Can the green transition be a just transition?
Last week I wrote about the opportunity for energy communities to fund the green transition, based on the belief that there is a vast amount of consumer savings just waiting to be tapped into.
A lot has happened since then.
I had been led to believe that household savings across Europe and globally were at an all-time high with households in France for example, saving almost as much during lockdown as they had in the whole of 2019.
And yet, during the last few days, the news has been full of the horrendous levels of debt and the impending mortgage precipice as those who have been enjoying mortgage holidays reach the end of that period and are faced with the prospect of not only starting payments once again, but are also going to have to find some way of paying off the increased indebtedness arising from the holiday.
In the light of that news I thought I had better check my sources of the household savings and indeed confirmed they were as I had stated in my paper.
This raises an important issue. If households are simultaneously saving at record levels and yet are also increasing their debt at record levels, then I can only conclude that these are two distinct groups. Perhaps it is as simple as that those who have been furloughed or even fallen through the safety net altogether who are falling ever deeper into debt, whilst those who have been able to continue working and being paid as normal have enjoyed a period of profitable boredom.
Whatever the case, it is clear that we will need to address this inequity, and the energy industry will be no exception.
On Thursday last week, the University of Strathclyde Centre for Energy Policy presented a rather timely webinar on the subject of the so-called “Just Transition”. It raised precisely this question and highlighted the potential consequences of imposing technological solutions which might make sense on paper but be unaffordable for many households.
So, what is the solution?
Now, whilst I may not know how best to implement a fair solution, one thing I do know is how not to do it. Any solution which unnecessarily imposes economic burdens which make economic recovery less likely should be avoided.
In particular, we must avoid technology solutions which serve primarily to support a particular product or fuel simply because that technology claims to be “clean”.
Instead we must seek least cost, practical solutions which are affordable to all members of society. Solutions which contribute to a sustainable energy system, which can be readily delivered in real homes, which will minimise disruption and avoid adverse reaction from consumers. And which can be delivered within a reasonable timescale.
Are Energy Communities the best way of funding the transition?
Whether they are the best way is debatable, but that is hardly the point; they are certainly going to be one way.
In any event, I am not overly concerned that allowing some to invest in their own energy future will necessarily disadvantage those who are unable to do so.
Of course, we should be conscious of the potential indirect economic consequences in terms of (network) infrastructure cost socialisation. Likewise, we should avoid subsidies particularly those which reward the rich at the expense of the poor. But, facilitating community investment in renewables need not be subsidised; the cost of renewables is already becoming increasingly competitive with conventional sources.
However, as I noted towards the end of my white paper, whilst #EnergyCommunities are an important innovation, they are not the only way of funding the transition and need to be complemented by other, both public and institutional investments.
So, it has been encouraging to hear UK proposals for £100 billion for Green-Recovery Infrastructure following on from Germany’s €130 billion green stimulus announced the previous week.
Democratic versus imposed investment
Also last week, the (UK) Local Electricity Bill received overwhelming support setting out a framework to facilitate community investment in renewable energy. It needs to be emphasised that this is not, unlike previous initiatives to encourage consumer investment in renewables such as Feed in Tariffs, a subsidy scheme.
It is simply a facilitation for households to decide how they wish to invest in Energy Communities to provide their own electricity supply.
However, in stark contrast to the Energy Communities initiative, we should be very wary of proposals for undemocratic, imposed burdens on the taxpayer.
Additional subsidies for sub-optimal technologies and vanity projects are not only inappropriate at this time, they are also unnecessary. It is bad enough that the UK consumer will be lumbered with a CfD for Hinckley C at almost three times the level of offshore wind, without the suggestion that we should instead just hand the developers a blank check and pay whatever the final bill is on a “cost-plus” basis.
One small step
It has often been said that a journey of a thousand miles starts with the first step. And so it was with some excitement that I noticed the launch of Ripple Energy, a community investment scheme to fund a wind turbine. Households will be able to purchase a share in the output, to be credited against their own electricity bills. It may be a small step and there are many regulatory and other challenges to optimising the value of investments like these, but it is an encouraging and welcome start.
Overall, a very encouraging week as we look forward to emerging from the pandemic and into an uncertain future, but one full of opportunities.
You can access the full white paper here.