy sector. It will also further fuel fears that the rapid low carbon transition that has made the UK the fastest decarbonising economy in the G7 in recent years is starting to falter.

Anyone who follows the progress of the green economy will be well aware of the UK's impressive track record since 2010, not least because the government keeps talking about it. This summer saw UK carbon emissions hit their lowest level since World War 2; the most recent quarter saw fossil fuels command a record low 41 per cent of the power mix, down from 74 per cent in the same quarter of 2010; and renewable generation records keep toppling, as the UK starts to string together coal-free days for the first time since the Industrial Revolution.

Credit where it is due, this is a staggering achievement that the government is right to celebrate. It surpasses anything achieved by most other industrialised nations and has all been delivered without imposing excessive costs on households and businesses. It has also helped drive down clean energy costs and catalyse a multi-billion pound green economy.

And yet evidence is mounting that the policy framework that delivered the first phase of this historic transition is fast running out of road. At the same time it remains painfully unclear as to whether or not the replacement policies are up to scratch.

The fact is those Ministers hailing the success of the UK's clean energy transition have been dining out on the policy decisions made by their predecessors. The foundations for the various renewables records the have been set in recent years were built by the coalition government with its combination of contract for difference (CfD) clean energy support and carbon floor prices. Politics wonks can argue whether the credit should go to Lib Dems such as Chris Huhne, Ed Davey, and Nick Clegg or Conservatives such as David Cameron, George Osborne, and Amber Rudd, but either way it was a different age.

Since 2015 there has been a steady erosion of this policy framework: energy efficiency spending has been cut, the cheapest forms of renewables have been locked out of the CfD auctions, support for small scale renewables has been slashed, and plans for renewable heat, new nuclear, and CCS have edged forward at the most glacial of paces.  

These were all conscious decisions made by first the Cameron government and then continued by the May administration. Their impact on the UK's decarbonisation trajectory and clean energy investment profiles remained largely invisible thanks to the pipeline of projects developed under the coalition. The problem is that as with the government's continued strategy of blaming the last Labour government for eight years of austerity there is a time limit on generating political capital from others' decisions. As the confirmation that clean energy investment is down 46 per cent shows, sometimes you have to reap what you sow.

The issue for the government is that the challenges faced by its clean energy programme are stacking up, even without the added uncertainty provided by the Brexit negotiations. High gas prices and the Chancellor's failure to increase the carbon floor price means a revival in coal generation is now a distinct possibility. Meanwhile, those same high gas prices threaten to once again politicise the issue of energy bills (a report this week from energy consultancy Inenco points out that business energy costs are ticking upwards again). A hoped for surge in unsubsidised onshore renewables projects is still yet to materialise. Progress on energy storage and smart grids has been more encouraging, but it remains a fledgling sector.

Consequently, a huge amount rests on the next wave of offshore wind projects and Hinkley Point C. Any slippage on their delivery would deal a huge blow to the UK's carbon targets, but even with them it remains unclear if medium-term carbon targets will be met.

All these issues would now be in play without Brexit, but the threat of serious disruption to cross-border energy trading, access to skilled workers, and the EU emissions trading scheme only serves to make the looming challenges more severe.

How did we get here? The Conservatives took a gamble with the UK's decarbonisation programme in 2015, which was simultaneously low risk and extremely high risk.

It was low risk because the biggest political threat was perceived to come from the Daily Mail and public opposition to rising energy bills - an issue that cutting clean energy and energy efficiency support and blocking onshore wind farms helped to neuter. And crucially it was further derisked by the fact the global advance of low cost clean energy and smart grids means market forces dictate they will get deployed at some point regardless. In which case governments can then take the credit (and not unreasonably so if they genuinely supported the innovative technologies that make such deployments possible).

However, at the same time the reset of clean energy policy to focus less on subsidy and more on innovation funding and market forces represented an historic gamble in the face of global environmental crisis. The assumption was that subsidy-free renewables and smart grids would quickly spring up to fill the gap left by the end of projects that enjoyed price support; that the carbon price floor would remain high enough to force uncompetitive fossil fuels off the grid. This gamble may yet pay off. Some subsidy-free projects are in the pipeline, offshore wind costs keep falling, renewables-catalysing energy storage and electric vehicles are surpassing expectations. But the delivery of such trends at scale remains a way off, and in the interim clean energy investment is down sharply, jobs are being lost, and UK carbon targets are at risk. It is always crucial to remember that winning slow on climate change is much the same as losing. The clock is ticking.

The frustrating thing for many people in the clean energy industry is overcoming these various bumps in the road should be relatively easy. Allowing onshore wind and solar to compete for clean energy contracts would save billpayers money and would almost certainly ensure medium term emissions targets are met. Allowing small scale generators access to an export tariff for the power they provide to the grid would help revive an important industry capable of delivering massive long term savings at negligible cost. Funding energy efficiency upgrades is shown to offer better economic returns than almost any other infrastructure project. Accelerating the development of EV charging infrastructure and smart grids is simple inescapable if the UK is serious about deep decarbonisation.

The argument that these policies would act as a drag on the economy or the deficit are typically short-termist, weak, and/or self-interested. That they are often made by those who would happily jeopardise the health of the economy for a generation through the hardest of Brexits is an irony that should not go unremarked.  

The path towards subsidy-free clean energy and the development of a net zero emission economy could be smoothed, and all in a way that reduces long term costs and maximises long term benefits. The alternative is missed carbon budgets, stalled investment, and the UK beginning its post-Brexit journey on the back foot in the face of the 21st century's defining growth opportunity.

The big question for the government over the coming months is do they want to build on the clean energy success they have been trumpeting, or do they want to risk seeing it deferred at best, and squandered at worst? That is what is going on.

This post first appeared at part of BusinessGreen's Overnight Briefing, which is available to all BusinessGreen subscribers

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