It was about this time three years ago I wrote my last blog. Why? A number of reasons. First, I started a new job with InCrops and, second, I fell out of the habit. I am writing a few posts for the company I work for, but I thought it was time to write again for myself.
A lot has happened in three years. There was a lot of optimism then about the Green Economy. The double (triple) dip recession hadn't started and the present government hadn't not won the election. Since then, the economy has shrunk and looks like it will continue to shrink. The Euro nearly collapsed. There's a lot of lip service to the Green Economy, but few policies to match and the erosion of those that were implemented. And the Tory led coalition seems to fragment into inertia and chaos as it falls behind Labour in the polls.
I've learnt a lot in the last three years and I'm optimistic about the future. Two things, I think, will determine whether we make an impact on climate change. First, regulation. We have to start to believe in the power of the state to harness resources and this starts with regulation to raise standards to reduce climate change impacts. We're dealing with market failure and the state needs to step in. Second, perhaps contradictorily, we're entering an era where closed knowledge and systems will no longer have a competitive advantage. Crowd sourcing, openness, collaboration and innovation will go hand in hand. And this means new business models - some disruptive - for virtually every industry.
What does it all mean? Well, I'm going to try to make sense of it all by blogging my thoughts again.
What to make of it all? Chris Goodall has written a level headed account of whether Solar PV is value for money. And, this, is the crux of the matter. Except that depends on what variables you're looking at. So in an attempt to cover all the variables that are being used in this debate, I hope to bring some clarity.
1. Solar PV is not very good in the UK
There's some truth in this. It's not that sunny compared to other parts of Europe, Africa or California for that matter. In the UK, the best generation output is in the south and east. By contrast, the UK is blessed with some of the best wind, wave and tidal locations in Europe. But, generation can still occur when there is cloud cover and in winter and can knock off a decent chunk off your electricity bill.
2. Solar PV is a waste of money
Partly right. Wind is far better value - you get a better return on wind. Chris Goodall highlights a good comparison on his blog. Essentially, you get a 13% return on wind and around a 5-7% return on solar PV.
But wind is more expensive -up to 50,000 for a small turbine - and you need planning permission. You also need a good location away from buildings and trees (so no good in the city where most of us live). Wind also tends to require more maintenance. Solar, although less efficient and less value for money, is cheaper, requires no permission and can fit on most buildings requiring little maintenance. How else are we supposed to get homeowners to generate?
3. It didn't work in Germany where it was pioneered.
Monbiot is keen on this argument. It's true that the Germans are planning to reduced their Feed-in-Tariffs, but the main reason is that it worked too well! Solar was heavily subsidised and made Germany a world leader in renewables, but such subsidies cannot go on indefinitely. The UK Feed-in-tariffs are likely to be cut from its current rates as solar PV installation rates soar.
4. What Monbiot neglects ESCos Energy service companies or ESCos will soon become a common business model. Essentially, an ESCo will install solar PV (or other renewables and energy efficient packages) for free with the client paying back over the next 25 years. You get the electricity savings, the ESCo gets the Feed-in-Tariff. This model means that social housing associations will benefit as they offer economies of scale and guarantees on payment of bills alleviating the issue of solar PV being a middle class bit of eco-bling.
Behavioural Change
There's some strong evidence from UEA studies that the installation of solar PV and Thermal, although less efficient than other renewables, initiated changes in the way householders used energy. Because householders were conscious of generating energy they became more concerned about wasting it. Those with heat pumps actually increased their energy output!
Ultimately we need a mix of renewable installation and energy efficiency. Dismissing solar PV is too easy, but we need to look at the full argument beyond the polemics.
payment for the electricity you generate guaranteed for 20-25 years
payment for any surplus electricity you don't need guaranteed for 20-25 years
money saved from the electricity you no longer need to buy
Essentially, the big six power companies will pay households or businesses the FiT or cash-back if they generate electricity from renewable sources. Any surplus electricity can be sold to your supplier at a guaranteed price or on the open market. Ultimately, we all pay for this through higher electricity bills - DECC claims an average increase of about £11 per year, but hopes that one in 10 homeowners will fit solar PV panels or small wind turbines by 2020.
Although the return on investment averages out at around 5%-7%, Friends of Earth thought the policy too timid and the Solar Trade Association argued that returns should have been more like 10% to garner interest.
However, Solarcentury executive chairman Jeremy Leggett said the tariffs would be enough to encourage homeowners to install solar panels earning more than £1,000 per year with a typical solar electric system.
In plain english what does it all mean?
If a business or a household installs a standard Solar PV unit it's likely to generate 2-2.5kilowatt peak with an annual output of around 2000KWh.
Annual output: 2000 KWh
FiT 41.3p per KWh (guaranteed and index linked for 25 years, paid to you by your electricity provider)
Total value of FiT £823
Used in the home/business 1,200 KWh (your electricity supplier is charging around 12p KWh)
Savings from not buying supplier electricity £144
Electricity exported 800 kWh (electricity you don't need at various points in the day. You can sell for 3p or on the open market. The 3p rate is guaranteed for 25 years and index linked)
Export payment £24
Total return £991
The figures may vary somewhat, but they are in range with most calculations I have seen. The cost of this type of installation will vary from £8000-£12000, but the good news is that the FiT and export price is index linked which means a return on investment is likely to be around 5%-7%. Other factors worth considering are whether you predict energy prices will rise as this will improve returns. At the same time, energy security is increased and you have significantly reduced your carbon emissions.
The great advantage of solar PV is that it is easy to install and once it's there you don't have to do much. Maintenance is minimal. The main disadvantage is that the load factor is low compared to wind or biomass.
So what was the fuss about? You'd be forgiven to think that the Copenhagen meeting was a failure and that the environment has fallen off the agenda of most leaders. In fact, in the UK and in most other countries 2010 will be a year of new environmental legislation for many companies. And, Copenhagen, far from being a failure, may well turn out to be a precursor to a legally binding treaty signed in Mexico at COP16 this year.
Copenhagen was always going to be difficult to produce a success. The Kyoto Protocol in 1997 was agreed right at the last minute and then the Americans pulled out. It wasn't until the Marrakesh Accords in 2001 that the mechanisms for Kyoto were agreed and only when the Russians voted to accept the treaty in 2004 did it formally begin in 2005.
At Copenhagen, a rough agreement includes India, China and the USA. Reducing Emissions from Degradation and Deforestation (REDD) is also included and pretty much agreed. Forestry or the reduction of it accounts for 17% of global emissions and any target here is to be welcomed. The EU is willing to reduce emissions by 30% and there is very little challenge to the science of climate change. It won't be easy, but there will be a legally binding agreement in Mexico this year.
Regardless of Copenhagen, the EU is committed to a 20% cut in emissions which equates to a 34% by 2020 for the UK. If Mexico 2010 is successful, it's likely that the EU will increase its emissions reduction to 30% which equates to a 42% for the UK by 2020. Even if you include the reduction in emissions since 1990, there is a still a lot to do by 2020. Every business and household will need to reduce emissions by around 30%.
That's why 2010 is going to be an important year for the UK. In April, the CRC Energy Efficiency Scheme and a new Feed-in-Tariff regime begins. One is about energy efficiency for large firms; the other is a subsidy regime for households and businesses for renewable generation.
The CRC Energy Efficiency Scheme will include every school, hospital, most public buildings as well as large firms that have an energy bill of around £500000. For every tonne of CO2 emitted, the organisation will have to pay £12 a tonne. For Norfolk County Council that's nearly £1million. They will get most of this back, but it depends on how much energy they have reduced compared to other organisations. All CRC participants will be part of a league table where the position will dictate the additional fee you pay or the bonus you receive.
Norfolk County Council emissions are rising and, like other councils, face a rising CRC bill unless they can conserve energy hence the move to switch off street lights. Organisations that claim to be green will soon be exposed by the CRC league table. What's interesting about the CRC is that organisations won't be able to reduce emissions by investing in renewables: they have to reduce energy consumption.
In the next few posts, I will be writing about what households and businesses can do reduce energy use and increase renewable investment under the CRC and the new FiT regime. I'll be analysing the impact of voltage optimisation, change behaviour, solar PV, AD and much more.
Traders haven't got much of a good press recently as they have been blamed for excessive risk taking and nearly bringing down capitalism. It's a great story, but it ain't true. Retail banks - thats RBS to you and me - took excessive risks and brought down capitalism not the traders.
And so to another great story - the story of cap and trade.
You have to hand it to Anne Leonard and her team - they know how to get press and get a great story out there. But let’s look closely at some of the accusations:
1. The cap and give away.
The free permits. I have discussed this earlier this year. Phase 1 (2005-2008) of the European Union Emissions Trading Scheme (EU-ETS) which this story is based on was a cap and giveaway. Billions were made by the utility companies in windfall profits. Which is why in phase 2 (2008-2012) and especially in phase 3 (2012-2020) the allowances will have to be bought at auction. The proposed US cap and trade scheme is also proposing auctions and the CRC Energy Efficiency Scheme - the UK's trading scheme for smaller businesses - has 100% auctions. In fact virtually every economist argues for it. It ain't a cap and giveaway anymore.
2. Caps too loose
In phase 1 for the EU-ETS, the caps were too loose which meant the carbon price fell sharply. But it’s been suggested that this was deliberate to secure buy-in from industry. Get them in, and then tighten the cap. In Phase 2 the EU rejected most national allowance plans - not the UK's - but virtually everyone else's. For phase 3, member states won't be allowed to set them - only the European Commission which means a tighter cap AND a wider cap that will include aviation and more industries. There is also a strong argument for a price floor which basically makes it a tax and cap and trade. The US proposal also suggests a price floor.
3. Offsetting
People really don't like offsetting, but lets get a few things right. There are two types - certified emission reductions (CERs) that are generated by Clean Development Mechanism (CDM) projects and voluntary emissions reductions (VERs) which are not.
CDM projects have to get verified by 12 UN bureaucrats and need to show that they are providing additionality (that a renewable project, for example, would only go ahead if there was income generated from CERs) AND that they are not just replacing home country emissions. If a utility company funded a project in China to reduce emissions of a coal plant, they would have to prove that they have reduced emissions at home first.
So, a utility company within the EU-ETS, may decide that it is more cost-effective to reduce emissions in another country (where coal fired stations are less efficient) than to reduce emissions further at home (where coal fired stations are more efficient). First, they have to get the project approved and that takes 18 months; remember, there are only 12 of these UN bureaucrats to approve 1000s of projects. Second, the EU-ETS only allows a small percentage of offsetting - around 10% - and once this has been reached there is no more allowed. Finally, they have to hope that their project in another country is built to spec and works to spec and reduces emissions. Oh, by the way, they can't use voluntary emissions to offset their own emissions as they are not regulated by the UN.
When CDM works well it can benefit countries through increased income and technology transfer. If China, India and Brazil want to grow, CDM projects can facilitate this without increasing carbon emissions.
So where does this leave us? Well, it's great story, but it's spoilt by the facts. Leonard is short on alternatives, but let’s visit them, briefly. First, we could have a carbon tax and there is a strong argument for this over cap and trade. The problem is that businesses and the public don't like them, accountants are great at reducing tax burdens and how do we harmonise a global carbon tax? There's no precedent.
What about simply telling business to meet a standard? Well, how do we define a global standard? Should it be the same for all countries? Also, command and control systems tend to reward complacency and companies that do the minimum. Companies that go beyond the minimum are simply not rewarded.
Ultimately, in my view, it's down to two things: first, the trading of carbon blows people's minds away. Think about it, it doesn't physically exist like coffee or oil or other commodities. Second, a vocal section of environmentalists don't like the profit motive or capitalism and see cap and trade as part of this problem. I don't see it as that way: it's government regulation using the profit motive. Without government, the carbon market wouldn't exist. The other benefit is that cap and trade is on the brink of securing a better climate change deal - that's some achievement.
The holy grail of climate change - behavourial change - is beginning to get interesting. First the government has launched a series of ads that go beyond the concept of consumers behaving rationally to choices they have. I've posted about the Act on C02 ad and I've just seen another one in today's Observer - I can't find a link for it unfortunately - and yet another TV ad on driving. These ads go beyond the rational behaviour approach and attempt to use more pyschological approaches.
In fact, DEFRA have produced a very useful overview of environmental behaviour and combined with Futerra's rules of the game in climate change communication surely we have enough to get change behaviour started?
Well, not quite. Agency versus structure - the old social science dilemma. The issue is that most people believe that climate change is an issue, but that they are not willing to change their behaviour unless there is a a percieved (there often is a benefit, but it's not always seen in the short-term) financial benefit, or if it is easy or if others do so. Do we have time to experiment whether we can convince people or should we just focus on getting businesses to change and top-down government regulation? At the moment, the government is timid in its approach prefering choice editingand nudge economics.
On the other hand, there are flourishing, if niche, alternative community collective approaches to reducing carbon. For example, transition towns, organic box schemes and car pooling to name but a few. Not all work, but some go beyond niche and become mainstream. Is Social innovation the holy grail of climate change?
The thing is time. We have 10 years to reduce carbon emissions by 34% and we're unlikely to make it: nuclear won't be back on line until 2020; wind, although growing, is not enough; the Severn Tidal barrier may be complete in 2020; wave energy is still in its infancy; there may be an increase in solar but it's not cost effective; and, yes, we'll have lots of anaerobic digestion or biomass, but it's just not enough. We have to have significant reductions in emissions and energy. It's not, in my opinion, going to come from consumers. We might get some interesting innovations from a few community projects, but it's more cost effective to change business behaviour.
What I can see, however, is some smart businesses realising that there is a lot of innovation from community groups. Would it be so crazy to imagine a large business offering to support community groups with the view that they might benefit from a new way of production or consumption? I can see developers offering land and contributions to people who want to build eco homes and go off grid. I can see supermarkets offering funding for local food networks to understand how it may work. We need radical ideas and smart businesses will know they ain't going to come from their own ranks. They will need to fund mavericks or employ them...
Recently we had two very interesting lectures from guest speakers. First was Dr Mick Blowfield from the Smith School of Enterprise and the Environment at Oxford University. His main specialism is Corporate Responsibility.
He gave an excellent overview on looking at which companies do CR well and those that don't. BAT (that's British American Tobacco) are one of the leaders and they are genuinely making serious attempts at CR. I just find it hard to take CR seriously from a company that, ultimately, promotes death!
However, we were then treated to a sucker punch from Dr Blowfield who applied the same critical approaches to the Fairtrade standard. And, do you know what? If you do apply the same standards of openess and transparancy you won't find answers on the FairTrade Foundation web site, nor will you find third party verification or criticisms. A superb lecture that challenged a sacred cow, but ultimately is right in its approach: you can't have one standard of reporting for Big Business and a different one for NGOs or social enterprises.
This week we were treated to lecture from Dr Tauni Lanier, who was the first Managing Director of the Dow Jones Sustainability Index was senior project manager at the World Business Council for Sustainable Development, where her responsibility was to construct the business case for Corporate Social Responsibility reporting. Another very good lecture looking at venture philanthropy and CR.
What struck me was her opinion on WalMart's Sustainability Index - something I had blogged about a few weeks back - in which she argued that it was greenwash to avoid making any progress on their labour rights. Yet today, we had someone from the Carbon Trust who was extolling WalMart's decision.
It's about pragmatism in the end. Am I going to stop buying FairTrade coffee because it doesn't have the same transparancy as BAT? No, but my eyes are open and they need to make sure they don't get caught out on this. Is WalMart's decision greenwash or not? I want to believe that it's not and that by taking this decision it may start to encourage them to think about the benefits (ultimately to the bottom line, in the end) of better labour rights.
