How do we kick start the next UK renewables boom?
Prospect energy researcher, Nick Kardahji, applauds the progress of renewable energy in the UK but says there is still much more we need to do if we are to achieve net zero emissions.
Over the last decade renewables have grown from being a niche player in the UK energy system to become a mainstay of our power sector. In 2009, less than 7% of our electricity was generated from renewable sources, today that figure is close to 40%.
This has been achieved thanks to a renewables building boom; nearly 40 GW of new renewable generating capacity was installed in the UK over the last decade, predominantly wind and solar.
There is much to celebrate in this achievement, and the growth of renewables is a key part of the reason why greenhouse gas emissions have been falling in the UK. But, there are also big questions to ask about the way we did it.
Successive governments have followed a private sector-led approach to low carbon energy development, with minimal involvement by the state, and this has meant slower progress, higher costs for consumers, and fewer benefits for the UK economy.
Responding effectively to the climate emergency will necessitate an accelerated roll-out of renewable energy infrastructure, and with growing calls for a post-Covid green recovery package, now is the time to think seriously about how we could do things differently.
A major shift in policy towards a more state-supported approach could drive much higher deployment rates at lower cost, while maximising jobs and local economic benefits for UK communities.
The UK’s renewables boom
The UK has been generating electricity from renewable sources for decades, but renewables remained a minor part of our electricity mix until very recently.
A key turning point was the 2008 Energy Act which introduced the Feed-in-Tariff scheme for small-scale renewables, and made changes to the Renewables Obligation, the main support scheme for large-scale projects, to make it more generous for certain technologies.
These measures, which came into force over the subsequent two years, helped fuel a boom in new renewables projects.
The Energy Act cemented a private sector-led approach to renewables development in the UK; generous subsidies were used to attract private developers to the sector, paid for by a levy on consumer electricity bills.
This meant the UK state essentially controlled the investment ‘tap’, using the main subsidy schemes to influence how much private capital flowed into renewables projects.
But, there soon proved to be real limits to this; even at generous levels, the build rate of new renewables remained stubbornly below what is needed to hit our climate targets and when a Conservative backlash against green subsidies led the Coalition Government to start scaling them back, build rates plummeted.
By 2019, total annual renewables capacity additions had fallen to just 3GW, half the level achieved in 2015. Similarly, according to research by Bloomberg New Energy Finance, the amount of new investment in UK renewables plummeted after 2016 to hit a 10-year low.
Even with the subsidy cuts, the cost for consumers of renewables support has grown rapidly. Funding subsidies through customer bills has essentially meant a regressive tax levied on all consumers regardless of their ability to pay.
As the fruits of the renewables boom began generating power and earning subsidy payments, the proportion of a typical domestic electricity bill devoted to green subsidies grew 70% between 2015 and 2019, and by 2025 is forecast to grow 150% on 2015 levels.
On top of this, while the UK state controlled the investment tap via the subsidy schemes, it did little to influence how that money was spent. This led to a persistently low level of UK content in renewables projects, with much of the work and the jobs being offshored.
Most of the major developers and contractors working on UK renewables projects are based in other European countries, with UK companies generally relegated to lower down the supply chain. This is a key reason, along with the drop off in new projects, why the number of UK jobs in renewables was down 22% in 2018 (the latest year for which data is available) compared with 2014.
A key feature of the employment landscape in the renewables industry is the limited presence of trade unions and the lack of an effective worker voice. This contrasts sharply with much of the rest of the UK energy sector where unions have long played a major role.
Some of the key consequences of this include less secure employment and lower health and safety standards. Based on figures produced by the offshore wind industry, for example, the rate of accidents is twice as high in that sector than in offshore oil and gas.
Renewables developers have also been caught paying construction workers working on new offshore wind farms a
fraction of the UK minimum wage.
How could we do things differently?
The coronavirus pandemic has underlined the increasing centrality of renewables to our electricity mix. While overall electricity demand fell by 16% during April compared with the same month last year as the UK went into lockdown, renewables output grew by around 7% and the UK witnessed the longest sustained period without coal use since the industrial revolution.
The pandemic has also underscored the critical role of the state in responding to a crisis of this magnitude; as devastating as coronavirus has been, if left unchecked the climate crisis could have even more serious consequences.
So, how do we ensure that the next renewables boom is more sustainable and brings greater benefits to the UK economy? A key starting point is a rethink on how we pay for new renewable energy projects, given the serious shortcomings of the current approach outlined above.
There is a strong case for new financing mechanisms which can greatly increase the volume of new renewables projects, whilst also ensuring that the costs and benefits of those projects are spread fairly.
Renewables projects, especially in areas like offshore wind, are highly capital intensive, so the cost of financing is a critical variable. Government borrowing is likely to remain a far cheaper option than letting the private sector finance projects alone.
As the House of Commons Environmental Audit Select Committee argued in 2018, the government could, for example, issue sovereign green bonds to attract more capital to the UK renewables sector at cheaper rates, and could also support local authorities to issue their own green bonds to fund smaller-scale local renewables projects.
There is also a compelling case for establishing a Net Zero Investment Bank to help provide development financing for UK renewables. The UK’s previous attempt at this, the Green Investment Bank, was privatised in 2017, and following its sale to the Australian investment bank Macquarie, the renamed Green Investment Group has significantly reduced its investments in UK projects.
Furthermore, as Brexit looms, we’re likely to lose access to funding from the European Investment Bank, which has poured over £13 billion into UK energy projects since 2012.
Public financing mechanisms would help shift the burden away from consumer bills, and help spread costs more fairly. But, such mechanisms could also be used to help shape how projects are undertaken, and ensure greater benefits accrue to the UK.
Since the Renewables Obligation was closed to new projects in 2017, its replacement, the Contracts for Difference scheme, has been lauded for lowering the price of subsidies. But, it has also inaugurated a race to the bottom on costs which threatens safety and, crucially, incentivises developers to seek out the cheapest sources of labour.
As the UK head of German energy firm RWE said recently, significantly increasing UK content in renewables projects will be very difficult to achieve in the current highly competitive funding landscape.
But to really increase the benefits to the UK in terms of jobs and economic returns from renewables projects, we really need to create a state-backed project developer. Other European countries have their own national champions – and they are key players in the UK, including France’s EDF and Denmark’s Orsted.
The basis for an equivalent UK champion is clear; the UK has tremendous natural renewable resources, especially in offshore wind and tidal energy, as well as a long history of expertise in key areas like maritime engineering.
A new state-backed renewables company could help nurture a more robust UK supply chain, whilst also driving forward projects at lower cost in emerging areas like tidal energy, which the private sector is unlikely to finance without expensive subsidies.
Building new infrastructure isn’t just about sourcing the right financing and assembling the right kit though; without a skilled, resilient workforce, a big increase to renewables deployment will be unachievable.
But, a protracted energy sector skills crisis threatens this; a persistent failure to encourage more students into STEM subjects (especially engineering) and a decade of cuts to further education has restricted the pipeline of new skilled workers into renewables.
Emerging renewables clusters in areas like East Anglia are struggling to expand skills capacity, potentially limiting the scope of future renewables development.
These issues are compounded by a failure to plan for just transition so that renewables projects can benefit from the skills of workers in carbon-intensive sectors like thermal generation or offshore oil and gas.
Scotland has made an important start by setting up a Just Transition Commission, but for the rest of the UK little if any progress has been made. The bitter legacy of the coal industry’s decimation provides a reminder of the serious consequences of getting this wrong.
But, it is not just about getting sufficient skilled workers into the renewables sector; we also need to ensure that once there, those workers enjoy decent pay and working conditions, and have an adequate voice in the workplace.
A new renewables boom needs a renewables workforce plan that not only greatly expands training capacity and incorporates a just transition framework, but also enshrines high standards of employment and social partnership, including guarantees of access for trade unions. The Scottish Government’s Fair Work initiative offers one model of what this could look like.
Renewables will be critical to achieving net zero, a goal we must reach if we are to avoid the potentially catastrophic consequences of unmitigated climate change. But, with the right policy support the UK could enjoy a new renewables boom, one that is built on high quality job creation and local economic benefits for UK communities.
As we look ahead to life after coronavirus, the time is ripe for bold new thinking and a new direction for UK renewables.