The IPPR’s incoherent proposals for offshore wind

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The renewables industry needs certainty. If you haven’t heard this claim every day for the last half year then you probably have better things to do than follow debates around UK energy policy. Exactly why anyone would consider complaining about a lack of certainty has always baffled me. The industry has and is going to be handed many billions of pounds worth of certainty.

And today we have another call for certainty, this time from the centre left think tank IPPR. They seem to want certainty to be reigned down on the offshore wind industry in the manner of some Norse God. Yet, don’t seem to have tried to make their proposals internal coherent. Here they are (taken from their summary on page 26):

•Contracts for difference must be designed to reduce cost pressure, which includes a role for longer contracts. It is important that strike prices are set for the total duration of projects (that is, for longer than 15 years).

• The UK government should adopt the 2030 ‘clean energy’ target. The House of Lords still has an opportunity to amend the Energy Bill; however, if that fails, an incoming  government should adopt the target immediately in order to provide certainty beyond 2020. DECC’s central scenario should be amended as a result.

• The UK government should advocate for a new EU renewables target, or – failing that – for a low-carbon power target that is consistent with a decarbonisation of the sector to 50gCO2/KWh by 2030. This would provide industry with the sense of ambition and certainty needed to bring down the cost, secure a domestic supply chain, guarantee a pipeline for export, and ensure that investment in offshore wind in the years up to 2020 is not wasted.

• The Levy Control Framework should be extended into the 2020s to pay for this low carbon investment. Offshore wind should be eligible for framework resources so long as the industry meets its objective to bring the levelised cost down to £100/MWh for projects achieving a final investment decision in 2020.

The first proposal is debatable. The government did reduce the duration of contracts, but also increased the payments for each MWh produced by wind farms. Increasing the contracts will obviously force the government to reduce the price paid for MWh, and it is very unclear how that will lead to more investment.

The second and third proposals indicate that the IPPR do not particularly care about having redundant policies. The logical next step here is to have targets for every sector. How about 40% offfshore wind by 2030, 5% solar, 10% onshore wind, 2% geothermal, 3% wave? Having a bunch of policies each designed to produce the same result is remarkably inefficient? Just look at current EU climate policy? A renewables energy target, an efficiency target, an emissions trading scheme, a carbon emissions target. Inevitably, one of these things was going to be made redundant, and it has turned out to be the emissions trading scheme. The ability of people to learn from mistakes however is rather limited.

And this idea that targets provide certainty is rather bogus, they don’t. It is subsidies that have driven investment in renewable energy, which leads me to their final recommendation. The offshore wind industry should be provided certainty around subsidies, but if they don’t get costs down to £100/MWh by 2020, then the subsidies will dry up. I agree with IPPR that this provides the industry with a lot of certainty, mostly that it probably will not exist a decade from now. Very few people think offshore wind can come down to £100/MWh by 2020. And some targets aren’t going to magically speed things along.

And if costs did not come down what would IPPR have us do? Well we could meet this “clean energy” target they referred to by building nuclear plants and onshore wind farms. However, that renewable energy target may suddenly look very difficult to meet, given that the prospects for onshore wind next decade look very poor.

So, policy proposals in the traditional style of EU climate policy, full of redundancy and incoherence. I suspect these won’t be the last.

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