The renewable energy backlash – Part 2

In the previous post, I reviewed the current controversy about the costs of expanding offshore wind, and the argument made by organisations like Policy Exchange that we could meet our 2020 carbon targets more cheaply simply by bringing in a carbon tax and switching from coal to gas in power generation.

The PEx argument raises a number of challenges. First, it presents a dilemma to those (like us) sympathetic to the perspective of The Breakthrough Institute (TBI) who have been arguing since the mid-2000s that carbon pricing will never work as a strategy to tackle climate change, because climate change isn’t a classic polllution problem. Its causes are too systemic, and we do not have existing cheap enough low carbon alternatives, so carbon pricing will just raise costs and piss people off. Instead, we have to invest in clean energy technology development and get breakthroughs that will provide us with big cost reductions. The dilemma arises because if large scale deployment of renewables (when they are still expensive) is a crucial part of bringing costs down in the long run (TBI and Joe Romm of Climate Progress had a major exchange about this), these costs may also piss people off.

And it does seem as if a credible committment to deployment at some scale is needed to bring in the sort of investment that may eventually reduce costs. This can be seen clearly in the case of offshore wind in the UK, where the commitment of successive Secretaries of State have now brought in large players like Mitsubishi and Siemens with investments both in production of turbines and R&D facilities. This is a weakness in PEx’s argument about technology policy, since many studies show that demand-pull is as if not more important than supply-push in innovation, and that learning-by-doing and economies of scale are key for reducing costs in manufacture and installation. Deployment at scale is needed for that. PEx also have what looks like a deliberately naive proposal that we could meet the targets through on-shore wind, but they know as well as the rest of us that planning would make that impossible. Offshore wind is partly the price we pay for not wanting onshore wind.

However, it still leaves the political dilemma. The experience of countries like Germany and Spain is relevant. Germany has over 1 GW peak of solar PV (equivalent to about 100 MW of baseload generation), and this has helped bring down the costs globally of PV, and built up a domestic manufacturing industry (although this is now threatened by Chinese competition). But this hybrid technology/industrial policy will cost the German public somewhere in the region of €70 billion. Spain’s subsidies were so generous they sparked a huge surge in PV investment, but were ultimately politically unsustainable and were reversed. Is technological breakthrough just as politically difficult as carbon pricing?

But the PEx argument also contains a potential trap. It may be cheaper to reduce emissions in the UK to 2020 by relying on gas and nuclear instead of offshore wind (although gas prices may not fall from currently high levels, and the costs of new nuclear are opaque. But the argument from some (e.g. WWF) is that this won’t help us after 2020 when we will increasingly need renewables to meet much more stringent targets. The gas industry argues that gas with CCS will be a key post-2020 technology, but this is still untried, and to depend on it would be highly risky. This is an important argument. Gas and nuclear are powerful commercial lobbies, and much of the current critical noise about renewables looks very much like the gas industry in particular trying to compete for some kind of commitment from Government about gas in the future electricity mix.

There are two real dangers here. One is that delaying the development of renewables in the UK (especially those, like offshore wind, in which the UK is an important market) will kill them off (which is indeed a likely objective of gas and nuclear lobbies). The second is that if the UK builds a lot of gas-fired capacity now, and CCS for gas turns out not to work, it will nevertheless very hard politically  for a future government to turn that capacity off. Again, a policy like a future emissions performance standard has an underlying credibility problem.

Where does all this leave us? First, it’s not clear how serious any of this is, in terms of actual influence on policy. So far Huhne has been robustly defending offshore wind, and although Osborne made some comments at Tory Party Conference about competitiveness, he hasn’t blocked  Huhne on recent decisions (indeed he has just released £103 m to the Scottish Executive for clean energy projects. Across the broad population, renewable energy does remain popular.

But that doesn’t mean it shouldn’t be taken seriously. The gas lobby and the Mail and Express will doubtless continue to chip away at the issue. There is some evidence of limited willingness to pay for renewables. Policy could change very quickly if there were a change of Minister, or if the economy deteriorated (which it looks like it will). So what should be done?

The most fundamental point is to keep renewables options open. Most renewables technologies are still much younger than gas and nuclear, and if they are pushed out now, we will never know how far their costs can be reduced. Nuclear fusion in particular received vast subsidies, and there is a strong case for continuing and expanding support to renewables to level the playing field. Of course, innovation in renewables won’t happen just in the UK, and we are already benefitting from lower cost Chinese solar PV, but there is a case for the UK playing a role in developing the renewables technology in which the UK may be a major market.

Thus the biggest problem with the PEx argument is that it seems to assume away all political economy. There may still be a role for gas looking ahead, but only if credible ways way can be found to avoid future lock-in and the squeezing out of renewables options. I’m not sure if this can be done, but if it can, it’s a subject for another post.

However, it is also true that supporters of renewable energy policy need to stop simply saying we have to deploy renewables just because we have a European target, and start making a case for renewables policy on particular grounds. This could be  technology development, green growth or even building a new interest group for clean energy policy  (in Germany, the development of renewable industries also provided a new political constituency to support renewable and wider climate policies). It could also possibly as a global public goods policy: if Japan (solar PV), Denmark (wind), Germany and Spain (wind and solar) can all play their role in helping to bring technologies down the cost surve, a rich country like Britain should do as well (although this may not work so well in times of economic crisis). Some in the environmental movement do have a more sophisticated account of renewables policy, but some don’t and need to get one.  We have to be doing this for a reason, and PEx and others are right to say that doing it just to cut carbon now doesn’t actually stand up.

That policy should also be fit for purpose. If it is about creating more technological options and bringing down costs, then it should be defensible as well-designed, and not excessively expensive in itself.  What this means in practice is paying more attention to the principle that both demand pull (deployment) and supply push policies (R&D support, tax credits, infrastructure support etc.) should be designed within a single integrated framework, with all the elements working together (this is the approach proposed by The Breakthrough Institute in a recent set of proposals for the US). It also means having a full range of support mechanisms, especially through the valley of death. There has been an increasing amount of funding going to offshore wind RD&D, both via the ETI and NAREC. But we still don’t have a working publicly-funded test site for new offshore turbine designs. It looks like we may eventually get one next year, but it’s been a long time coming. Waves of deployment should be more closely associated with the phasing of development of new generations of turbines, and experience gained with construction of platforms, than a timetable determined by targets.

Lastly, options within renewables policy should be kept open – including meeting targets through heat as well as electricity. Offshore wind costs could come down sharply if there are unexpected breakthroughs in materials, in turbine design, or in construction techniques. But equally, there may be unexpected breakthroughs in other smaller-scale technologies. Solar PV has fallen more quickly in cost in the last five years than was expected. It is not easy, but the Government has to steer a path between credible deployment policies and a flexible approach that responds to technological change.

In the end, the backlash in itself may be self-limiting. If gas prices stay high, then concern about the additional costs of offshore wind may be easier to stoke up, but it is also les easy credible to present gas as a cheap alternative. If gas prices do fall sharply, then concerns about the costs of renewables is likely to drop away. But if it leads to clearer thinking and more robust arguments for supporting renewable energy, then it will have played a useful role.