Utility Week

10 | 10TH - 16TH JANUARY 2020 | UTILITY WEEK Utility of the Future: Regulation Analysis The complex question of who should foot the bill for a decarbonised energy system has yet to be answered, but it is likely to involve a trade-o between taxation for carbon diox- ide emitters, industrial users and citizens – or hikes to customer energy bills. Sweden is one of the few countries which has implemented a blanket carbon tax that applies to all upstream fuel and energy industries that produce emissions from fos- sil fuels, and downstream sectors, such as manufacturing, agriculture, co-generation plants, forestry, and residential and service sectors, which are compelled to pay 25-50 per cent of the tax. The tax rate is one of the highest in the world and measured in proportion to the car- bon content of the fuel. Certain exemptions and reductions allow some energy-intensive industries to remain economically competi- tive. The tax is widely considered an eco- nomic and environmental success. In 2017 alone it generated €2.4 billion and citizens have consistently supported its ability to lower emissions without impacting the over- all economy. The decarbonising price signals have trig- gered an increase in alternative fuel use in some sectors. According to a report by the Energy Systems Catapult, the UK can learn in particular from the impact of carbon taxa- Heating buildings accounts for more than a third of UK greenhouse gas emissions due to heavy reliance on the fossil fuel natural gas. A decarbonised future will require massive invest- ment, and supporting policy and regulation, to switch millions of people to new modes of heating, includ- ing electric heat pumps, direct electric and storage heating (run on green electricity); district heating networks with low-carbon heat sources, and gas net- works converted to run on biogas or hydrogen. Lessons can be learnt from the Netherlands where the decision to end natural gas production by 2030 in the wake of several earthquakes led the government to adopt targets to make all new buildings "almost energy neutral" by the end of 2021, and to phase out gas in heating entirely by 2050. A range of subsidies and tax breaks were made available to homes and businesses to fund the instal- lation of low-carbon heating solutions, and a €120 mil- The Utility of the Future is also the theme of Utility Week Live taking place at the NEC in Birmingham on 19-20 May. Visit www.utilityweeklive.co.uk for more information. continued from previous page ☛ Lessons from Sweden: Who pays for the transition to low-carbon? Lessons from the Netherlands: How do we decarbonise heat? COMING UP IN REGULATION IN FUTURE ISSUES OF UTILITY WEEK • What can we learn from other sectors and other countries? • Regulating heat networks • What next for the UK Regulators Network? tion on Sweden's residential sector, which experienced a 60 per cent uptick in the use of biomass fuel for district heating, greatly reducing emissions. The report states: "Pro- moting biomass use for residential and com- mercial heating could be an alternative and more e ective policy to combined heat and power investment in the UK." Ofgem is currently focused on limiting the costs paid by consumers for decarboni- sation, but that's not the approach adopted by Germany where householders pay some of the highest electricity prices in the world. The country's highly ambitious targets for renewable power generation under its Enegiewende programme (45 per cent by 2030 and 100 per cent by 2050) resulted in expensive wind and solar installations. Cou- pled with the decision to shut down nuclear plants early and with a continued reliance on coal power, the e ect has been a hike in wholesale electricity prices. Germany's two major electricity compa- lion subsidy was given to 32 districts in 27 municipalities to phase out gas. A surge in customer interest in decarbonised solu- tions, mainly heat pumps, triggered market growth of over 50 per cent a year, resulting in more electric-only and hybrid heat pump solutions on the market and an agreement to train 6,000 more engineers to support the expansion. Je Hardy, senior Research fellow at the Grantham Institute – Climate Change and the Environment at Imperial College London, tells Utility Week: "Beyond 2021 [when the Renewable Heat Incentive expires] the UK doesn't have a single incentive in place for homes or businesses to install zero-carbon heating technolo- gies … an important question is how we help home- owners with the upfront capital costs. Countries in Scandinavia and elsewhere have introduced schemes that help with some of that capital. In addition, the UK lacks regulations that set standards for heat pumps and centres of excellence where engineers can be trained and devices tested to prove they will work in particular circumstances and climates." Stephen Cousins is a freelance journalist nies, Eon and RWE, su ered major losses, but rather than penalise heavy energy users, such as car plants, which already receive substantial energy discounts, costs were instead placed at the feet of consumers and small businesses. This schizophrenic policy has not pro- duced a low-carbon economy, but positive lessons can be learnt from it, says Energy Systems Catapult's Guy Newey: "Germany is a good example of how to do something dif- ferent yet still manage to maintain political support for the transition. Consumers there remain mostly supportive of the low-carbon transition; they want to protect their indus- try and are comfortable about paying for that through their energy bills." According to Energy Policy Research Group assistant director Michael Pollitt: "No-one has a solution to how you pay for decarbonisation. One of the problems is that energy demand is actually falling in OECD countries and low-carbon solutions involve very high ¦ xed costs spread over declining numbers of units of energy. It is di§ cult to see how you can do it without putting the unit price of energy up. And the capacity to ¦ nance this through taxation is limited."

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