What is the problem?

1.  With the decommissioning of nuclear power stations and of older coal and gas plant, it has been estimated that some 60 per cent of current generation capacity will need to be replaced in the next 25 years. Current energy policy is therefore at a historical turning point. Decisions made now will influence developments over the next half century (para 8).


2.  There is little doubt that the UK, along with other developed nations, is likely to face far greater emission reduction targets for greenhouse gases after the current commitment period under the Kyoto agreement expires in 2012 (para 9).

What contribution can renewables make?

3.  The UK's theoretical potential for generating renewable energy is well in excess of its entire electricity consumption (para 12).


4.  The overall EU target set out in the 2001 Renewables Directive is far more demanding than the UK indicative target —22 per cent by 2010 as against 10 per cent for the UK—reflecting the fact that many other EU countries are considerably more advanced than the UK in terms of the percentage of renewable energy generated (para 18).


5.  Given the priority accorded to the promotion of renewables, we find it extraordinary that the DTI has not carried out a more recent and thorough analysis of economic and cost potentials. We recommend that it should do so as a matter of urgency, and subsequently update it on a regular basis (para 25).


6.  The costs to the consumer of meeting renewables targets is relatively limited. Moreover, the cost of meeting a long­term 60 per cent carbon reduction target by 2050 is likely to be only 0.02 per cent of GDP per annum. This is equivalent to a reduction of 1 per cent in GDP over half a century—a very small price to pay for the environmental benefits it would bring (para 27).


7.  While it is very difficult to forecast future price movements, there seems widespread agreement at present that UK energy prices are currently at an unsustainably low level. Increases in the costs of non­renewable generation appear likely, making renewable energy increasingly competitive (para 32).


8.  We therefore see renewables, together with the need for radical improvements in energy efficiency, as being the primary tool to fulfil the UK's climate change commitments. The Government must provide commitment and leadership here, and should not allow itself to drift into a position in which nuclear appears to be the only alternative—as a result of a failure to maximise the potential which renewables have to offer (para 36).

Achieving the targets

9.  It is already certain that we shall miss the 2003 target— probably by as much as 2 per cent—as the Energy Minister confirmed in his evidence to us. On the present rate of progress we will achieve only just over 5 per cent against the 2010 target of 10 per cent (para 51).


10.  Achieving the 10.4 per cent Renewable Obligation target by 2010 represents an even greater challenge. Eligible generation, which has only increased from 0.3 per cent to 1.5 per cent over the last 10 years, would need to increase from 1.5 per cent to 10.4 per cent in 8 years (para 52).

What are the barriers to progress?

Planning

11.  Obtaining planning permission remains a major obstacle to increased deployment of renewables (para 58).


12.  It seems clear to us that the scale of opposition from the MoD to wind farm developments is such that it may seriously jeopardise the achievement of the Government's targets for renewables and the promotion of wind power. We urge the Government to set out publicly how it proposes to resolve this conflict (para 62).


13.  We are concerned about the lack of a consistent basis for the DTI's regional renewable energy assessments, and the resulting anomalies in the results. We are puzzled as to how the DTI are intending to take forward its work in setting regional targets and would urge the department to clarify its plans (para 65).


14.  If the DTI's regional renewable energy assessments are intended to influence planning, then they need to be incorporated in regional plans and Regional Development Agencies need to be held to targets. We also consider that the Office of the Deputy Prime Minister need to incorporate in new guidance a presumption in favour of renewables (para 66).

NETA and the Renewables Obligation

15.  The failure to carry out a thorough environmental appraisal of the proposals at the very start of the process was a material factor in the Government's failure to achieve its environmental objectives for the New Electricity Trading Arrangements. It also dramatically exemplifies the effect of the failure to incorporate the promotion of sustainable development as one of Ofgem's key objectives (para 71).


16.  It is practically inconceivable that a transition to an environmentally benign energy system could be achieved on the basis of 'cheap' energy, as the Prime Minister's Foreword to the Performance and Innovation Unit report indicates is a priority (para 77).


17.  In view of the fact that electricity sector emissions are rising rather than falling, in direct contradiction to the DTI predictions, there is an urgent need to examine the environmental impact of The New Electricity Trading Arrangement and recent market changes. We are concerned that the DTI and Ofgem appear to have done nothing in this respect; and that DEFRA are not planning to carry out a formal review of emissions until 2005, while their interim 2003 review will be too late for it to influence the White Paper (para 82).


18.  We hope the Renewables Obligation will be successful, but are concerned that it represents a rather indirect policy mechanism when compared to the very direct incentives which 'feed­in' instruments, such as those which have been used in Germany and Denmark, provide (para 83).


19.  The amounts of funding available for certain technologies do not seem to correlate to their potential generation capacity. The total increase in Government funding since 1999 is far less than might initially appear. We are also concerned over the ad hoc nature of capital funding announcements and the plethora of funding bodies now involved (para 91).

Embedded generation, networks, and the role of Ofgem

20.  There is a significant inconsistency in the way in which Ofgem treats embedded generators compared to network generators. We questioned the regulator on this topic, and he was visibly surprised when our understanding of the situation was confirmed (para 97).


21.  We were told by Ofgem that it issues about a 100 documents a year—roughly an equal mix of consultations and decisions. We are at a loss as to how smaller independent generating firms can assimilate and comment on, where appropriate, such a large volume of material (para 103).


22.  The Performance and Innovation Unit Review recommends a new DTI objective which, if adopted, will place overriding importance on environmental objectives. It is difficult to see how Ofgem can accommodate such an approach given its present statutory remit. Ofgem's duties under the Utilities Act should therefore be amended to incorporate as a primary objective the need to promote sustainable development (para 106).

The Performance and Innovation Unit Energy Review

23.  The Performance and Innovation Unit review fails to provide an assessment of current policy instruments, even though this was an aim of the initial energy work begun in January 2001. We are therefore concerned that the Performance and Innovation Unit review may not adequately reflect the scale of the challenge, and that there now needs to be a specific process for translating its recommendations into specific policy commitments, so that the White Paper forms an action plan (para 112).


24.  We are concerned that the DTI's consultation on energy may fail to take forward the debate on the basis of the PIU recommendations, and is in danger of simply revisiting all the issues which the PIU themselves covered (para 115).

What should the Government do now?

25.  The key conclusions we would highlight from our inquiry are these:

- Britain has the greatest potential for renewable energy of any country in Europe.


- It currently produces less than 3 per cent of its energy from renewables —a tiny proportion which compares very unfavourably with almost all other European countries.


- The Government has set a number of targets for renewable production. We will certainly not meet the interim target of 5 per cent of electricity from renewables by 2003. On the basis of present trends, we are unlikely to achieve much more than half the 10 per cent target for 2010 (para 116).

26.  We therefore believe that there is an urgent need for the Government to show leadership and:

- address the difficulties in gaining planning applications;


- indicate tried and tested technologies which will deliver over the next decade; and


- address the conflicting priorities of market liberalisation and cheap electricity as against our Kyoto obligations (para 117).

27.  There are, however, a number of other actions which the Government need to carry out as a matter of urgency, before the White Paper is issued.

- The Government must ensure that Ofgem's terms of reference for the review of New Electricity Trading Arrangement in its first full year place primary importance on environmental impacts.


- The DTI should review options for incentivising the development of renewables under New Electricity Trading Arrangement, so that the playing field ­ so far from being tilted against renewables as at present ­ should favour them.


- The DTI should prepare legislation to amend the statutory duties of Ofgem in order to incorporate the promotion of sustainable development as a primary duty.


- The Office of the Deputy Prime Minister should revise planning guidance for renewables as a matter of urgency, and incorporate a presumption in favour of renewables (para 120).

28.  In our view, a cross­cutting unit for sustainable energy policy—as recommended by the Performance and Innovation Unit—is unlikely to be sufficient, and we recommend that the Government should set up a Sustainable Energy Policy Agency (para 121).