Category: Climate change

I am sometimes asked whether one should change one’s household electricity supplier to a green company that promises to source 100% of its supplies from renewable generators.  This post addresses this question, hopefully in a clearer and more successful way than I normally manage in conversation.

The first point to make is that electricity is a commodity: assuming you do not have solar panels on your roof and are not connected directly to your own personal windfarm, there is no way of distinguishing the electricity that flows into your house from the electricity that flows into mine.  Our electricity flows through a common grid and it is impossible to source it back to different types of power station.

The second point is that once a windfarm or solar PV power plant is developed, then it generates as long as the wind is blowing or the sun is shining.  This is slightly simplistic – outages may be caused by problems on the local network or maintenance of the turbines themselves; but crucially the output from these renewable generators does not depend on the actions of householders, or their choice of supplier.  This means that whether you choose a “brown” supplier or a “green” supplier makes no difference to the way in which electricity is actually generated in the near term, or indeed for the next few years given the time it takes to plan, obtain permits for, and develop new generation capacity.

The categorisation of suppliers into “brown” and “green” is simplistic, as the large supply companies such as EdF, e.on and npower are predominantly brown but also provide the most green energy.  However, some of the small niche suppliers source all of their power from renewable generators.  For simplicity, this post users the terms “green” and “brown” but for most suppliers a shade somewhere between the two would be more appropriate.

You might think that by choosing a green supplier, you are encouraging the development of new renewable capacity.  Well, you are contributing to the profits of the green supplier.  These profits will probably not affect the profits of the renewable generators themselves.  This is because of the manner in which renewable generation is supported in Britain.

Most renewable generation is supported by something called the Renewables Obligation (RO) which was set up in 2002 and will last until 2037.  Under the RO, electricity suppliers have an obligation, set annually by government, to procure a minimum percentage of their total supplies from renewable generators.  The process by which this happens is as follows: the generators are given Renewables Obligation Certificates (ROCs); the suppliers obtain these ROCs if they buy their power from renewable generators, in proportion to how much they buy; and the suppliers submit ROCs at the end of each year to demonstrate compliance with the obligation.  If a supplier fails to submit enough ROCs to meet its requirement, then it pays a penalty price, called the “buyout price”, multiplied by its volume shortfall.  (So for instance if a supplier was required to submit 100 ROCs, and only submitted 85, it would pay the buyout price for 15 units.)  Under this mechanism, renewable generators receive a level of support, for each unit of electricity they produce, which is approximately equal to this “buyout price”.

The level of support – the ROC price paid to renewable generators – does not vary much depending on how many customers choose green suppliers.  Suppose no-one opts for a green supplier.  All of the successful brown suppliers still need to meet their obligations under the RO, or pay the buyout price for each unit of shortfall.  This means they will still be willing to pay roughly the buyout price for purchasing ROCs from renewable generators.  (In practice, they might be willing to pay a little more.  This is because of what happens to the penalty payments.  These payments are recycled within the industry, with suppliers receiving back recycle payments in proportion to how many ROCs they have.  So if a supplier which is ‘short’ buys one more ROC before the submission date, it not only avoids paying the buyout price for that ROC, but also gets a slightly higher recycle payment at the end of the year.  In consequence, the supplier is willing to pay slightly more than the buyout price for the extra ROC.  This is a nuance though, which does not affect the general argument.)

Now suppose the opposite: that every household tries to buy from a green supplier.  At a certain point, the green suppliers would be unable to source any more electricity from green generators – and be forced to buy further supplies from brown generators.  They would either have to say to customers “sorry, I don’t have any more green power to sell you” or “sorry, I have decided not to be completely green”.  But they would not pay more than the buyout price (plus the modest top-up associated with recycle value) to renewable generators.  Why?  Because they can always pay the penalty buyout price at the end of the year for any shortfall in their obligation under the RO, and this caps the price they are willing to pay renewable generators for their output.

How is new renewable generation supported in Great Britain?

In 2016, the government ended support for new onshore wind and solar projects under the RO.  In 2017, the government ended support for all other forms of new renewable electricity under the RO.  This just affects new projects; existing projects will continue to be supported for a maximum of another 20 years.

In future, new renewable generation projects will be supported by a mechanism known as Contracts for Difference (CfD).  The government decides centrally on the amount and type of renewable capacity that is eligible to participate in CfD auctions.  Projects that are successful in the auctions receive support via “difference payments”; in essence, this means they get a long-term fixed price for their output, based on the results of the auction.  The difference payments are recovered from electricity suppliers by a central body known as LCCC, and the electricity suppliers in turn pass the costs on to electricity consumers.

The point here is that individual consumers cannot affect the CfD auctions and hence cannot affect the development of new renewable generators.

So all of this means that if you buy your power from a green supplier, you are increasing the profits of that supplier, but you are not affecting the generation of electricity in Great Britain – at least not in the near term (the next few years).  It is conceivable that a green supplier would put a portion of its profits into research and development for new renewable generation – and that the increased R&D might lead to cost reductions in the manufacturing process; but it is unlikely that the supplier, whatever its level of profit, would directly spend money developing a new renewable power station unless it thought that station was going to be profitable in its own right.

In summary, buying green power is not necessarily green.  It is definitely not green in the near term; and only possibly, indirectly, and immeasurably, green in the longer term.

But what else can we do?  Well, we can use less electricity.  Because renewable generation of its nature is not demand-sensitive, fluctuations in demand are picked up by flexible thermal power stations, which in Britain are fuelled by natural gas and coal.  So if we reduce our demand, we are definitely reducing (other things being equal) the demand on natural gas-fired or coal-fired power stations – the very stations that emit greenhouse gases when they are used.

We can also lobby our politicians and sign petitions in support of renewable energy and decarbonisation.  This is more direct, and probably more effective, in terms of supporting green power than buying from a green supply company.

Finally, we can take matters into our own hands and install solar photovoltaic panels on our house.  The difficulty here is that in 2016 the government ended the attractive support scheme for doing this – so it is no longer cost effective, even if you happen to have a large south-facing roof.  In the fullness of time, it may again become financially attractive to do this – either because solar panels are automatically incorporated in the design of new houses, or because the costs of retrofitting solar panels fall relative to the price of electricity.

“Opportunities to renew and reimagine our shared values as a country and a United Kingdom of Great Britain and Northern Ireland only come around every few generations. We are in such a time.” Archbishops Pastoral Letter to the Parishes and Chaplaincies of the Church of England, 6th May 2017

In the run-up to the General Election on 8th June, the Archbishops of York and Canterbury have published a letter calling on voters to consider their “obligations to future generations”.  These obligations are to alleviate poverty, to fund the NHS, to support education, and to develop housing.  The letter also says that we need to develop our communities, support marriage, and be generous to refugees.  Apparently Brexit has given us a once-every-few-generations opportunity to renew our shared values, as if we are handcuffed from doing so for decades at a stretch.  There is no mention of caring for the environment, its exclusion by implication placing it outside the top tier of shared values.

No doubt the Archbishops are deeply caring and Britain would be a better place if their wishes were accommodated.  But a failure to mention the environment is worrying.  In the years to come, it will not be possible to disassociate our treatment of the natural world from human poverty, health and living standards.  If we are to avoid environmental disaster, we will need radical changes to our way of life, the implementation of which cannot wait for the next “opportunity” in a few decades’ time.

At least the Archbishops think we have a chance now to “reimagine” our shared values, so maybe we could be bold and include nature in our thinking.

Green thinking applied to housing

Let’s take one of their priorities, housing, as an example.  Currently there are 28 million residential properties in the UK, supporting a population of 65 million residents, an average of 2.3 residents per property.  In European countries, the average ranges between 2 and 3 residents per property, with the UK towards the lower end.

We apparently have a need, oft repeated in the press, to build something like 250,000 homes per annum for several years to accommodate the homeless, young people starting on the housing ladder, immigrants, and those on low incomes.  The UK has not managed to achieve this build rate anytime in the last forty years, but let’s assume we somehow manage it for the next twenty, thereby achieving the goal set last year by the Daily Telegraph of achieving 5 million new homes by 2040 (http://www.telegraph.co.uk/news/2016/07/12/53-million-new-homes-needed-as-ageing-and-immigration-drive-dema/).

5 million new homes would of course add to existing pressure on our landscape, with further losses of green spaces and forest.  (We could build on existing farmland, but that raises the dilemma of having either homes but not enough British-sourced food, or food but not enough homes.)  Given that England in particular has gone from being 80% covered to 8% covered by forest in recent centuries, as the result of farming practices, this feels like the wrong direction of travel unless there really is no alternative.

Maybe there really isn’t, and people matter more than trees; but let’s imagine – as part of the reimagining process in which the Archbishops invite us to participate – that we do not build any new homes at all, and instead focus on increasing the level of occupancy of existing homes.  To fit our population into the housing stock that would then prevail in 2040, without the advent of those 5 million extra homes, our average occupancy rate would have to rise from around 2.3 persons per property to 2.8 persons per property, an extra half body per dwelling.  This is still within the EU range.  We would feel a little more crowded but would have avoided a large number of tedious planning applications, not to mention an unwelcome increase to our already large housing footprint on the British landscape.

Climate change considerations

The UK has a very ambitious target to reduce its greenhouse gas emissions by 80% by 2050 from 1990 levels.  Although a portion of this will be achieved by closing our coal power stations, and a larger proportion will be achieved disingenuously by importing our goods and electricity and thereby not including their impact in our national statistics (this is known as “carbon leakage”), it is still very hard to see how the target will be realised in full without a radical change of lifestyle.  If we consider that the average carbon footprint of a UK resident is 10-15 tCO2e per annum, the UK’s target is to bring this down to 2-3 tCO2e per annum by 2050.  That is, not coincidentally, the level which climate scientists say we need to achieve globally to avoid catastrophic climate change.

Now for a sense of scale.  Per head of population, we emit nearly 1 tCO2 per annum just from burning gas in the home.  That is based on the current housing stock, heating habits, and occupancy rate.  So between a half and a third of our long term sustainable budget, before we consider shopping, diet, travel, etc., would be used up by the domestic boiler assuming current usage persists.

It may be that we should knock down  a large chunk of our existing energy-inefficient houses, and replace them with new and more energy-efficient houses instead.  But that is an argument for updating rather than extending our housing stock.  If we don’t extend the stock, then we will have to increase its utilisation.  It would clearly be helpful in terms of meeting our ambitious but scientifically justified target for 2050 (especially as we will be burdening other countries with all that carbon leakage) if we were to learn how to live with an extra half body per dwelling.

How do we increase occupancy rates?  Perhaps the Church’s emphasis on community is a good starting point.  Perhaps we need financial incentives to support households taking in lodgers.  Perhaps we need a change in attitudes to home ownership (a number of wealthy countries including Germany and Austria have significantly lower levels of ownership).  Perhaps we need deep-seated changes in cultural attitudes to living together in the same house …

This is of course a simplistic analysis.  But it is equally – and dangerously – simplistic to talk of an extra 250,000 homes per annum, or 5 million homes by 2040, without giving any consideration to how housing fits into our climate change targets.