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April 27, 2007
Miguel Mendonça

Miguel Mendonca Open Letter to British Secretary of State on Feed-in Tariffs


 

From the desk of
Miguel Mendonça
38 Brecknock Road
Knowle
Bristol
BS4 2DD

Rt Hon Alistair Darling MP
Secretary of State for Trade and Industry
1 Victoria Street
London
SW1H 0ET


Miguel Mendonca is the author of a new book:Feed-in Tariffs.


27 April 2007

Dear Mr Darling,

Having tried and failed to communicate successfully with Lord Truscott on the issue of renewable energy legislation, I have been advised to contact yourself. My aim in writing is twofold. Firstly, I seek a concrete explanation as to why the UK government persists in tinkering with the present system for the promotion of electricity generation from renewable sources, when it has been proven to be an expensive, highly flawed system, particularly in contrast with a German-style Feed-in Law. Secondly, I would like to compare and contrast the UK-type model with the German-type model, as I have done in my new book on the subject: 'Feed-in Tariffs - accelerating the deployment of renewable energy.'

When I questioned a stand-in for David Miliband at the REEEP side-event at the COP12 in Nairobi, he had no real answer for why the UK has picked this policy instrument. When I tried to ask David himself at a renewables policy conference in Brussels in January, he left the panel early (after arriving late and speaking almost entirely out of context). In a recent enquiry that was finally addressed by Lord Truscott, I asked again. The response was empty of explanation, aside from a vague reference to planning issues. A recent BBC World documentary on the subject ('Pay Back Time', scheduled for transmission on the 5th and 6th of May on 'Earth Report') invited representatives from the UK government to participate, but they declined entirely. A pattern clearly emerges. Can you provide an official explanation for the UK's support scheme preference?

In academic studies, the UK system, and the quota model in general upon which it is based, has been universally found to be inferior in virtually every significant respect to the Feed-in law. Here is a selection of quotes from these papers, taken from my book:

BOX 2.1 QUOTES FROM COMPARISON STUDIES OF RE SUPPORT SCHEMES

"Renewable Tariffs have proven the most successful mechanism for stimulating investment in renewable electricity generation worldwide. Renewable Tariffs have resulted in more installed generating capacity and more robust competition among manufacturers and have stimulated more renewable technology development than any other policy mechanism." (Gipe, 2006, p1)

"To date, feed-in - or pricing systems have been responsible for most of the additions in renewable energy capacity and generation, while also driving down costs through technology advancement and economies of scale, and developing domestic industries and jobs. Pricing systems, where well-implemented, have provided increased predictability and consistency in markets, which in turn has encouraged banks and other financial institutions to provide the capital required for investment, and has attracted private investment for R&D." (Sawin, 2004, p27)

"The German EEG is more effective at increasing the share of renewables than the England and Wales RO because it reduces risk for RES generators more effectively." (Mitchell et al, 2003a, p4)

"A well-designed (dynamic) FIT system provides a certain deployment of RES-e fastest and at lowest costs for society." (Haas et al, 2006, p27)

"The EEG has been successful in deployment; in reducing risk; in developing an advocacy coalition; and in developing a new industry. The RO does not reduce risk (whether price, volume and market) which makes it difficult to obtain financing, so limiting new entrants and the development of an advocacy group." (Mitchell et al, 2003b, p2)

"… until now so called renewable energy feed-in tariffs (REFITs) have shown the best effectiveness concerning the creation of new RES installations." (Bechberger and Reiche, 2006, p6)

"The long-term price guarantee provided by the feed in tariff reduces regulatory and market risk." (Butler and Neuhoff, 2004, p31)

"Feed-in tariffs have been proven to be successful elsewhere (Spain and Germany) in generating significant deployment of low-cost renewable energy." (The Carbon Trust and L.E.K Consulting, 2006, p3)

"Feed-in tariffs are more efficient from a societal point of view compared to TGC [tradable green certificate] systems. In addition, they are useful to promote a more homogeneous distribution among different technologies by setting technology specific guaranteed tariffs. The implementation of such a policy can support the long-term technology development of various RES-E options which are currently not cost efficient." (Ragwitz et al, 2005, p38)

"It is clear that the German 'feed-in tariff' has proved a highly flexible and manageable policy instrument. In contrast, the UK's Renewables Obligation (RO) has proved more costly but less productive. Moreover, the RO is making wind power progressively more expensive to the UK consumer at a time when degressive 'feed-in rates' are making it cheaper in Germany." (Szarka and Blühdorn, 2006, pv)

"A stable feed-in tariff has clearly proven to be one of the most successful mechanisms to date for promoting large-scale wind energy markets that offer the stability necessary to attract local manufacturing." (Lewis and Wiser, 2005, p20)

"The EU-15 figures lead to the conclusion that, when the feed-in tariffs are set correctly, the support scheme is able to start market development. The green certificate systems seem to need a secondary instrument (based on environmental benefits) for a real market effect." (European Commission, 2005, p33)

Quotes from other sources

"Both sets of instruments have proved effective but existing experience favours price based [feed-in] support mechanisms. Comparisons between deployment support through tradable quotas and feed-in tariff price support suggest that feed-in mechanisms achieve larger deployment at lower costs. Central to this is the assurance of long-term price guarantees. The German scheme … provides legally guaranteed revenue streams for up to twenty years if the technology remains functional. Whilst recognising the importance of planning regimes for both PV and wind, the levels of deployment are much greater in the German scheme and the prices are lower than comparable tradable support mechanisms (though greater deployment increases the total cost in terms of the premium paid by consumers). Contrary to criticisms of the feed-in tariff, analysis suggests that competition is greater than in the UK Renewable Obligation Certificate scheme." (Stern, 2007, p366)

"… it has clearly emerged that minimum price systems have proved more effective [than quota systems] in increasing clean energy capacity." (Bechberger and Reiche, 2005a, p16)

"In stimulation of PV market growth, a feed-in tariff is the single most important and most successful driver, when applied correctly." (European Photovoltaic Industry Association, 2005, p3)

"… only a model based on guaranteed feed-in tariffs enables a quick and broad implementation of renewable energy, better supports its technological development, as well as more efficiently promotes cost reduction." (Scheer, 2005a, p80)

And another telling quote from a 2005 paper:

"One does not have to conduct elaborate game-theory analysis to understand that the major electricity supplies are unlikely to permit the generation of sufficient renewable electricity to threaten the profitability of their own investments in renewable energy and the profitability of contracts they have issued to independent renewable generators. There is simply not enough competitive pressure to supply renewable energy to ensure low, so-called `competitive', prices for renewable energy contracts. Hence, it is an illusion to imagine that, if you set up a market, it is necessarily a perfect market - one in which Adam Smith's famous `invisible hand' magically conjures up the most resource-efficient solution" (Toke, 2005).

The case is clear, even in the Stern Report. Here are the outcomes of the German system (sourced from the German Federal Environment Ministry, and announced earlier this year), reproduced from a forthcoming World Future Council guide to Feed-in Tariffs for policymakers, NGOs, businesses etc.

German renewable energy achievement in figures:

 

  • 214,000 jobs created
  • 97 million tonnes of CO2 emissions prevented in 2006 through renewables
  • 11.8% share of total gross electricity consumption from RES in 2006
  • 5.3% share of total primary energy consumption from RE in 2006
  • €21.6 billion total turnover in 2006 through RE (building and operation)
  • €8.7 billion investment per year
  • Reduction of around €5.40 worth of environmental damage per household per month
  • All this, at a cost of only around €1.50 per household per month!

Their system costs around £1 per household per month, and has created towards a quarter of a million jobs, while the UK employs around 300,000. Their industry is worth around £14.5bn per year. Ours is worth a small fraction of that. For some reason, the UK government doesn't seem very proactive on publishing our renewable energy statistics, so it is not a simple matter to compare the performance of the two countries.

Where we do score higher, however, is on the resources themselves. It is becoming a well-known fact that we have Europe's best wind, wave and tidal resources. We have sufficient levels of insolation to warrant the real support of solar photovoltaics (PV). We also have enough agriculture and forestry in the UK to enable significant biomass production.

Aside from the resources, we also have the urgent need - as the government reminds us regularly. These needs include our commitments to both CO2 reduction and electricity generation from renewable energy sources. Emissions are spiking due in large part to a shift to more coal-based electricity production in response to climbing gas prices. These emissions are in fact said to be higher than when New Labour came to power in 1997.

The issue of energy security is critical. We can see the cost of the US approach to energy - another €100bn handout announced this week for their activities in Iraq. The full cost does not bear thinking about, whether you measure it in dollars, lives or the resurrection of age-old Christian-Muslim frictions. These costs are likely to continue to accrue for generations. Neither do we want to be dependent on supplies from Russia, or the emerging Caspian region. Indeed, the 'resource curse' should not be thrust upon any more countries. Democracy itself faces a clear and present danger from the existence of fossil fuels in any region. Thomas L Freidman recently wrote in the International Herald Tribune on the links between oil and democracy - a fascinating commentary on the issue.

While it is clear that the moral duty to protect life as well as liberty still does not carry much political weight in these times, it is worth restating that all of these issues stem from this point. We do not have the right to destroy life, or undermine the conditions for life on earth. The talk of political will, while already a tired-sounding phrase, continues to lie at the heart of positive change. There is no lack of need, or of proven solutions. Feed-in Tariffs, for example, increase GDP, make energy production open to all - especially as technology is continually improving and becoming cheaper - and thus feeds the economy and the grid from a wide variety of sources, leaving us more energy secure. In turn, our greenhouse gas emissions and military expenditure are lowered, the threat of terrorism is reduced and our children, and future generations, are safer. Economic growth, security and environmental protection. What more could you ask of any single policy?

Hermann Scheer is presenting a parliamentary briefing on the subject, and other related German policy successes on the 9th of May, to be chaired by Alan Simpson MP. I would encourage all to attend, and to learn all that they can about this win-win-win policy.

Yours sincerely,

Miguel Mendonça

cc. Lord Truscott
Rt Hon David Miliband MP
Rt Hon Gordon Brown MP
Rt Hon Margaret Beckett MP
Rt Hon Hilary Benn MP
Ian Pearson MP
Alan Simpson MP
Rt Hon John Gummer MP
George Osborne MP
Caroline Lucas MEP
John Vidal, The Guardian
Michael McCarthy, The Independent
Lewis Smith, The Times
Fiona Harvey, The Financial Times
Liz Sleeper, The Renewable Energy Association
Zac Goldsmith, The Ecologist


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