The business leader's guide to the low carbon economy

According to the International Energy Agency one megawatt-hour of electricity costs around $10 from a coal fired power stations, $60 from an offshore wind farm and $400 from a solar photovoltaic (PV) system, which is why some environmentalists argue that we should focus our energy on wind and wave power, not solar.

But prices have started to drop, partly because silicon has become cheaper, but mainly because of low cost Chinese companies entering the market. Half the world’s production capacity of solar PV panels is now in China, and this proportion is set to increase.

Now that the UK has joined Germany and Spain to provide generous feed in tariffs for domestic PV, expect this market to continue to grow.

This week Environment Secretary Hilary Benn announced more government support for Anaerobic Digestion (AD) a process which essentially mimics the action of a cow’s stomach.  AD turns food waste and manure into methane gas, which can then be used for transport, local generation of heat and power, or even injected back into the national gas grid. The government is spending £10m to support a series of demonstration sites across the country.

A pilot plant in Ludlow, Shropshire, not only generates electricity, but also keeps waste food out of landfill, where it eventually decomposes into methane anyway. When released into the atmosphere methane is eight times as potent a greenhouse gas as CO2, as a contributor to global warming.

The UK currently operates 10 AD plants, with another 10 under construction.

The UK government announced this week that licences had been awarded for ten wave and tidal power projects off the coast of Scotland. Scottish First Minister Alex Salmond described the choppy Scottish waters as the ‘Saudi Arabia of marine energy.’ Hardly: when the six wave and four tidal projects are fully operational they’ll generate around 1.2GW of power, about the same as one average sized conventional power station. The 10 million barrels of oil which pours out of Saudi Arabia each day is enough to supply 1000 power stations. Even so, this investment in wave and tidal is significant, because the power it will provide is secure, low carbon and – if you exclude the huge capital costs – essentially free.

Unlike solar photovoltaic power, which is quite a high tech business, wave and tidal power is quite low tech. You just need to be able to weld together big chunks of metal that will withstand the battering of the violent Scottish seas, and find ways of turning movement into electricity. It should provide some good opportunities for engineering firms that were once involved in shipbuilding and the declining North Sea oil and gas industry.

An interesting spat has broken out between eco warrior George Monbiot, and businessman Jeremy Leggett, founder and CEO of Solar Century, a company which produces solar panels for electricity and hot water.

The government recently announced that anyone who puts a solar photovoltaic (PV) panel on the roof of their house will be paid 41p for every kilowatt hour of electricity they produce – even if they use the electricity themselves. This subsidy, known as a feed in tariff or FIT is guaranteed for 25 years, making the purchase of a solar PV panel a very appealing investment. For an outlay of around £12,000, you can probably expect a guaranteed tax free return of about 5-8% a year. No other risk free investment on offer at the moment comes anywhere close to that.

It’s probably clear why Jeremy is a fan – his company makes solar panels. But why doesn’t George think much of it? According to Mr Monbiot, the scheme (a) won’t make much of a difference to the total amount of power generated by renewables (b) will generate power at the wrong time (in the UK we don’t use much power on sunny days – peak usage is dark winter evenings) and (c) will make the middle classes who can afford the upfront investment better off while doing nothing to address fuel poverty.

Of course he’s right on all three counts, but this won’t stop the government continuing with the scheme, and neither should it.  In a low carbon economy, most electricity will be generated from renewables and nuclear, and much of it will be generated locally rather than in big centralised power stations. The sooner we move to a low carbon economy the better, and that means trying a lot of things to see what works. Domestic photovoltaics may or may not be a significant source of Britain’s energy in 2020, when we have to reduce CO2 emissions by 34%, or by 2050, when we have to reduce them by 80%. But we won’t know unless we try, and that means getting started now.

For more about Monbiot and Leggett, see http://www.monbiot.com/ and http://www.jeremyleggett.net

Wind power is big business in the UK. Back in January of this year the UK government announced that it had granted licences for nine huge offshore windfarms, with the potential to generate 32GW of power – a quarter of the country’s needs. Today Mitsubishi Power Systems Europe revealed that it plans to invest £100m in wind turbine production in the UK.

The economics of an offshore wind farm are almost the opposite of a conventional power station. It’s relatively cheap to build a coal, oil or gas fired power station, but the running costs are high as fuel becomes more and more expensive. A windfarm – especially offshore – has very high upfront costs but the running costs are extremely low, as the fuel is free.

When it blows, that is. Much has been made of Denmark’s ability to generate 20% of its power from wind, but this is really only feasible because of a nifty deal the Danes have made with their Scandinavian neighbours. When the Danish wind blows, they export electricity to Norway and Sweden: when it doesn’t, their neighbours bale them out with hydroelectric power. If we’re serious about wind power in the UK, we’re going to have to find some way of balancing supply and demand like this.

One thing we don’t have to worry about is birds. It’s often said that wind turbines kill huge numbers of birds. Indeed, it’s estimated that Danish windfarms kill around 30,000 birds a year. That sounds quite a lot until you compare it to one million birds a year killed by traffic in Denmark, or the 55 million birds a year killed in Britain by cats.

Unless the British Government takes action, the UK will run short of electricity sometime in 2015. Under EU pollution rules six coal and three oil fired power stations will have to close by then, reducing the UK’s generating capacity by 15%. You could fill this gap – of about 12GW of electricity – by building some nuclear power stations but unfortunately the ten recently approved by the government won’t be ready until 2018 at the earliest. You could also fill the gap by building two huge new windfarms on the Dogger Bank and the Norfolk Bank, but these won’t be ready until 2020 at the earliest.

So it looks like power cuts are on the way, probably just as the new government we’re about to elect this May is coming towards the end of its first term…

… unless power companies RWE npower and E.ON, the two German owned firms who run these coal and oil fired power stations are successful in gaining an exemption from EU rules. Which is why they are ‘in private talks’ with senior Conservative politicians right now.

Richard Branson’s airplanes require a fair amount of fuel to keep them in the air, and his trains use up quite a bit of energy too. Brian Souter’s Stagecoach group is another big user of oil, while power company Scottish and Southern Energy and construction firm Arup also rely heavily on cheap sources of energy. So when these companies put their names to a report, released today, which says that that oil is going to become so expensive that the UK economy risks a disastrous oil crunch, they probably know what they are talking about. Interviewed on Radio Four’s Today programme, Arup’s Global Leader for Energy Resources and Industry John Miles said that the price of oil (currently trading at around $80 a barrel) could rise to $150 or $200 a barrel. If we don’t move fast towards a low carbon economy in the UK we may not have much of an economy at all.

More information about this report on the website of the UK Industry Task Force on Peak Oil and Energy Security: http://peakoiltaskforce.net/