Economic hazards of a forced energy transition: inferences from the UK’s renewable energy and climate strategy

Abstract

The UK government has recently announced a reorientation of its energy and climate policy, scaling back subsidies to renewables, suggesting that uncontrollable generators, such as wind may be required to meet their own system costs, and emphasizing the need for research and development towards an as yet undiscovered, fundamentally economic, low carbon transition. The government also aims to open the way for nuclear power, and the maximization of oil and gas recovery both from the North Sea, and, on-shore, from hydraulic fracking. The present authors argue that although this policy is self-characterised as a re-liberalisation of the markets, the revision is only in part political, and is better understood as a force majeure response to cost and technical problems with the previous renewables-centred policy. Specifically, subsidies have led to an overheated renewables sector with high costs that will exceed Treasury limits and place heavy burdens on consumers. Subsidies to renewables have also weakened investment signals to conventional generation, leading to low capacity margins that necessitate a costly Capacity Mechanism, in effect a subsidy, to guarantee security of supply. Taken together, these costs are significant, and are a matter for particular concern, since there are already signs of a trend towards a de-electrification of the UK economy, a trend which is undesirable for many reasons, including climate policy.

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Fig. 1

Source: DECC (2008), 8. Chart by the authors

Fig. 2

Source: DECC (2015e). Chart by the authors

Fig. 3

Source: DECC (2015a) Table 5.1. Available at https://www.gov.uk/government/statistics/electricity-chapter-5-digest-of-united-kingdom-energy-statistics-dukes)

Fig. 4

Source: DECC, Ofgem. Calculations and chart by authors

Fig. 5

Source: DECC, Ofgem. Calculations and chart by the authors. The blue line represents total renewable electricity; the green line shows the subsidized component. The orange diamond point represents the 2010 renewable electricity target, which was missed, and the red line the trajectory needed to meet the electricity contribution to meeting the EU Renewables Directive (2009) in 2020

Fig. 6

Source: DECC (2013). Chart by the authors

Fig. 7

Data source, 2001/2–2014/15, current and historic datasets available at: http://www2.nationalgrid.com/bsuos/. Data for 2015/16, from National Grid (2015c), 39. Chart by the authors

Notes

  1. 1.

    The 25 % figure is a government estimate contained in a document leaked from within the department of Business Enterprise and Regulatory Reform in 2007 (BERR 2007). The text is published on the Guardian website: (http://image.guardian.co.uk/sys-files/Guardian/documents/2007/08/13/RenewablesTargetDocument.pdf) Note that the European Commission estimated the total cost to the EU of the renewable energy target at 24 billion euros in 2020 (See Table 4???). BERR thought that this was an underestimate, but also estimated the costs to the UK at some £6–10 bn (see Table 3, but note that the table unfortunately transposes the figures for a 14 and a 15 % target).

  2. 2.

    Calculated from data collected by DECC for the Renewable Energy Planning Database, and reprocessed by the Renewable Energy Foundation at www.ref.org.uk: http://www.ref.org.uk/planning/index.php.

  3. 3.

    EdF’s work, and that of others is reported and analysed in Sharman and Constable (2009), 1–4. See also Sharman and Constable (2008).

  4. 4.

    https://www.gov.uk/government/speeches/amber-rudds-speech-on-a-new-direction-for-uk-energy-policy.

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Correspondence to John Constable.

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Constable, J., Moroney, L. Economic hazards of a forced energy transition: inferences from the UK’s renewable energy and climate strategy. Evolut Inst Econ Rev 14, 171–192 (2017). https://doi.org/10.1007/s40844-016-0041-6

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Keywords

  • Renewables
  • Subsidy
  • Green economy
  • System costs

JEL Classification

  • A
  • E
  • N
  • O
  • Q