Written evidence submitted by Rolton Group Ltd (EUE0018)
This document has been produced as a response to the Energy and Climate Change Committee’s inquiry to explore the implications for UK energy policy of leaving the European Union, submitted by Rolton Group Ltd and written through a joint collaboration between Peter Rolton, Graham Waring, Jonathan Sampson, Ewan Cross and Jack Doyle.
Rolton Group is a partnership-focused firm of advisors and designers specialising in the areas of built environment, renewables and carbon. The business is an established multi-disciplinary engineering consultancy with a passion for excellence, innovation and environmental sustainability. Rolton Group is working with major energy end-users to reduce their energy consumption and reliance on grid supplies through the development of holistic energy strategies that consider energy requirements – both now and in the future – the introduction of energy efficiency measures, together with onsite energy generation and storage. Rolton Group is also working closely with a developer introducing decentralised energy solutions.
Executive Summary
When negotiating the UK’s exit from the EU, the Government needs to focus on the following policy areas, to ensure the UK’s energy industry thrives outside of the European Union:
Low carbon policy needs to reflect wider business interests and encourage a more diverse and sustainable energy mix suited to the UK’s unique requirements. Although low carbon EU policy has been successful, particularly in the power sector, policy needs to encourage the transport and heat sectors, given the great potential that exists in the UK. Appropriate policy can work in tandem with businesses to encourage low carbon heat and vehicle uptake, and promote an industry not maturely developed in the European Union.
1.1 A large proportion of recent UK energy policy has been focussed on the transition to a low carbon economy and to date, this policy has been heavily influenced by EU policy, stemming itself from the Kyoto Protocol of 1997. The EU Renewable Energy Directive (RED) 2009 aims for Europe to improve energy efficiency, increase generation from renewable sources and cut greenhouse gas emissions from 1990 levels, all by 20% by 2020, of which the UK agreed to contribute to as an EU member state.
EU Policy
1.2 Although the RED obliges the UK, as an EU member, to supply 15% of its gross energy consumption from renewable sources by 2020, this was never underwritten into UK law, and the UK’s vote to leave the EU could relieve it of this obligation. The UK’s Renewable Energy Roadmap intends to meet this target through generating 30% of electricity, 12% of heat and 10% of transport demand from renewable sources, which it is expected to meet for power, with the UK generating a quarter of electricity from renewable sources in 2015, but not for heat and transport. The short timeframe of this target has been a key driver of UK energy policy, however, the National Grid under their most optimistic scenario, predicts the UK will miss these EU 2020 targets by 2 years at a minimum. Given the scale of energy consumed in the heat and transport sectors, this is likely to drag down the success of the electricity market and cause the UK to miss the RED’s target by 2020 overall.
1.3 The UK’s progress in low carbon energy to date has been highly driven by the 2020 RED, however, should the UK leave the European Union before 2020, the UK is unlikely to receive the penalties incurred for missing this target. This will reduce the need to pursue low carbon energy in the near future, risking short term low carbon development and stalling the current momentum. The UK’s negotiations with the EU should seek to maintain and even increase this current momentum.
Non-EU Policy
1.4 The UK has commitments under the Climate Change Act 2008, whereby the UK has set its own targets to reduce carbon emissions by at least 80% by 2050 from 1990 levels, again derived from the UK’s Kyoto Protocol commitments. This is more ambitious than the EU’s revised Renewable Energy Directive to cut emissions of all member states by at least 40% of 1990 levels by 2030 and, therefore, negates the risk from the revised EU RED not being applicable to the UK, on leaving the EU. Although 2050 is over three decades away, and not as immediate as the EU policies, the UK still has a substantial commitment to uphold, completely unrelated to membership of the EU.
1.5 Should the UK ratify the COP21 Paris climate agreement, this would be an additional low carbon policy underwritten by UK law, which would still be applicable on leaving the EU. The Minister of State for Business, Energy and Industrial Strategy, Nick Hurd confirmed on 6th September 2016 that Britain “will ratify Paris as soon as possible”, applying international pressure to the UK, to contribute to keeping the increase in global average temperature well below 2°C above pre-industrial levels. This will be in addition to the internal pressure to reduce carbon emissions in line with the 2008 Climate Change Act, as long as sufficient legislation and policy is implemented to allow the UK to contribute appropriately to reducing global temperature increase. Confirming the Emissions Reduction Plan, which the Government has pledged to approve by the end of the year will contribute to these agreements, and provide certainty in the low carbon energy sector.
1.6 Given the lack of immediacy of the UK’s own low carbon policy commitments, it is imperative policy ensures the UK does not lose its current rate of progress in reducing GHG emissions as a result of leaving the EU. The commitments produced from ratifying the COP21 Paris Agreement should look to increase this rate of progress, focussing on all contributing sectors.
Generation
2.1 In terms of power, the UK has significant momentum into decarbonising the grid, predominantly driven by the EU RED 2020 targets. Renewable capacity is over 33 GW, mostly from wind and solar generation, and, although these contribute significantly to the UK’s electricity demands, wide criticism has been made against their intermittent nature. Although other low carbon technologies such as wave, energy from waste and energy storage have the potential to fill gaps left by wind and solar, the EU focus on renewable capacity to be developed in a short timeframe has led to the ‘low hanging fruit’ of renewable generation being encouraged. Even though offshore wind is still seen as an expensive option, it has the potential to supply the large capacities required to meet the targets that cheap onshore wind and solar generation could provide, but without the politically sensitive ‘Not in My Back Yard’ protests.
2.2 Although these technologies will play an important role in a low carbon energy mix, the UK’s own 2008 Climate Change Agreement goal is likely to encourage a more diverse mix of low carbon technologies, as the long period available to develop and tailor the technologies to the GB National Grid could lead to a more suitable solution for the UK, and allow the grid to adapt appropriately in the meantime.
2.3 When negotiating the UK’s exit from the EU, the Government should ensure that this diverse energy mix is encouraged where EU policy has not, without losing the aforementioned momentum the UK currently has in promoting and developing low carbon power.
Power Infrastructure
2.4 The EU’s focus on renewable generation, coupled with the lack of investment in the GB National Grid has led to ageing grid infrastructure, which is struggling to adapt to the modern distributed energy generation system. This ageing infrastructure is increasing the cost of low carbon generation and, in many cases, preventing otherwise perfectly viable schemes from being developed, which EU policy has failed to address.
2.5 Despite the need for this investment, the Distribution Network Operators are heavily legislated, severely restricting their ability to invest in the network and undertake the work required, partly restricted by EU state aid rules, under the TFEU regulations. This prevents the UK from allowing flexibility in infrastructure investment, enhancing the National Grid’s problems. Currently, there is EU policy to improve the energy infrastructure under the Energy Infrastructure Package (EIP), which looks to create a co-ordinated and effective grid through the Trans-European Energy Network (TEN-E), however, to date this has not sufficiently addressed the issues the UK electricity grid experiences.
2.6 Both Europe and the UK to date have failed to significantly contribute to reducing energy consumed in the heat and transport sectors, with the focus being on the quick and easy solution of decarbonising power. Despite this, the electrification of vehicles has seen a dramatic surge within the past decade, with the UK becoming the second largest Electric Vehicle (EV) market in Europe. The fuel for EVs is currently generated predominantly by fossil fuels such as coal and gas, however, with the increasing uptake of renewable power generation, the relevance of EVs to reducing carbon emissions continues to grow.
2.7 The surge in EVs creates a further problem for the UK’s strained National Grid, which the UK will have to account for to meet 2008 Climate Change and COP21 Paris agreements. Progress is already under way to address this problem, with the creation of the Smart Grid Vision and Routemap for Great Britain, which will play a key role into the effective integration of EVs and intermittent renewables into the National Grid. However, this only solves a small part of the National Grid’s problems, and given the increasing prominence of EVs in the transport market and their potential to significantly contribute to reducing the UK’s GHG emissions, policy on leaving the EU should promote growth in this sector, an element of energy policy the EU has failed to sufficiently contribute to.
2.8 When negotiating the UK’s exit from the EU, the UK should look to go beyond the scope of the EIP, while retaining commonality with EU energy infrastructure, to create a robust National Grid that serves the UK’s wider business interests. Negotiations on the TFEU for elements such as the GB National Grid could allow the UK to gain greater control on infrastructure, removing the barriers and expense many low carbon generators face, and ensure an EV market can grow effectively without limitations.
Heat Infrastructure
2.9 Decarbonisation of heat is not expected to see as much growth in the UK as EVs, despite initiatives such as the Renewable Heat Incentive. An area that has been under incentivised by both EU and UK policy are district heating networks, which have the potential to utilise large quantities of wasted heat from industrial processes and power stations, and for example supply some of the estimated 10.6% of English households in fuel poverty, reducing the associated 43,900 annual excess winter deaths. Given the energy intensity required to produce heat, utilising waste heat has the potential to significantly reduce carbon emissions, with the UK Heat Networks Delivery Unit (HNDU) estimating that 14% of UK heat demand could be met by heat networks by 2030, and 43% by 2050. This is reflected in some EU policy, such as the guidelines for meeting the recovery (R1) standard for waste incineration and gasification facilities, and the Energy Efficiency Directive for large cogeneration schemes, however, not sufficiently to result in the installation of numerous district heat networks.
2.10 Despite the three years the HNDU has been awarding grants, district heat networks have failed to provide sufficient low carbon heat to significantly contribute to the UK’s RED heat targets. When negotiating the UK’s exit from the EU, the government should seek to regain the control necessary to ensure that low carbon heat, coupled with district heating networks, plays a significant role in meeting the UK’s carbon reduction obligations.
Research and Development
3.1 Many of the renewable energy technologies the UK is resource rich in, such as wave and tidal stream, are immature in their development, due to technical and capital intensive barriers preventing the creation of commercially viable technology. Although these technologies in the past have received funding from UK, private and EU sources, the funding received is often insufficient for a product to reach commercial viability. For example, the EU’s €6 Billion Horizon 2020 Energy fund is available to a wide range of research and innovation programmes in the energy sector throughout the EU and, although there is a large quantity of funding available, due to the number of programmes involved, the funding received by each project is relatively small and so cannot make the required contribution to development. Outside the EU, the UK has the opportunity to target a small number of research and development schemes in technologies suited to the UK energy market, allowing the UK to invest in its own self-interest, and develop these technologies more than possible within the EU.
3.2 Although many research and development projects may have been initially driven by the EU, it is up to the UK to ensure there is appropriate funding to see these technologies through to commercial viability. Given the drive of the EU to promote research and development, this area could be at risk, should policymakers ignore the potential of this important UK sector.
Relaxed competition regulations
3.3 A temptation for the UK outside of the EU, could be to relax competition and state funding laws currently enforced by the TFEU regulations. The opportunity exists for the UK to subsidise energy industries such as North Sea oil and gas, shale gas and the development of renewable technologies when unrestricted by the TFEU laws. However, the EU could impose trade restrictions under anti-subsidy regulations as a reaction to state funding, as occurred on imports of solar panels from China in 2013. Although relaxing these regulations could put some UK industries at an advantage in the short term, in the long term, given the level of trade between the UK and the EU, and the EU’s dedication to the principles of the single internal market, trade restrictions could be detrimental for UK industry. However, the vote to leave the EU was based on the public’s view that the UK has insufficient control of its policy, of which TFEU is a great restriction, particular in areas such as infrastructure, as previously mentioned.
3.4 When negotiating the UK’s exit from the EU, TFEU regulations should be an area used in negotiations, particularly where the impact of relaxing these regulations would enable the UK to tailor its energy policy to the UK energy industry and its wider business interest. They are often a severe restriction in the development of appropriate policy and legislation and, although should be considered with caution, reducing the impact of TFEU regulations on key areas of the energy industry could significantly improve the opportunity for investment, particularly in infrastructure.
promoting manufacturing
3.5 One immediate consequence of the UK’s vote to leave the European Union, was the decrease in the value of Sterling against the Euro and Dollar. This results in goods manufactured in the UK becoming more attractive internationally, as they appear cheaper, however, increases the cost of imported goods. Most renewable and low carbon technologies installed in the UK are imported from the EU, which has particular dominance in the low carbon industry – for example, four of the top ten wind turbine manufacturers in the world are European. Given the level of renewable resource available in the UK, the increased cost of imports could incentivise manufacturers to set up facilities within the UK instead of importing from overseas. This also creates the opportunity for UK firms to find a route to market, as their product becomes more attractive both in the UK and abroad. Legislation and policy should act on this opportunity to increase the level of manufacturing in the UK, acting on behalf of the UK’s wider business interests, instead of target focussed policy. Germany for example has used legislation combined with significant investment in research and development to successfully create a thriving renewables manufacturing industry, notably in wind, solar and anaerobic digestion. The UK should take the opportunity with the GB Smart Grid, where legislation could stimulate the manufacture of smart grid equipment within the UK, and encourage the UK to become a market leader in a rapidly emerging sector, utilising its existing technological expertise.
3.6 The UK now has an opportunity for the energy industry to become the engine room of the UK economy, and realise the Government’s pledge to create a ‘Northern Powerhouse’, by targeting investment in research and development, and negotiating relaxed TFEU regulations in appropriate sectors, on leaving the EU. If policy can help low carbon energy become the most attractive option for industry and energy suppliers by being cost effective, secure, and easily accessible, this market will naturally grow and encourage manufacturing in the UK, utilising opportunities such as the emerging GB Smart Grid.
energy trading
4.1 A complication with leaving the European Union is removing the UK from the regulatory framework for market coupling for electricity (ENTSO-E) and for gas (ENTSO-G). Not being a part of ENTSO-E is a particular concern, as the subsea electrical interconnectors connecting the UK to EU countries such as France, Ireland and the Netherlands are regulated under this agreement, and heavily relied on to provide the UK with power, at times of insufficient generation. Considering an additional six interconnectors are planned to connect with EU member countries by 2022, yet the capacity headroom of the UK grid is decreasing, remaining part of this framework is essential to ensure the UK receives a reliable power supply. Should the UK be excluded from this market, the National Grid estimates the UK would lose out on £500M annually in the 2020s.
4.2 Non-EU countries such as Norway and Switzerland are party to ENTSO-E and, as such, should be a negotiable item for the UK. Given the high interconnectivity of power infrastructure across the EU, and the UK’s reliance on imported power, remaining part of these frameworks should be seen as a priority.
emissions regulations
4.3 Another negotiation term would be the Industrial Emissions Directive (IED); an environmental regulation enforced by the EU in 2011 to regulate emissions from industrial installations. This EU policy considers the pollutant emissions, rather than GHG emissions, which the EU Emissions Trading System (ETS) focusses on, to protect human health and the environment. Given the increased concern for air quality in cities such as London, adopting a similar or even more stringent pollutant emissions policy to the IED in the UK is likely to receive public support, and could be used as part of a negotiation strategy.
4.4 Although the EU ETS has not been deemed an overall success, the principal of the scheme still stands, and should the UK not participate, or create an equivalent GHG emissions regulation mechanism, the EU and international companies could reject UK products, on the basis of having a high carbon content. As such, the UK should remain a part of the EU ETS while seeking to gain greater control over the setting of GHG emissions caps that have a tangible impact on the UK.
4.5 Emissions are a driving factor in the UK’s environmental policies, benefiting human health and contributing towards its Climate Change targets. When negotiating the UK’s exit from the EU, the government should maintain these regulations while seeking greater control over targets and limits set.
September 2016