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The Big Push

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The Big Push

The U.K. says it’s on the right track to drastically change its energy mix in the next decade. But is more radical reform needed?
September 15, 2008; Page R10

The U.K. is one of Europe’s low-carbon laggards. In the European Union, only Malta and Luxembourg generate less of their energy from renewable resources.

So there was widespread skepticism when the British government earlier this year announced plans to boost the share of renewables in the country’s energy mix from around 1.5% now to 15% by 2020, to meet a target set by the EU.



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The government acknowledges the task is challenging. With the policies currently in place, it says, renewables would account for only 5% of the country’s energy by 2020. Government officials say they can meet the target with the help of pending legislation and other initiatives designed to boost private investment in renewable energy — mainly offshore wind farms — and streamline the approval process for projects and their connection to the national power grid.

Skeptics see the need for more-radical reforms to achieve the government’s goals and wonder if any plan can overcome the bureaucratic delays that have slowed progress up to now. “It appears to me that the government have a vision that they want offshore wind,” says Allan MacAskill, business development director for SeaEnergy Renewables Ltd., an offshore-wind company. “But it’s taken an endless amount of time to drive that vision through the bureaucracy. We’re in a bit of a quagmire.”

Plentiful but Costly

Until recently, the U.K. hasn’t had a pressing need to think green. It was able to tap plentiful oil and gas in the North Sea while countries without similar resources began to build solar and wind industries.

But decades of drilling have depleted the North Sea fields, leaving the U.K. increasingly reliant on costly imports of natural gas, and domestic fuel bills are rising as a result. That, combined with fears about climate change and the prospect of dwindling global oil supplies — and the threat of substantial fines for missing EU targets — has pushed renewables up the political agenda.

Again, the U.K. is fortunate in having resources at hand. Some industry observers say the country has more than a third of Europe’s potential offshore wind resources — equivalent to three times Britain’s annual electricity consumption. The North Sea is relatively shallow and accessible, the winds there are strong, and the U.K. energy industry has the know-how to install big chunks of hardware far out to sea.

But high costs remain a disincentive to tapping those resources. Offshore wind farms are much more expensive to build than fossil-fuel power plants, and they also cost more than the onshore variety. Plus, equipment costs have been climbing. In May, Royal Dutch Shell PLC, the Anglo-Dutch energy giant, announced it was pulling out of the London Array, a massive offshore-wind project, because rising costs raised doubts about the farm’s profitability. Shell CEO Jeroen van der Veer said the economics of investing in onshore wind power in the U.S. are “significantly better.”

The U.K.’s main instrument for encouraging investment in alternative energy is the Renewables Obligation. This requires power suppliers to derive an increasing proportion of their electricity from green sources, with those falling short obliged to make payments into a fund that is then distributed among the companies that meet their targets.

Some in the energy industry want the government to switch to a so-called feed-in tariff, a system that rewards generators of renewable energy with a fixed, above-market price for the electricity they supply to the grid. This system has been credited with giving a huge boost to wind power in countries including Spain, Germany and Denmark.

But the British government says feed-in tariffs are too expensive and are incompatible with the country’s more deregulated, market-based energy sector. Ministers say they’ll focus instead on trying to revise the Renewables Obligation so that it provides greater incentives for high-cost, risky projects like offshore wind farms than it does for more-established forms of alternative energy that don’t have the same potential to help the country meet its target, like onshore wind or solar power.

Red Tape

Regardless of what incentives are put in place for producers, the country’s bureaucracy will need to speed up if the 2020 target is to be met. Wind-power developers were delighted when a third bidding round for U.K. offshore licenses was announced in June — and dismayed to hear that the winners won’t be announced until the end of next year, after 18 months of negotiations over lease terms, environmental assessments and official rumination over what to award to whom.

“The developers are champing at the bit,” says Mr. MacAskill of SeaEnergy Renewables. “Even if we were given the go-ahead now we’d still be challenged to get there by 2020, but instead we’ve got to wait another 18 months.”

Meanwhile, some projects approved in previous licensing rounds remain snarled in red tape. Developers say it takes far too long to get plans approved. Wind-farm projects are often hostage to local protesters who argue the turbines are a blot on the landscape. “We don’t care about the number of projects that get turned down — that’s going to happen in a democracy and we can live with it,” says Philip Wolfe, head of the Renewable Energy Association, a trade group. “The problem is that it takes so long. And that adds an unacceptable level of costs.”

The government says it’s tackling the issue with a new planning bill — expected to win final Parliamentary approval later this year — that will streamline and speed up the approval process. All offshore wind farms with generating capacity above 100 megawatts will go to a new Infrastructure Planning Commission for approval; currently, all offshore projects require the approval of the ministers of business and the environment, who consult with local councils. But wind-farm developers say the new threshold is too high, since most projects are smaller than 50 megawatts. “For the vast majority of projects, the planning bill will make no difference,” says Gordon Edge, director of economics and markets at the British Wind Energy Association, a trade group.

[The Journal Report: Energy]

In addition, a large number of planning applications for new wind farms are blocked by the U.K.’s Ministry of Defense, which claims some wind farms can create radar blind spots that could harm national security. The ministry often intervenes at the last minute, and its objections can’t be challenged. This creates “precisely the form of policy instability that seriously undermines investor confidence,” said a recent report by the U.K. Renewables Advisory Board, an independent public body that advises the government on renewable-energy issues. Government officials say they’re working on a plan to reduce the impact of wind turbines on radar systems.

Connecting to the Grid

Access to the national power grid is another big barrier to greater use of offshore-wind energy. The U.K. has a so-called invest-and-connect system for its grid, meaning the grid’s capacity must be increased before any new generator is allowed a connection. At the same time, the grid operator is forbidden from expanding the grid in anticipation of new generation coming online. So it has to wait for new projects to request a connection, and then the projects have to wait for the grid to be expanded. That has led to huge delays in new projects being connected. “The ability [for the grid operator] to invest strategically isn’t there under the current regulatory regime,” says Mr. Wolfe of the Renewable Energy Association.

Critics say the U.K. should adopt the connect-and-manage approach used in some other countries. Under this system, new generators are guaranteed a grid connection within a certain time frame and it’s up to the grid operator to ensure that it can manage the demand. The grid operator in this system is allowed to expand the grid as it foresees the need for new capacity.

The government says it has “concluded that fundamental changes are needed to the rules that govern access to the grid” and has assigned Ofgem, the electricity industry regulator, the job of determining what exactly should be done. Meanwhile, the government says it will speed up grid connections for projects that already have planning permission through a form of connect-and-manage, but only for an interim period, after which it will review its options. It also has created a new agency, the Offshore Transmission Regime, to help ensure that the process of connecting offshore wind farms to the grid is as quick and cost-effective as possible.

While some in the energy industry still worry that the government isn’t moving fast enough for the U.K. to meet its 2020 target, others are more hopeful. “The government has two speeds — treacle and lightning,” says Mr. Edge of the British Wind Energy Association. “We’ve been stuck in treacle for a long time, but now we can feel the electricity in the air.”

–Mr. Chazan is a staff reporter for The Wall Street Journal in London.

Write to Guy Chazan at [email protected]

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