Big bill for a green revolution

How do we foot the bill for significant renewable energy projects in an economic downturn?

How will the UK’s commitment to cut greenhouse gas emissions by 26 per cent over the next 11 years be affec­ted by the enormous strain on government and private sector finances caused by the credit crunch? In particular, how are we going to pay to expand renewable generation from two per cent of our current energy supply to the proposed 15 per cent?

Let us be in no doubt, the bill is massive and rising. In January, the Department for Energy and Climate Change announced ambitious plans to produce five per cent of the UK’s energy from tidal power projects in the Severn estuary – estimated cost £15bn. When the press release hit the wires, siren voices, many of them supporters of renewable energy, warned that there was neither the money nor the skills to make it happen by 2020.

There was more bad news in January for supporters of the long-anticipated London Array, which promises to provide a quarter of the capital’s electricity from wind power. ‘The economics of this project should be revisited,’ said Abu Dhabi’s Masdar, the renewable energy fund that is one of the principal partners. Can anyone predict with confidence the date the turbines in the Thames Estuary will start turning?

The deepening recession has illuminated an essential truth about renewable energy, and the Government, in my view, needs to begin a serious dialogue with the British people. Big wind farms, solar power and other alternative energies cannot be considered as principally commercial propositions. Although the amount of venture capital going into the UK’s renewable energy industry over the past five years has been substantial (and is growing), this has mainly been for research and development into breakthrough technologies.

When it comes to large infrastructure projects like the London Array, it is unlikely, even in normal economic times, that they can be funded mainly or solely through private finance. In a severe downturn, it appears nigh on impossible.

The reason for the gloomy outlook is hard commercial reality. On a purely market basis, coal and natural gas are cheaper than renewables, at least for the foreseeable future. Energy companies will exploit those resources first. That’s why there are plans for new coal-fired plants appearing in the UK for the first time in a generation.

On the other hand, Germany has (probably) the best solar industry in the world because the federal government subsidises it heavily. Barack Obama has started his presidency with an impressive commitment to fund a huge expansion of renewable energy. Can the UK do the same, when the likely cost of the capital investment will be in the tens of billions? And that’s before the many billions that will be needed to significantly reduce emissions from existing coal and gas plants.

If rising public sector debt rules out increases in alternative energy investment, there must be an honest and grown-up conversation with the British electorate. Are we prepared to pay for cleaner energy through higher taxes or utility bills? Creating a ‘price for carbon’ through Europe’s Emission Trading Scheme does not provide an answer – at best it merely transfers the cost from one group in society to another. And it is unrealistic, as some green advocacy groups have suggested, for the energy industry and other emissions producers to bear most of the burden.

Reducing greenhouse gases and tackling global warming is a massive problem for society at large, and there will be a big societal price tag for fixing it. Achieving that in a severe recession must be one of the thorniest issues on the government agenda for the rest of this decade and beyond.

Views in brief

Name one little-known MP who you believe will become influential. Why?

Greg Clark, the Tory spokesman for energy and climate change. He caught the attention of the chattering classes as shadow minister for charities, social enterprise and volunteering. Now he is snapping at the heels of the government on issues such as nuclear power and big rail fare increases.

Your yacht is moored off Corfu but Mandelson, Osborne, Rothschild and Deripaska aren’t available. Who is on your fantasy guest list?
Steven Chu, the Nobel physicist and now Obama’s energy secretary, Arnold Schwarzenegger and Al Gore.

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