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Phasing out subsidies

Governments around the world use subsidies to achieve certain policy outcomes. They include the infamous EU Common Agricultural Policy (CAP), which protects farmers from the economic realities of international trading and a range of tax advantages to encourage the development of new businesses or the establishment of existing ones in relatively deprived areas. But one of the highest profile examples is the range of subsidies supporting renewable energy. Since the money being doled out comes from us taxpayers, it is perfectly legitimate to question whether politicians are spending it wisely.

The sole justification for renewable energy subsidies is to encourage an otherwise-uneconomic form of electricity generation as a way to meet goals for carbon dioxide emission reductions. Ignoring for the moment hydroelectricity, which has been well-developed for some time in a number of countries, but for which few significant new opportunities remain, wind is the technology which has been exploited most, and which has therefore attracted the greater part of the taxpayer subsidy.

But, crucially, wind is intermittent and cannot contribute to energy security unless integrated into a network which can provide essentially 100% backup. As I write this, during a spell of hot dry weather associated with a stationary area of high pressure, total UK wind generation is contributing just 0.65GW towards a total demand of 40.6GW. Coal, gas and nuclear stations are running flat out, nearly 2GW of nuclear electricity is being supplied from France, and even the interconnector with the Netherlands is contributing 0.8GW of (mainly coal-fired) electricity.

At the beginning of this year, the UK had nearly 8.5GW of installed wind turbine capacity (figures from the European Wind Energy Association), and this is continuing to increase. At this time, this expensive fleet is operating at a little under 8% of nominal capacity (at best, since more wind farms will have come on stream since the EWEA figures were published). This will not be an uncommon occurrence either in summer heat waves or very cold periods in winter, both associated with stationary areas of high pressure and rather little in the way of wind.

The use of wind energy is, of course, long established. Before the Industrial Revolution, made possible by the availability of large amounts of cheap, reliable energy from coal, windmills were commonly used to make flour and drain land as well as for a variety of other industrial purposes. Mills could be used whenever the wind was blowing, and calm periods were of no great concern in pre-industrial societies. Neither did these mills require subsidy. Together with water mills and muscle power, they constituted the primary energy sources available.

But using modern versions of windmills to generate grid electricity – which modern societies need to be constantly available – is quite a different thing. The reason we regard windmills as historical artefacts is that there is simply no way they can be competitive with modern energy grids, although they may have some use in isolated situations. The reason we see wind turbines across the countryside and off our coasts now is that our money is being used to fund their operation in a fruitless attempt to reduce global emissions of carbon dioxide and thereby supposedly reduce the amount of global warming over coming decades and centuries.

In a similarly misguided fashion, another largely-outmoded source of energy was included in the list of renewable energy technologies which would be acceptable: biomass (while nuclear, the one technology capable of provided secure, low-carbon energy, was excluded for doctrinaire reasons). Wood was the main fuel for pre-industrial societies, as well as being one of its primary building materials.

Wood remains the main fuel for hundreds of millions of people in developing countries. The search for firewood can be a difficult one, and inefficient indoor fires are a major source of lung disease. In the developed world, it was rapidly displaced by coal, cleaner burning (relatively) and with a higher energy density. Despite this, the received wisdom until recently has been that burning wood is good, because the carbon dioxide released is reabsorbed as new trees grow.

On this basis, further subsidies have been provided for wood and other biomass (straw etc) to be burnt to generate electricity and provide heat, even though some analysts pointed out that this would actually increase emissions in the short term compared with burning gas. In fact, it may take 50 years for trees to grow and reabsorb the same quantity of carbon dioxide as was released by their burning. And, if the amount of biomass burnt continues to grow, this bulge in emissions is likely to show up for several decades. Since the target is for emissions to be reduced by 80% or more by 2050, this seems somewhat perverse.

Now, at last, the penny seems to have dropped. As the BBC reports, Biomass fuel subsidies to be capped, says energy secretary. However, the cap is to be set at 400MW per plant, which would still take enormous quantities of wood, and subsidies for existing stations will continue till 2027. Drax and other large power stations will continue to import American woodchips for many years to come and be paid by the taxpayer for doing so, but at least the principle has finally been set that subsidies are not necessarily open-ended.

The high tide of subsidies appears also to have been reached for a much newer, but even more expensive, technology: photovoltaics. Germany has been so successful in encouraging their installation that it now has some 34GW of installed capacity spread across farmers’ fields and industrial and domestic roofs, far more than any other country. Realising the sheer cost of this will be an issue in the next election, the government has now decided to reduce feed-in tariffs and stop all subsidies once an agreed limit of 52GW had been achieved. This is expected to be by 2018 at latest (see Germany pulls plug on solar subsidies).

The head of Siemens (which itself has wind energy interests) is quoted as saying that the Federal government "has so far invested €216 billion in renewables and the biggest chunk went to solar, the technology which does least to ensure the power supply." For ‘invested’ read ‘forced consumers to pay for’. And, although subsidies will no longer be paid after 2018, we have to assume they will continue on the installed capacity, otherwise all new installations would stop now. The German consumer looks set to be paying the cost for decades to come but, in Europe at least, they are not alone. 

Current Issues

To see UK electricity demand
and the contribution from
wind, see www.gridwatch.templar.co.uk

 

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