The United Kingdom of England, Wales, Scotland and Northern
Ireland has voted in yesterday’s referendum to end its membership in the
European Union. What does this mean for the country's renewable energy sector?
The UK's decision to leave the EU could have repercussions
on its clean energy progress.
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So, this is it. Brexit is the result of the referendum been
held yesterday in the UK regarding its membership in the European Union (EU)
bloc. The winning camp of the Britons supporting the termination of the UK’s EU
membership has suggested that exiting the bloc will repatriate the UK’s
policy-making power from Brussels back to London. Is this true and how the new
policy-making structure will affect the UK’s renewable energy sector?
Despite of where one stands in the referendum debate, the
fact is that the UK’s energy policy was always made in London, not in
Brussels.
UK energy policy was always UK-made
The UK liberalised its electricity sector in 1989 (via the Electricity Act
1989) and from this point onwards power investment was led by market forces
alone, with natural gas being the preferred investment.
Contrary to the referendum discourse, it is the UK that
shaped the EU energy policy at large, not the opposite. The EU policy of
unbundling the electricity sector (implying the separation of the generation
assets from the transmission and distribution grids) was promoted based on the
British case, which together with some other EU countries (e.g. the Nordic
member-states) had already unbundled their electricity sector.
In fact, the adoption of the so-called ‘third legislative
package’ in 2009, which is the EU directive promoting the liberalisations of the
bloc’s electricity sectors, was considered from London as a very weak one. The
EU directive asks from member-states to separate the management of the
transmission networks from the power generators, but the UK was in favour of
the full ownership unbundling, meaning total ownership separation of the
generators and the networks, which the EU directive makes optional.
UK renewable energy policy
Specifically in the renewable energy sector, the case of a distinct UK energy
policy is also visible.
The EU has been the world’s renewable energy powerhouse.
The 2001RES-E directive on the promotion of electricity from renewable
energy sources constitutes the earliest most significant piece of
legislation for renewable electricity in the world.
However, contrary to the Brexit proponents, the EU
legislation did not impose the policy mechanism to comply with the EU directive
goals. Instead, renewable energy remuneration schemes were left totally on the
member-states jurisdiction.
Most of the European countries adopted the so-called premium
tariffs (also known as feed-in tariffs). The UK adopted its own, separate
remuneration model based on a quota system.
Where feed-in tariff (FIT) policies prevail, the
pricing laws establish the price per kilowatt hour (kWh) and let the energy
market determine capacity and generation. Quota systems work in
reverse: the government sets a target of power production from
renewable energies and lets the market determine the price of power.
UK’s wind and solar industries
The UK developed its renewable energy sector based on the Renewables Obligation
(RO), a quota scheme, that led to the only publicly subsidized electricity
investments in the country, post the 1989 privatisation era.
Initially, wind investments led the way in Scotland, which
is the UK’s windiest part, and later to the rest of the country.
In the last years, following the major decrease in the solar
PV technology costs, the RO scheme supported a new wave of solar PV investments
too.
Meanwhile, in 2010 the UK government also introduced the FIT
scheme for supporting small scale low-carbon installations up to a maximum
capacity of 5 MW.
According to the latest UK statistics, 4.4 GW of capacity is
confirmed on FITs, of which the vast majority comes from solar photovoltaic
installations. Furthermore, from 2007 until today, the RO scheme has supported
about 11 GW of wind power capacity and about 5 GW of solar PV
installations.
There have been arguments that in the initial stages of
renewable energy technology, the FIT schemes helped the EU countries, like
Denmark and Germany, to develop domestic renewable energy industries, while the
quota systems are less encouraging. Whatever the case is, this was always a
member-state policy decision. The lack of domestic UK manufacturing renewable
power technology industry cannot be blamed on the EU.
Statist sector
So, where is the UK now? The solar PV stakeholders know the answer well. The UK
has recently abandoned (or drastically cut in the case of PV FITs) its past
renewable energy subsidy schemes and the country’s electricity sector post-2014
is governed by the Electricity Market Reform (EMR).
Based on the EMR, all electricity investments are publicly
subsidized: the fossil-fuel sectors receive subsidies via the capacity market
and the renewable energy sector via the Contracts for Difference (CfDs)
scheme.
The implementation of the EMR in the last two years has
shown the government is not interested in renewable power development. It has
run only a CfDs auction dedicating a fraction of funding compared to the capacity market,
while in addition it is about to support the building of a nuclear power plant,
further supporting the centralized energy system of the past.
What the referendum result adds is that it frees the UK
government from its obligation to meet the EU-set renewable energy targets.
At the same time, energy markets in the rest of Europe move
in opposite direction than the UK. EU countries work towards an internal EU
energy market, build electricity interconnectors, decentralize their systems
and rely on each other to achieve higher penetration of renewable energies and
a stable grid.
UK's post-Brexit energy sector will be left in the
continent's corner, meddling though the subsidies that allow it to keep its
fossil-fuel fleet running and been disadvantaged from the energy co-operation
that takes shape in the EU.
Some prefer to argue that Brexit will bring the removal of
duties to solar PV panels imported in the country from outside the EU and that
this might boost the UK solar sector. This point is valid, but the downside is
it focuses on the specifics of the sector while missing the whole UK energy
picture.
Another argument is that the country has a very ambitious
climate change bill in place. While this is true, the parties and political
figures aligned behind the Brexit campaign, and soon to be in the UK
government, neglect climate change and have opposed renewable type of
energies.
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