Luke Warren, chief executive of CCSA, says setting a minimum deployment level can give new technologies both market certainly and competitive pressure
The UK is entering a period of energy policy in which technology specific targets – such as those contained in the EU Renewable Energy Directive – will become a much less powerful driver for investment in low-carbon technologies. This new paradigm became clear with the release in 2013 of the EU 2030 energy and climate framework which contains no legally-binding renewable targets for Member States. Instead it has established EU-level targets that provide Member States with the freedom to pursue their own mix of technologies to deliver EU climate and energy goals. This change of emphasis also looks highly likely to be replicated by the new Conservative government, which stated in its manifesto that it “will not support additional distorting and expensive power sector targets”.
In support of a more technology-neutral approach, the EU 202020 targets have arguably focussed UK resources into tightly pre-defined technologies and not allowed government the flexibility to support investment in other technologies as priorities change over time. For the UK this created the risk that consumers are paying for technology choices that may not best meet our national priorities.
We must recognise that in a number of areas targets have secured positive outcomes. For those technologies that were included under the 2020 renewables target, the assured market gave confidence to investors and the supply chain, and delivered very significant investments. The Department of Energy and Climate Change (Decc’s) report “Delivering UK Energy Investment: Low Carbon Energy” showed that between 2010 and the first quarter of 2015 investment in offshore wind, onshore wind, biomass and solar led to the installation of between 2.5GW and 4.5GW of capacity for each technology. This impressive level of deployment drove innovation, delivered impressive cost reductions and has created jobs.
One of the key challenges going forward under the new target-free policy will be ensuring that a level playing field does not morph into a lack of visibility and confidence on the direction of government policy. This uncertainty could manifest itself as a reduction in investment, as prospective investors and supply chains become reluctant to put capital at risk. This becomes a particular risk for those technologies that are less mature, given the uncertainties and risks associated with bringing these to market.
So how do we provide confidence to these low-carbon sectors whilst ensuring that government is not over-committed to specific technologies?
The first point to make is that we know the large-scale technologies that the UK will need to use to decarbonise the power sector through to the 2030s and beyond given the substantial modelling undertaken for the EMR delivery plan, the Climate Change Committee’s own analysis and by others such as the Energy Technologies Institute.
For “less-established” technologies that still need to be commercialised, the government should establish technology “floors”, which would set a minimum level of deployment over a period of time. For developers this creates confidence that there is a market to compete in for their technology, as well as providing time and space to deliver commercialisation of the technology. Those technologies that do perform well can compete for a larger market share above their minimum volume.
From the government’s perspective, setting a floor helps to deliver a number of objectives. It supports the commercialisation of important technologies, and limits the exposure of the public purse by ensuring that the UK is not overcommitted to technologies before there is confidence there will be cost reductions. A floor also helps to retain competitive tension as technologies compete for market share above the floor, maintaining pressure to cut costs.
Importantly, the mechanism to enable this is already established under EMR, where technology “minima” have been implemented for wave and tidal stream and could well be rolled out for other technologies.
So what might this look like for Carbon Capture and Storage? Recent analysis by the ETI has investigated the steps required for the UK to develop a CCS sector that is in the order of 10GW of installed capacity by 2030 – a challenging yet achievable goal but one that is still expected to keep the UK on its lowest cost decarbonisation trajectory. This work suggests that in addition to the two CCS competition projects – Peterhead and White Rose – currently being developed, it is also necessary to initiate a second phase of CCS projects by 2020. This requires the allocation of CfDs to around an additional 1.5GW of CCS before 2020 (equivalent to three projects) with these projects starting to operate from the early 2020s.
Establishing a floor of 1.5GW of CCS by 2020 would provide visibility on the cost reduction potential for CCS and enable the government to make informed decisions about deployment over the period to 2030.