There’s a lot of noise about the cost of renewable energy. Vast quantities of ink are spilled over the expense of wind turbines. This year has seen Conservative backbench MPs unite to try and change government policy against wind power, and the launch of the first national anti-wind campaign.
At face value, yes, renewable energy is expensive. It represents an up-front cost at a time when budgets are constrained. This is not a reason not to abandon it. Like any investment, that up-front capital is repaid. And right now, renewable energy is a very good investment. The sector has increased in value by 11% in the last three years, against an economy that has grown by 1.4% in the same time.
It’s the relative price of renewable energy that is most important. Right now, energy from clean sources is more expensive than fossil fuel energy. However, the cost of most forms of renewable energy has been dropping, some of them quite dramatically. Clean Edge reports that the cost of solar PV has fallen by 50% in the last five years. At the same time, the cost of fossil fuels has been rising as global demand increases. Both trends are likely to continue. Wind power is already at grid parity in some parts of the world and as global gas prices rise, it will become increasingly competitive. Renewable energy will eclipse fossil fuel energy in due course, and those countries that are investing now will be better placed to manage the transition.
That’s the key thing that needs to be communicated here: renewable energy is expensive now, but it means lower bills in future. If it leaves us dependent on ever more expensive gas, it is ultimately more expensive not to invest.
There are other benefits too. The Renewable Energy Association calculates that by 2020 renewables will have displaced £60 billion of spending on fossil fuels. We’re increasingly a net importer of natural gas, so that is money spent elsewhere and leaving the economy. With the right support now, we can ensure that most of that £60 billion can be spent in the UK, creating jobs and balancing out our massive trade deficit.
What kind of support are we talking about? Winding down the subsidies that support fossil fuels might be a good start, with the money saved used as start-up funding for domestic renewable energy companies. For all the tabloid whining about green taxes, we spend more considerably more subsidising fossil fuels than we do supporting clean energy. In 2010 Britain spent £3.63 billion on subsidies to fossil fuels, and £1.4 billion on renewable energy subsidies, according to OECD figures. Most of those fossil fuel subsidies are in the form of reduced VAT rates on household bills. There would be an outcry if those were removed, but they could be changed rather than scrapped. The reduced rate could be variable and linked to the percentage of clean energy in the fuel mix of the tariff. That way, consumers would have an incentive to switch to greener tariffs, and energy companies were encouraged to invest more in renewable energy.
What else can we do? We need to hold our nerve on the feed-in tariff and renewable heat incentives, encouraging the sector to grow but without creating a bubble. A government procurement strategy would support smaller scale renewables and spread jobs around the country, retrofitting every school, hospital or council building. The government’s proposed energy bill is a perfect opportunity to get us on the right path.
Most importantly perhaps, the conversation needs to change. ‘Green taxes’ are not the reason why our fuel bills are so high, and renewable energy is not uneconomic when understood in the context of energy trends. Politicians need to commit, and stop sending mixed signals to those businesses wanting to expand. The renewable energy revolution is happening, and the more we drag our feet about it the higher our fuel bills will be in ten years time.