UK green energy projects fall by wayside in dash for gas

The construction of new renewable energy generation capacity has fallen dramatically, as the big six energy suppliers pursue a “dash for gas” policy that could put the UK’s climate change targets out of reach and leave households with higher bills.

The number of new wind turbines built this year is down by half on last year. To date, 540MW worth of new turbines, on land and offshore, have been built this year – 200 onshore and 50 offshore turbines. Across the UK last year, 1,192MW of wind capacity was added.

The pipeline of new projects has also stagnated – this year, 2,058MW of windfarms were submitted for planning permission, compared with 2,080MW in 2010, and the number approved dropped markedly, from 1,366MW in 2010 to 920MW, according to figures from industry body RenewableUK.

This contrasts with the 30GW of new gas-fired power stations that are at planning stage. These will require tens of billions of pounds of investment, coming mostly from the big six energy suppliers.

Although gas is cheaper than renewables at present, the cost of renewables is steadily coming down, and over-reliance on gas is one of the key factors behind high energy bills, according to the government. About 60% of rises in the past year have been the result of the higher cost of fuel imports.

In 2010, the total investment in renewable energy in the UK fell dramatically, from $11bn (£7bn) to less than $3bn – a drop of about 70%, according to Roland Berger, the consultancy. This year, the investment has recovered somewhat, after about $6bn was invested in offshore wind, but this is still well down on 2009 figures – despite the government’s pledges to expand the renewable energy sector, with a target of 18GW of generating capacity to come from offshore wind by 2020. At least £200bn will be needed this decade to transform the UK’s energy sector to a low-carbon footing, but there is little sign yet of investment on that scale.

Last week construction group Carillion said 4,500 jobs are at risk as a result of a government decision to cut solar energy subsidies. There are 39,000 jobs dependent on the solar energy sector and thousands more are also at risk.

Manfred Hader, a partner at Roland Berger, said: “More regulatory clarity and the making available of large amounts of capital are necessary to drive government targets for offshore wind. There will be a need to bridge the gap between funding via traditional sources such as utilities and banks and the total investment required – it is a moot point as to whether institutional investors would be interested and whether the green investment bank would make a real difference to this issue.”

Wind represents the biggest share of the UK’s renewable energy mix, but other forms of renewable energy have also been set back. Solar power companies are set to cut thousands of jobs, as the government abruptly halved the subsidies available for solar panels. The biomass sector has suffered, too, as several proposed new biomass power stations, burning waste, energy crops or straw, have been delayed. Drax, which operates the biggest UK coal-fired power station, has put on hold plans for two new straw-burning biomass plants.

While renewables struggle, gas has seen a flurry of interest from the big six suppliers. Over the past few years, plans for at least 30GW of gas-fired power have been brought forward, which would lead to a rash of new power stations across the country, with some now in construction but most still in the planning stages.

Gas businesses have also been lobbying heavily to be seen as a “green” fuel, because burning gas produces about half the carbon dioxide of burning coal. However, gas lobbyists also have the renewables industry in their sights, as the Guardian has revealed, with behind-the-scenes meetings with key political figures across Europe and the publication of a report which took McKinsey research showing renewables could power a low-carbon Europe and re-interpreted it as an argument that opting for gas would be cheaper than pushing renewable energy.

Chris Huhne, secretary of state for energy and climate change, invited the construction of new gas-fired power stations with a promise that a new “emissions performance standard” would be set at a rate that favoured gas but blocked new coal-fired power. He promised this new regulation would not be reviewed until 2015, and any revision would not be retroactive, giving gas companies a clear window for investment.

Huhne’s comments made clear one of the reasons behind the government’s encouragement of new gas-fired power – that new gas power stations take only about 18 months to build. Ministers are concerned that as many of the older coal-fired power stations are taken out of service in the next few years, there could be an “energy gap” between demand for electricity and supply. As putting up new gas-fired power stations is quick compared with wind turbines or nuclear reactors, gas is now the favoured option if ministers fear there is any likelihood of suppliers failing to “keep the lights on”.

Burning gas produces about half the carbon dioxide of coal so switching from coal to gas has helped the UK to one of the most impressive emissions-cutting records of any country over the past 20 years. There were no gas-fired power stations in 1990, but the rapid expansion of the sector driven by the Conservative government, under Margaret Thatcher, was the biggest single factor behind the 25% cut in the UK’s greenhouse gas emissions between 1990 and 2010.

The government’s new carbon plan – published on December 1 – showed a further switch away from the UK’s remaining coal-fired power stations, many of which will be taken out of service in the next few years, is a major factor in enabling the government to promised 34% emissions cuts compared with 1990 levels by 2022. Between 40 and 70GW of new capacity will be needed to meet the UK’s carbon targets. Huhne said: “The energy mix will depend on what happens in the world gas markets. If there is a low gas price in the UK, then you will see more gas and carbon capture and storage and less renewable energy and nuclear [power].”

There are risks to a dependence on gas, however. High prices in world markets have been the main cause of energy bill rises and as demand increases this is likely to continue. Huhne has said the UK needs to give up its “addiction to fossil fuels” but on current plans gas looks a clear winner from government energy policies, with the outlook for renewables less certain.

David Nickols, managing director at the consultancy WSP Future Energy said project finance for major renewables projects looked difficult, and planning restrictions were also “major obstacle”.

Paul Sloman, a partner at Roland Berger Strategy Consultants, warned: “The UK cannot afford to be reliant mainly on gas-fired generation as energy security is also a very pertinent issue and increasing reliance on gas is not the solution, particularly as the UK’s own gas production from the North Sea declines.”

• This article was amended on 6 December to change the number of turbines in the second paragraph from 400 to 250.


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