HM Insights

Climate change and the role of UK renewables in reaching Net Zero

Despite the continuing impact of Covid-19 on our daily lives, the hullabaloo around the US election (which may have reached the courts by the time you read this) and the impending Brexit, the need for climate change is gradually pushing its way back up to the top of the agenda. The past two months have produced a whole series of important policy statements and calls for action surrounding net zero or carbon neutral. Although reaching net zero involves changes in many areas, what role will renewable energy play?

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Global position

The UK, Europe and New Zealand had already set targets to achieve net zero by 2050, with Scotland leading the way by setting its more challenging 2045 target. But recent announcements from Asian powerhouses have made the world take notice. China surprised most commentators by setting a 2060 target and Japan and South Korea have now both set 2050 targets to reach carbon neutrality.

These economies are still very fossil-fuel dependent so these are testing targets. The new Japanese Prime Minister, in announcing the target, challenged an underlying assumption when he said that "responding to climate change is no longer a constraint on economic growth". PM Suga explained that taking assertive measures against climate change will lead to changes in industrial structure and the economy that will in turn bring about growth. It was therefore important that industries speed up research and development on key technologies such as next-generation solar batteries and carbon recycling. And the “right enabling regulatory and policy frameworks” must be in place to accelerate renewable energy growth to meet these targets.

These commitments brings these countries closer to a carbon reduction route which is compatible with the climate change goals set as part of the Paris Agreement - to limit global warming to well below 2°C and to pursue a limit of 1.5°C.

COP26 - Glasgow 2021

All of which leads to COP26 in Glasgow, now scheduled for November 2021.

COP25 in Madrid last year had been touted as an "implementation COP", where parties would finally agree how the ambition of the Paris Agreement would work in practice. Madrid transpired, however, to be one of the most fractious and disappointing COPs to date, with countries failing to agree many key technical details, including rules to set up a global carbon trading mechanism, and a system to channel new funding to countries most at risk from global warming.

Many of these key issues will now fall to be agreed in Glasgow, as parties seek to bridge the gap between ambition and reality. Delayed by Covid-19, COP26 will proceed in an entirely new political context, and is shaping up to be one of the most interesting and critical meetings in the global effort to limit global warming.
And it should receive a boost very shortly. Joe Biden pledged that if he won the presidency then the US would rejoin the Paris Agreement that President Trump took his country out of on 4 November, three years after he said the United States would leave the international climate change forum. That pledge would require the world's biggest economy and second biggest emitter to bring forward an ambitious climate plan. And Biden has already targeted carbon neutrality by 2050 with wind, solar and storage being major contributors to a 100% carbon free electric grid.

It may not be plain sailing. If the Republicans retain control of the Senate then ambitious domestic measures may be curtailed. However, it is interesting that, despite President Trump's general opposition to renewable energy, attempts to derail its progress over the last four years have not been particularly successful, with many states and consumers picking up the slack from the Federal government's lack of leadership. The Renewable Energy Production Tax Credit has also been extended with potential for it now to be available for a further period.

So, no further Covid delays to the Conference permitting, all eyes will be on Glasgow in a year's time and that gives both the UK and Scotland an opportunity to show the world the steps they have been taking to ensure a green future.

Renewable Development

Although there are many facets to net zero, further renewable development will be crucial to achieving the targets.

According to 2019 figures, there was approximately 595GW of onshore wind, 29GW of offshore wind and 645GW of solar currently installed throughout the world at that point. In a report issued in November 2020, the Global Wind Energy Council estimated that there could be another 348GW of wind installed by 2024, bringing the total to nearly 1,000GW, mainly driven by activity in the US and China, led by installation rushes to meet subsidy deadlines. Given the series of recent carbon neutrality commitments mentioned above by major economies, it seems almost inevitable that these statements of intent will increase the forecast for wind power over the next few decades.

Indeed, to meet the Paris Agreement targets, it is estimated that investment in renewables will need to double between 2020 and 2030. Climate policy action linked to a post-Covid economic stimulus may help accelerate the build-out but power prices are expected to remain low over the short to medium term, which may impact on the PPA market for funding these projects.

In the GWEC report, CEO Ben Backwell said "While the Covid-19 crisis has impacted every industry across the world, wind power has continued to grow and thrive. This is no surprise given the cost competitiveness of wind energy and the need to rapidly reproduce carbon emissions. Fossil fuel industries face market fluctuations and require bailouts to stay afloat, while wind turbines across the world have continued to spin and provide affordable, clean energy to citizens everywhere".

In a note of caution, however, Strategy Director Feng Zhao, indicated that there were minor decreases in the forecast for installed wind in Europe, but explained that "these reductions are not necessarily a direct impact of Covid-19, but also a symptom of pre-existing regulatory issues, such as protracted permitting procedures, which are slowing down installations". These issues are of course well known to us in the UK and they must be tackled if our targets are to be met.

The UK's position 

There is approximately 13GW of onshore wind, 10GW of offshore wind and 13GW of solar currently installed in the UK, based on 2019 figures.

When the UK was forced into lockdown at the end of March, wind farm developments were among the construction projects brought to a complete halt. Every part of the supply chain has been affected, leading to project delays and even price stability fears as demand for energy plummeted during nationwide lockdowns. Onshore wind installation over the last year was at a 10-year low. Despite this, a pickup is expected over the next two years. Based on the status of current projects, it is anticipated that Scotland could install 500MW of onshore wind in 2021 and 800MW in 2022 alone, all as part of the UK target to reach 29GW of onshore wind installed by 2030.

The industry was further boosted by the UK Government's announcement that a further CfD auction round would be held in 2021 with follow-on rounds every two years and that onshore wind and solar will be permitted to bid in Pot 1. Latest information is that the tender is due to open in late 2021 and there will be more government clarity soon on the precise process. It will undoubtedly be ultra-competitive given the number of consented projects bidding for some form of guaranteed income (up to 3.4GWs of consented projects could participate) but it is this consistent commitment to holding these auctions that the industry is looking for. The Scottish government, under pressure from unions to create more Scottish jobs, are also understood to be lobbying for changes to the system which would allow more spending locally.

The greatest progress should be made in the installation of offshore wind, where the UK is already the world leader. Energy Minister Kwasi Kwarteng recently announced the UK Government's intention to quadruple offshore wind from 10GW to 40GW by 2030. It is claimed this could help power an extra 14 million homes with wind energy. A report from the UK Oil and Gas Authority has also suggested that offshore renewables could account for 30% of the emissions reductions needed in the UK by 2050.

Finally, in solar, analysis from the Solar Trade Association suggests the Committee on Climate Change's call for over 40GW of solar to be installed by 2030 to meet the net-zero targets simply cannot be achieved without significant policy intervention – regulatory reform of network charging and connections, a robust carbon price, sustained growth in public and private sector demand for PPAs and an incremental improvement in climate policy ambition – and estimated that 27GWs may be as much as could be deployed.

Overall in the UK, the noises coming from the politicians seem strong and positive but the regulatory back-up has still to be seen. Wave and tidal have effectively been dropped from the agenda because the UK government sees them as peripheral and not able to make a sufficient impact. Offshore wind is being promoted above all else partly because the UK leads the field and the development of this industry has led to jobs and improved infrastructure at places like Hull, Grimsby, Lowestoft, Teeside and Great Yarmouth but also because they do not like onshore wind, despite it being cheaper.

December is a big month in the assessment of the political will being shown to achieve the decarbonisation targets. The long-delayed UK Energy White Paper is expected before the end of 2020. The Climate Change Committee will publish a report in December outlining what is required to achieve net-zero in the UK by 2050. And Ofgem's regulatory framework (known as RIIO-2) for energy networks is due to be finalised for electricity transmission and gas networks.

We cannot achieve our net zero ambitions without an integrated grid system in place in the next few years to tie in with planning applications and it is important the offshore grid ties in with the onshore grid with all the investment required.

In a recent open letter to Ofgem from key industry trade bodies and companies, it was emphasised that regulation does not exist separate to policy. If the government wishes to increase the deployment of cost-effective renewables as an enabler to achieving the net zero targets, regulatory processes and the upcoming network price control must not constrain this. The signatories called for the RIIO-2 framework to be at least in step with, if not ahead of, government ambition. It must empower, not delay, investments in electric vehicle charging structure as well as the grid connections and reinforcement needed to transport growing volumes of renewable energy. It must also have the agility and flexibility to adapt so that the system can keep pace with the pathway to net zero.

We shall see what the next two months bring forward.

The situation in Scotland

Renewable Energy is currently providing about 90% of our electricity and the government has already set out its stall on decarbonisation with The Climate Change (Emissions Reduction Targets) (Scotland) Act 2019 which targets net-zero by 2045, with interim targets of 56% by 2020, 75% by 2030 and 90% by 2040.

In the last fortnight the Scottish Government has published its Sectoral Marine Plan and its Offshore Wind Policy Statement recognising the potential for 11 GWs of deployment by 2030 (up from 8GWs previously targeted) and a commitment "to set the course for this delivery". This follows on from the Crown Estate announcement in April 2020 of its first seabed leasing round in a decade, opening up new opportunities in the North Sea. There is also considerable optimism about the role that floating offshore wind can play in this expansion.

But more needs to be done. The 2020 target of producing 11% of non-electrical heat demand from renewable sources is a long way off. Heat makes up 55% of the energy used in Scotland so decarbonising it is vital if we are to meet our net zero targets. According to figures produced recently by the Energy Saving Trust for the Scottish government, by 2019, the figure had reached 6.5%, mostly coming from biomass and biomethane. It did, however, include a steady growth in heat produced from heat pumps – 2470 installed in 2019 bringing the total figure to 17,140. Progress also depends on changes in heat demand – if output is constant but the demand level increases the % contribution falls but vice versa, hence the importance of energy efficient buildings which require less heat. The Scottish government's recent announcement of a new £4.5 million cash-back incentive to help people install renewable and energy efficient measures in their home is therefore welcome.

An update is expected shortly to the Government's 2017 Energy Strategy and it is likely that it will target a green recovery to the public health and economic crisis created by the Covid pandemic but one based on a just transition to ensure that the sectors of the public who have suffered most from Covid-19 are not left behind by the measures required to achieve the recovery.

Amongst all of this, the two main barriers to rapid progress – planning and grid - still remain. As mentioned above, grid mainly lies with the UK government and Ofgem's remit. In addition to the issues about bringing grid connections and reinforcements up to the required standard, another obstacle to progress is that grid connections and charges, which were originally designed in the context large, centralised, localised carbon intensive generators, continue to pose significant costs for Scottish renewables projects. In fact the current model of charging inadvertently produces higher costs for projects in Scotland; Transmission Use of System (TNUoS) charges in 2020 will be on average £13k / MW / year higher in Scotland than the UK average, according to research by Everoze.

Planning reform is firmly within the Scottish government's control. The new National Planning Framework (NPF) 4 is intended to set out the planning framework for Scotland over the long term to 2050. Powering Scotland through renewable energy is in our long-term national interest and our planning system needs to provide explicit support for further deployment, and for the repowering of sites nearing the end of their operational consent. It would be a statement of intent if the new NPF created a presumption in favour of development, provided it supports renewable energy targets.

It will also be important that the planning framework caters for the most efficient, technologically advanced turbines to ensure attractiveness of Scottish sites. The latest turbines are taller and have increasingly greater rotor diameter, but a considerable share of the onshore wind pipeline in Scotland are for an upper tip height of 125m or less, above ground level. In comparable markets such as Sweden or Germany, tip heights well in excess of 150m are the norm. In Scotland, lower tip heights may be accepted to expedite the consenting process but this limits the size of rotor and tower height that can be used on a site. As a result, the range of wind turbine models available for deployment is limited, as newer models are targeted at less constrained markets. While the tallest wind turbines will not be appropriate in every setting, the current planning system can be criticised for placing too strong an emphasis on landscape considerations.

Originally planned for publication in September, NPF4 has now been postponed to 2022. There are steps the Scottish Government could take in the meantime. Local authorities should be sufficiently resourced, ideally with ring-fenced funds to handle new planning applications for renewable energy projects.

And, when NPF4 is eventually brought forward, it will miss the boat unless it treats helping to achieve net zero as a material consideration when assessing proposed planning developments. If the Scottish government want to take full advantage of our renewable resources then renewable energy developments must be given the priority and importance they deserve in the planning process. If our decarbonisation targets are to be met there is no time to waste.

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