Cracking a nut with a sledgehammer: how killing diesel risks taking local clean energy with it

Diesel engines don’t have a good rep these days. But while most public attention has been focused on those with wheels choking our streets, it’s a different bunch that the Government has actually been cracking down on.

Every year the Government runs a reverse auction for electricity generators (and some storage and ‘demand shifting’ projects) called the capacity market. Winners are granted public subsidy to be available during the winter to provide power if supplies become tight. What the Government really wants this to do is to incentivise new, large gas plants. But it turns out it’s cheaper to build small diesel plants. Few gas plants can compete - and thus few get built. Instead, we now have up to 2GW of diesel generators installed locally. This is not good press for the Government: diesel has high carbon emissions and local air quality impacts. We shouldn’t be subsidising them (nor should we be subsidising coal plants, by the same token). So the Government set out to cut them out of the picture.

So far, so good. But what happened next risks undermining not just diesel, but the shift to local, clean, flexible energy too. What went wrong?

A quick rewind. The power sector has seen radical changes in the last decade. The major story has, of course, been renewables. Much renewables capacity in the UK is locally installed, which ushers in a fascinating new paradigm in which power doesn’t just flow from the beating hearts of vast coal, gas and nuclear plants out to the veins and capillaries of towns and villages. Now our homes, businesses and fields are themselves centres of energy; either used onsite or transmitted to local consumers.

This actually makes a lot of sense. You cannot transmit power without losing some of it. The further it travels, the more you lose. The UK wastes 8% of the electricity it generates in moving it from A to B (and over 50% overall if you include thermal power station inefficiency). But generating wasted electricity still costs money - and still incurs wear and tear of infrastructure used to transport it - all of which costs bill payers. If electricity is generated closer to demand, lower losses should entail a more efficient system, and thus lower costs overall. 

The rules governing the use of wires and pylons by generators and suppliers of electricity were not designed to support local generators, but they do end up reflecting the fact they do not use as much of the total network. There are 14 regional electricity networks, each of which connects into the larger national grid. Suppliers with customers in those regional networks pay charges based on the amount of electricity they buy into them at peak times. If local generators produce electricity during those periods less electricity needs to be imported from the national grid. This saves the suppliers money in reduced charges, part of which is then passed onto those local generators as a reward. This is called an ‘embedded benefit’, and it helps incentivise building generation closer to where electricity is consumed.

At least it did.

Connected locally, diesel plants can do what big, central gas plants cannot - access these embedded benefits. Take this revenue stream away, the Government thought, and perhaps gas will be able to compete again. Ever since, there has been pressure on Ofgem to do just that. And three weeks ago they announced a cut of up to 93% - almost entirely removing it. 

So much for diesels. But this also deals a blow to renewables and storage projects (such as batteries or pumped hydro) connected locally, of which there is several times more capacity than there is diesel. Worse, unlike subsidy cuts which only affect future projects, this hits existing projects too - punishing them for a problem they didn’t cause. Reduced projected revenue, and increased uncertainty, is expected to cool investment in local, clean, flexible electricity infrastructure. Storage - that oft-touted key to a renewable future - could be hit particularly hard. With access to few public support levers, projects often rely on being able to deliver power at times when rewards are available to build a business case. 

But was this simply an unintended consequence?

Actual rule change is undertaken by industry panels, which are dominated by sector incumbents including the ‘Big Six’. Only they have the personnel and capacity to resource such involved work. The panel that presented proposals to Ofgem in this case did not have a single renewable energy or community energy representative on it. In the consultation that preceded the final decision seven out of nine of the big commercial players were opposed to the benefit. The two in favour either have no large central generation assets of their own, or their own interest in renewables.

Whether the product of genuine manipulation, or simply the inertial imbalance of representation on Ofgem’s panels, it is the incumbent generators who won. They are, theoretically at least, now more likely to be able to build new gas stations - as diesel competitiveness is reduced - capturing public funds in the process. And the renewable and storage projects causing such havoc for their business models just lost revenue. 

So it’s the transition to a local, clean, smart - and ultimately cheap - energy system that is losing out.

Which raises several questions. Should Ofgem’s remit formally incorporate the UK’s 2050 climate target, given its pivotal role in shaping the systems that must get us there? Should incumbents be allowed to continue dominating the processes that evolve regulations? And should the Government ensure that Ofgem is driving our energy system to one that is lower cost, more local and lower carbon?

Our answers would be: yes, no and yes. The rapid (and urgent) transition in the design and operation of our energy systems for a liveable planet simply demands it.

Max Wakefield is lead campaigner at 10:10, a charity that focuses on practical, participatory and positive solutions to climate change. 10:10 work with everyone, from policy makers and politicians to community energy groups and schools, to create the practical and cultural change necessary for a rapid transition to a low carbon UK. You can join 10:10’s campaign to challenge Ofgem’s decision here

The views expressed in the article are those of the author, not necessarily those of Bright Blue

The lights are going out on coal

November has been a very significant month for the coal industry. Perhaps the most high-profile news was the election of Donald Trump as President of the United States, who promised during his campaign to end ‘the war on coal’ by repealing President Obama’s environmental regulations. Supporters at his rallies carried placards saying ‘Trump digs coal’. Trump’s victory caused shares in major coal producer Peabody to rocket by 45% in one day. His advocacy of coal encapsulated his appeal to disaffected working class voters in America’s de-industrialised ‘rust belt’ states.

Economics of coal

But this event, while significant, is an aberration from the general trend. Coal is now firmly in retreat around the world. Stopping burning coal to generate electricity as soon as possible is essential for avoiding catastrophic climate change. Per unit of electricity, coal emits more than twice as much carbon as natural gas. In 2013, coal alone contributed 42% of global greenhouse gas emissions from fuel combustion – easily more than any other fossil fuel.

Figures from the International Energy Agency (IEA) show coal consumption fell by 2.6% last year. Crucially, the two biggest coal users, China and the US, have both seen their demand for coal power fall in recent years. Much of this is happening because of changing energy economics. Take the example of the US. The shale gas revolution and technology cost reductions for renewables have successfully outcompeted coal. Michael Liebreich, a member of the advisory board of our Green conservatism project, recently wrote in the Guardian that these rival fuel sources were more responsible for coal’s demise than government regulation.

UK coal phase-out

But government intervention can certainly speed the process up. And in this area, November 2016 has contained a lot of good news. Exactly a year ago, in November 2015, the Rt Hon Amber Rudd MP made the UK the first country to commit to a date for phasing out coal from electricity generation, something which Bright Blue had been calling for. On the same day as Trump’s victory was confirmed, the UK Government recommitted to the coal phase-out by publishing its plans for consultation.

Ministers are proposing to introduce an ‘Emissions Performance Standard’ by 2025, which will mandate coal-fired power stations to close unless their emissions can be reduced to below those of a gas-fired power station. The UK’s remaining plants are on average 47 years old, and so would be in line for retirement soon in any case. In 2012, there were 17 remaining coal plants, with a capacity of 23GW. That’s now fallen to just 7, with 14 GW of capacity. Analysis has revealed that this year, for the first time, there have been periods when coal has been wholly absent from the UK’s energy mix, and entire days when solar generation has surpassed coal.

In our report earlier this year, Keeping the lights on, we found that phasing out coal would not harm the UK’s energy security. Moreover, encouraging more renewables, energy efficiency, energy storage, and DSR, alongside phasing out coal, would have benefits for consumer bills, energy security, and carbon intensity, relative to scenarios with more gas. We also called for the coal phase-out date to be brought forward to 2023. An earlier date would give investors in gas more certainty and help bring the new capacity online sooner.

Global coal phase-out

The UK’s announcement was not the only one this month. In fact, several other countries have decided to follow the British example on coal. France has announced it will close its remaining 3GW of coal-fired capacity by 2023. Canada is now set to phase out the rest of its coal fleet, which has a total capacity of 10GW, by 2030. Finally, the Finnish government has also committed to shutting its 2GW of electricity generation from coal by 2030.

Bright Blue has in the past called for the UK Government to assume a leadership role in advocating an international coal phase-out. It is highly symbolic that the UK has become the first country to use coal for electricity generation and the first industrialised country to commit to phasing it out altogether. Strengthened by this achievement, the UK could utilise its moral and political leadership to push for an ambitious global deal on phasing out coal.

As our associate fellow Ben Caldecott argued in Green and responsible conservatism, sectoral deals, such as on the use of coal, could be a more effective approach to tackling climate change than broad UN agreements. This would require developed countries to take the lead and phase out their coal fleets first. It would also require some international aid funding to support developing countries undergoing the transition to cleaner technologies. But the result for the environment could be significant.

November 2016 has been an excellent month for the global environmental campaign to end coal-powered electricity. But the scale of the challenge is still immense: in 2014, coal still generated 41% of the world’s electricity. The UK Government should build on this month’s progress and lead the international campaign for more countries to make the coal phase-out commitment.

Sam Hall is a researcher at the Bright Blue