More to be done to develop green energy and secure supplies

Published on Friday 10 April 2009 19:32

QUIETLY, and without many people noticing, some important changes in UK energy law took effect this week. The UK government has made the changes to increase certainty in key areas affecting the development of green energy and security of supply.

At the same time, research and comment has questioned whether the UK is diverting enough of its economic stimulus package to improving energy infrastructure. The consensus view is that, in both funding and policy, more could yet be done.

Newly in-force provisions of the Energy Act 2008 create, for the first time, a regulatory framework for the storage of .

Without this framework there would be little chance of developing UK projects for the development of carbon storage and sequestration projects (CCS).

CCS, where from electricity generation is captured and stored to prevent emission, is thought to be vital to the future viability of coal– fired power stations in the UK.

New coal-fired stations, such as that proposed by Eon at Kingsnorth in Kent have attracted the ire of environmental groups – CCS plans notwithstanding. But, under planned environmental curbs, CCS is the only way to allow existing coal-fired power stations (of which there are several in the UK) to continue to generate in an environmentally friendly way.

Much of Scotland's electricity generation comes from the coal-fired Longannet Power Station in Fife, which could benefit from this technology. Regulation of it is welcomed, but industry commentators have been waiting for the next steps in a government competition to build a demonstration CCS scheme in the UK. This has now been delayed for many months, leaving many to question the UK's commitment.

More positively, the new provisions also simplify the regime for gas storage projects that would reduce the UK's short-term dependence on imported gas, and help utilities to avoid gas price "spikes".

The provisions provide for the creation of a gas importation and storage zone (GISZ) extending out into the sea 188 nautical miles. This should assist the creation of new gas storage projects in disused oil and gas fields or in natural features such as salt caverns or saline aquifers.

The Energy Act now also allows for major changes to be made to the Renewables Obligation – the major support mechanism for renewable energy schemes. These changes will allow varying levels of support to be given to different technologies with developments such as biomass and offshore wind set to gain. The market has had a mixed response to these proposals.

Some have argued that by "tinkering" with the Renewables Obligation (which is a market based mechanism) in this way, volatility and instability result. Others have said the reforms do not go far enough and further support is required for capital intensive projects such as offshore windfarms.

Centrica have recently been reported as saying offshore projects require twice the support that on-shore wind farms receive.

While overall these changes (and others) are to be welcomed, the question remains – is enough being done to promote the energy sector in the UK? Last week research published by HSBC, ranking countries by how "green" their economic stimulus packages were, showed the UK allocating seven per cent to spend on green measures. This compared badly with the 12 per cent in the US and 34 per cent in China.

Other commentators put the percentage of actual new spend even lower, at just 0.6 per cent.

In light of these figures it is perhaps no surprise there has been a downturn in spending on energy infrastructure in recent months – notwithstanding that energy projects are still regarded as something of a safe haven in current markets – and some large players (such as Shell) indicate they no longer see UK renewable energy as a preferred market for investment.

If green jobs are to play a role in stimulating the UK's economy then more direct intervention may be required.

&#149 Euan McVicar is a partner of McGrigors LLP