Exclusive research by Accenture and Utility Week lifts the lid on what generators think the UK will have to do to fulfil its 20:20 obligations.

Under the European Union 20:20 goals, 20 per cent of energy used across the 27 EU member states must come from renewable sources by 2020. When it signed up to this ambitious plan, the British government committed itself to ensuring that 15 per cent of the country's overall energy demand came from renewable sources by 2020.

While this includes energy used for transport, aviation and heating, achieving this goal will require a massive leap in the proportion of electricity generated using renewable sources, from the current level of around 5 per cent.

With most of this increase expected to come from wind, electricity prices will inevitably rise. Even including the cost of carbon dioxide emissions permits, power from offshore wind costs roughly twice that generated by a modern gas-fired plant. With the country in the grip of recession and average energy bills twice what they were five years ago, this green premium could be hard to swallow for hard-pressed consumers.

To gauge the implications of signing up to Europe's 20:20 goals, Accenture and Utility Week commissioned exclusive research among 32 senior managers working for UK power generators and a representative sample of 1,002 consumers.

The in-depth survey of power generation managers found that almost half (47 per cent) believe that more than 35 per cent of electricity generation must come from renewable sources if the UK is to meet its 20:20 obligations. A further 41 per cent expect renewables will have to provide between 20 and 35 per cent of electricity generation.

Power price impact

Looking at the impact of this increase in renewable output on average electricity prices by 2020, 31 per cent think prices will rise between 11 and 20 per cent while 22 per cent expect prices to rise between 21 and 30 per cent. Almost one-tenth (9 per cent) think prices will rise by more 30 per cent. Across the sample, average power prices are forecast to rise by 18 per cent.

When asked what sources of renewable power would be the main contributors to achieving the 20:20 targets, offshore wind was the top option, followed by onshore wind, biomass, hydro and wave/tidal. Solar power came a distant sixth. Distributed generation is also thought to offer significant potential, with 25 per cent of electricity generators foreseeing large growth by 2020.

Cutting carbon emissions can also be achieved by means other than increasing renewable generation. Around one-third (34 per cent) of power generators want to see demand management programmes that reduce customers' energy consumption credited towards renewables targets.

Accenture's lead on climate change, Sak Nayagam, says he is "surprised" that only a minority of generators believe demand management should count towards renewable output, although one major stumbling block is the UK's highly fragmented energy industry. "Unlike in the US, with its vertically integrated regional energy suppliers, it is difficult to see how the benefits of demand management can be shared among UK retailers, distributors and generators," Nayagam says. "There is a lot of talk about the rebirth of the energy services company, but there are implicit challenges in generators sharing the costs and benefits of reduced energy demand."

Nuclear as renewable

With no prospect of nuclear generation being counted as renewable under the EU's 20:20 goals, it is even more surprising that almost half of respondents (44 per cent) thought nuclear should count as renewable energy. "Perhaps there is a perception of nuclear energy being more acceptable to the public if it is described as 'renewable'," says Nayagam. "More likely is the hope that nuclear, as a low carbon technology, could attract support along the lines of the Renewables Obligation."

The scale of the gap between the UK's current renewables output and that needed to achieve the 20:20 goals - and the industry's pessimism about the likelihood of bridging this gap in the next ten years - is highlighted in the responses to a set of questions about the generators' own plans for renewables.

Excluding the specialist renewable generators in the survey, one-third of respondents (34 per cent) say that renewables generation accounts for less than 5 per cent of their current output. Only 3 per cent of the sample believe they will achieve the 31 to 40 per cent renewable output needed to hit the 20:20 goals, while around two-fifths (41 per cent) think their companies' renewables output will be between 6 and 20 per cent by 2020.

"Generators are clearly not optimistic about reaching the 35 per cent plus renewable generation we will need to hit our 20:20 targets," says Nayagam. "Almost half of respondents expect renewables to account for less than 30 per cent of their total output by 2020."

Pessimism

David Porter, chief executive of the Association of Electricity Producers (AEP), shares this pessimism. "I do not meet many people who think the 20:20 target will be achieved," he says. "In theory, it could still be done, but it would probably mean even higher costs and a bulldozing of obstacles in the manner required to deliver the Olympic Games."

Looking in more detail at company plans for investment in renewable technology, onshore wind remains the favoured option, mentioned by 63 per cent of respondents, just ahead of biomass (59 per cent) and offshore wind (50 per cent). Almost four in ten generators (38 per cent) say they are investing in hydro and wave/tidal technology, while 31 per cent are putting money into solar power.

With wind energy still the preferred renewable technology, it is to be expected that planning is viewed as the biggest barrier to increasing renewables output, mentioned by 81 per cent of the sample, followed by lack of grid connectivity (66 per cent), cost (59 per cent) and shortage of hardware (41 per cent).

"Cost was not as a high a barrier as might be expected," says Nayagam. "In the current economic climate, generators' cost of capital has gone up while the price of oil has fallen, making renewable energy relatively more expensive."

Biomass

The barriers to wind generation may now mean that burning more biomass in existing generating plant is seen as an increasingly practical option, he adds.
Given the scale of the problem posed by planning issues, it is surprising that when asked what single measure the government should take to increase renewable output, improving the planning regime is only mentioned by 3 per cent of respondents.

"Clearly, while planning is a widespread problem for most generators, it is not their most pressing concern," says Nayagam. "Perhaps they believe the government has already taken steps to address this issue with the creation of the Infrastructure Planning Commission."

Improving the Renewables Obligation regime and grid connections are far higher priorities, both cited as the most desirable government measure by around one-third of respondents (34 per cent). Feed-in tariffs and direct subsidies for renewables are mentioned by a hopeful 13 and 9 per cent, respectively.

Consumer acceptance

Following the research among electricity generators, a consumer omnibus survey was used to gauge the general public's willingness to pay the expected hikes in electricity prices.

Despite the recent steep rises in energy prices - or perhaps because customers have become inured to them - a sizeable majority of UK adults (60 per cent) say they are willing to pay the expected 18 per cent increase in electricity prices to help avert climate change.

Even taking these figures with a pinch of "green intentions" salt, they are a clear indicator that consumers understand and support the higher cost entailed in decarbonising energy. The only caveat, and one that has in any case been anticipated, is that people on lower incomes who are less able to pay their current bills are also less willing to pay more. Almost half (44 per cent) of people in social group DE say they are unwilling to pay more, compared with 29 per cent of ABs.

The AEP's Porter is surprised so many people are prepared to pay 18 per cent more for their electricity. "Perhaps that goes hand-in-hand with their intention to cut back on electricity use," he says.

When asked if the government should abandon or modify its renewables strategy, a similar picture emerges. Again, a clear majority (61 per cent) of consumers support the government policy, although support falls to 53 per cent of those in group DE.

When it comes to taking their own steps to save the planet, it appears the government's latest "switch off" campaign has got through, with over a quarter (27 per cent) of consumers claiming to be trying very hard to reduce electricity consumption. A further 53 per cent claim to be trying fairly hard. Only 7 per cent say they are making no effort at all.

Garry Felgate, chief executive of the Energy Retail Association, says it is time consumers realised the costs of going green. "People are concerned about energy prices and the environment," he says. "There is a lot of misinformation by various commentators who say energy companies should be spending more money on renewables and then in the next breath say they are charging too much money. It would be helpful if those who believe we should have more renewables would say this is the price we will pay."

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