Monday, 22 September 2014

A second dash for gas in the UK?

Most people are aware of the UK's "dash for gas" of the 90s. While controversial, mainly with the loss of jobs in the broader coal sector it has offered the country some reasonable benefits; namely in reducing electricity sector emissions and modernising the electricity sector overall. Some may even go as far to argue that it "liberated" the country from a heavily unionised mining sector that was deemed to be a serious threat to power supply security.

More recently, there has been a somewhat global interest for a new dash for gas. That has been mainly fuelled by the US success in accessing previously considered as unconventional gas reserves. What is known to most, as fracking (or hydraulic fracturing and horizontal drilling technologies) has been credited for lowering gas prices in the US, making the country the largest gas producer and sparking hopes of complete US energy independence in the foreseeable future. Sounds too good?

In the UK, the Coalition Government has been keen to revive the country's dash for gas era and at the same time replicate at least some of the successes of the US experience with shale gas. In this post I will just list a few of the related policies that demonstrate the Government's gas bias.

Shale gas
It does not take much to understand that this Government really wants to promote shale gas in the UK. Chancellor George Osborne puts together the "most attractive tax breaks in the world" for the shale gas industry, while cutting subsidies for the most promising of renewables. If case you had any, David Cameron should have left no doubt about the Government's intentions when he took the case for shale gas on his shoulders. Since the UK's population density was seen as one of the main obstacles in developing shale gas the Government decided to find a solution. How? by allowing drilling companies right of access underneath your house, for as a long as drilling is at least 300m deep. A target easily attainable by the shale gas industry.

You may have thought that's about enough support for the shale gas industry, but the UK Government did not think so. Imagine (and it's not hard to) that some shale gas drilling operations fail and causes widespread environmental pollution. It has happened in the US and it can happen in the UK. The small drilling companies will easily go bust and then it's going to be the British taxpayer paying for the environmental disasters. This is not a very good incentive for drilling companies to improve their safety record me thinks... Discussing the shale gas case is not the focus of this post; that is a topic I will return to quite soon. However, the Government's support for shale gas is quite clear.

Gas-fired power stations
It is true that as far as fossil fuel-fired power generation goes, Combined Cycle Gas Turbines (CCGT) are the most environmentally friendly option we have. It can be argued that we also have Carbon Capture and Sequestration (CCS), but its commercialisation may be decades away. In the meanwhile the UK power sector requires £110bn of investment to substitute its old coal and nuclear power stations.

The Government's preference is, again, with gas. The expectation is that new power stations will be allowed to emit up to 450gCO2/kWh; a target which is easily achievable by CCGT systems. Any gas power stations will be exempt from potential new targets until 2045. In the meanwhile, planning for decarbonising the UK economy by 80% until 2050 show that the electricity sector should be largely decarbonised by 2030. All that when reducing subsidies for onshore wind and solar energy. The result will be to lock-in the UK economy in expensive, gas-fired power generation and gas imports.  

Capacity market
Faced with a capacity crunch, the Government decided to create a capacity market.This market should ideally incentivise power stations to meet peak-power demand when needed. Because of their flexibility, a significant segment of this market will be met by open cycle gas turbines (most often these are different than the CCGT power stations). However, the demand-side response (DSR) systems can also play a very important role. Their contribution is well recognised and used in the US and elsewhere. Demand-side response systems offer an aggregated service to the grid which means that they interrupt certain eligible loads (consumptions) when the grid cannot cope with the demand. This service has widespread environment and financial benefits and is a first steps towards a smart-grid.

Even though the Government decided to allow DSR providers to enter the capacity market it also made sure to put them in a disadvantage by allowing them to bid for only one year contracts (instead of up to 15 years for gas-fired providers) and as a result loose out in security long-term income and providing competitive prices. It has also forced them to either take part in the capacity market now (Transitional Arrangements) or in the enduring market (from 2018 onwards).

One more way to make sure to ensure we are locked-in to an expensive and imported gas-fired future...

Friday, 29 August 2014

The expensive levies that were not...

As energy prices in the UK keep rising we have come to realise that between 2010 and 2013 the rise reached 37%. Not surprisingly the energy industry (see the big six) were quite fast to blame the "Green Levies" for the soaring energy prices. Right... you may think; that nearly makes sense. After all you must have heard of the subsidies that support the operation of wind and solar farms and the UK; they must have something to do with your rising bills or not really...

Chart _1
I am copying the above graph from the excellent carbon brief blog which you can find here. These are cost estimates of the energy companies for the social and environmental levies. That's at least about £110 on the average household. Now even for British Gas (see graph) that does not exceed 10% of the average UK bill. How come its the sole most mentioned reason for our expensive energy bills?

At some point the figures were even backed by the Coalition Government which went as far as saying that they may soon reach £194 by 2020. This time the estimations are not just about the Green levies but also about social levies; the latter mostly referring to the Government's ECO scheme which was obliging energy companies to offer energy efficiency improvements to low income households.

As you can imagine the energy industry was pretty happy to eventually have their nemesis aka green and social levies removed. So happy, Ed received a thank you letter! In the meanwhile ONS (Office for National Statistics) reported a record 31000 excess winter deaths, at a 29% annual rise. Was anybody happy about this I wonder? Probably not the energy poor people that would have their houses insulated if it wasn't for scaling back the ECO scheme.

But, that's OK... it cannot be that poor people expect everything from the nanny state (just being ironic!). At least the rest of us got a good deal with the £110 savings that the energy companies passed on our bills. Ha! Whose savings??

After being promised that energy bills would be reduced within weeks. By how much? We were told by £50 on average. Why not £110? Nobody knows... or maybe we know that instead of finding a way to force the energy industry to lower bills, the Government let them enjoy windfall profits which may reach £2bn in 3 years.Were your bills reduced btw? By £110? maybe by £50? or just increased again?

A quick recap therefore would read like: the Government has just offered energy companies a few billions which took away from energy poor people (and support from renewable energy projects) justifying its actions by falsely promising lower bills to the rest of us.

Well done guys...

Monday, 18 August 2014

Green energy and jobs... oh and the EU...

Reading on The Telegraph yesterday I found out that "EU green energy laws 'put 1.5m UK manufacturing jobs at risk'". Now, this is mainly The Telegraph repeating a report of the Business for Britain (BfB) Eurosceptic group.

The storyline that the authors put together is that the EU is the source of green energy laws and these laws increase energy costs which eventually threaten the profitability of energy intensive industries which may leave the country as a result and leave behind them unemployed people...

Is this exaggerated maybe?

I should first of all clarify that:

1. Yes, there are energy intensive industries in the UK (and the rest of Europe) and yes, they would love to have low energy prices. In fact, I would also love them to have low energy prices, at least at levels that they would prefer to stay in the UK than leave.

2. Yes, that's an important debate especially when you realise that it's not just the low Chinese energy costs we're competing against but the very low energy costs available in the US (there's a link to shale gas on that matter but I will come to this at a later post). So it's not any more a decision between establishing factories in developed or developing countries but a direct comparison between developed economies.

and then add a few thoughts and observations to the debate:

a. The main Green Energy Laws that the article cites are really one, the Emissions Trade Scheme (EU-ETS). The Renewable Obligation (RO), also mentioned in the article, is not quite an EU law at all.

b. Increased use of renewable energy, which is the aim of RO, is aligned with the current EU policies. Specifically, those looking to achieve an average of 20% share for renewable energy across the EU by 2020. However, a new binding target for renewable energy for 2030 is far from certain.

c. Coming back to what is actually EU law, the EU-ETS has so far recorded rock-bottom carbon prices. Did it really threaten any of the large manufacturers? Not the least, since they've all budgeted for significantly higher prices which were never realised. Whether EU-ETS will survive post-2020 remains an open question.

d. The UK, and not the EU, has the Climate Change Act 2008 which requires the country to reduce its carbon emissions by 80% between 1990 and 2050. This is achievable with a combination of measures relating to improved energy efficiency, increased use of renewable energy sources and nuclear energy. That's the most demanding, long-term climate change target that exists out there and makes the UK world leader in the Climate Change agenda.

So, at this stage let's get one thing right. It's not the EU green energy laws but the UK laws that drive renewable energy investment in the UK. Green energy laws is not a good enough reason to be Eurosceptic I think!

Next post will be about the green levies and their "huge" impact on our bills which was not. Probably linking it with how the Coalition Government handled this issue...

Monday, 11 August 2014

The comeback and catching up news!

After several months of blogging silence, I eventually found the time to return to writing here. Last winter has been hectic with work on research and consulting bids and research papers.

A lot has happened in the energy and environmental scene of the UK over the last months and I will probably use some of the next posts to catch up. These will include progress with shale gas and some thoughts on the Coalition Government's green (not) attempts...

In the meanwhile, I thought I should share some exciting news. That is I am about to embark to a trip to the US where I will work at the Department of Geographical Sciences of the University of Maryland, College Park. My next post will be from there!

Thursday, 20 February 2014

Parents: your pensions are screwing up your children's future

When pension funds and investment managers are opposed to governments, they can be ruthless. These otherwise behind the scenes organisations played a big role in killing the EU's Robin Hood Tax (also known as the Financial Transaction Tax), claiming that it would harm their members.Now we want to harness this power for a much bigger goal – to help ensure we don't sleepwalk into climate catastrophe. It truly is, as the US secretary of state John Kerry has just called it, a "weapon of mass destruction".

That wouldn't be good for pension returns – as Anne Simpson, a senior official at one of the world's biggest pension funds says: "There will be no place for CalPERS to invest in a 4 degree climate warming world." And it won't be very good for us, young people, either. Who wants to live in that kind of dystopian world?

Protests can do a lot to raise awareness, but they lack a very important ingredient: Money. This is why the environmental movement turned to investors as a powerful lever of change. The fossil fuel divestment campaign with its focus on "easy" targets, such as universities and charitable organisations, has given a big boost to climate change activism. These institutions can give a powerful message. But their financial power is dwarfed compared to the trillion pounds average citizens jointly own in their pensions.

Pension funds are cruising along, unsuspecting of the large iceberg coming their way. The companies they own spend our parents' retirement savings in the search for new fossil fuels – at a time when existing reserves are already sufficient to lock us into potentially 5°C of global warming. What's worse, they also seek to manipulate public opinion and lobby governments, ensuring nothing stands in the way of profits.

Meanwhile, few global leaders are displaying the courage to address the issue of climate change. The blunt reality is that it's the older generation who largely ignored scientists' warnings, and many of them are still in denial about climate change. It is their culture of irresponsibility that created this mess, and their generation is over-represented among the political and business decision-makers. Yet it's we– the younger generation – who are going to suffer the consequences of their passivity. It is down to us to make our voice heard and to find a way around our lack of representation.

Most young people have no funds, but our parents collectively have a very large pot of money in their pensions. Whether they are concerned about climate change or not, they do really care about their children. If asked directly, what parent would want their money to fuel an economy which harms their children's prospects for the possibility of a little extra performance in the short term? And who is better suited to ask them to have their say on this trade off than us, their own children?

This is the thinking behind the Push Your Parents campaign: young people's future is at stake, so we encourage them to ask their parents to take two minutes to email their pension funds. Parents can find an emailing tool and a letter template online asking pension funds to act on climate change risks for their investments.

Alongside our own research on investment and pension funds, we received help from Share Action, the Asset Owners Disclosure Project and the experts on our advisory council. As it turns out, investing is not as complicated as it sounds, and with a fresh eye, you can actually notice inconsistencies that the experts have just learnt to ignore.

Pension funds engage in short-term trading, or "beauty contest" investing as Keynes called it. This is harmful to long-term returns and clearly ignores the fact that pension members often have investment horizons of decades. If the financial system carries on with business as usual, atmospheric carbon concentrations will rise alarmingly with the real risk that pension assets will be wiped out along with the world as we know it.

Because of their long-term horizon, pension funds can and should be the drivers of the transition to the low carbon economy. Pioneers include the Norwegian fund Store brand, which recently divested from 29 coal and oil sands companies, taking a strong engagement position on the climate change issue.

Many funds are also requesting fossil fuel companies to assess and report on their carbon assets risk. Yet these are exceptions. Public pressure is needed for pension funds to become the active owners of companies they ought to be. The laggards need to be cajoled, and the leaders rewarded. The good news is pension funds are accountable to pension members. If you or your parents have a pension, the power is in your hands. Please demand that your fund stops fucking up our future!

This article was originally posted online at the Guardian's website and reposted here. As an owner of this blog I do not claim any right on this article and I am grateful to the Guardian and the authors who are: Antoine Thalmann is a masters student in economics at Oxford University and co-founder and member of the coordinating team of the Push Your Parents campaign. Maria is a PhD Student in Biomedical Engineering at the Oxford University. She is in charge of social media and communication for the Push Your Parents campaign.