UK Energy Policy: The Small Business Perspective & The Impact on the Rural Economy

Executive Summary

Businesses look to Government to provide conditions favourable for reliable and affordable sources of energy that encourage long-term investment and economic growth. At the time of writing, gas prices have escalated by 21% over the past 18 months with predictions that the price of power and gas are likely to increase by at least 30% over the next two years. In November 2005 the spot price for gas rose from 31p to £1.17 in a period of just three weeks. Following predictions from the Met Office that we were likely to experience our coldest winter for decades, businesses are becoming concerned about possible power shortages during the winter of 2005/2006, and, in the light of recent international events, the long-term security of supply. The most substantive concern is, however, further price impacts and future price volatility. These issues will have a considerable impact on the growth and stability of small businesses.

This report surveys the intense debate now taking place as to why the chosen strategy is not achieving its objectives. We believe that a principal factor is to be found in the increasingly controversial renewable energy policy, which is widely criticised for its lack of balance and its over-emphasis on onshore wind at the expense of other technologies. Information is now available from the world’s largest operators of large-scale onshore wind portfolios. The experiences of Germany and Denmark demonstrate the difficulties and costs of coping with intermittency and transmission. Experience in Germany suggests that the net economic effect of wind energy development is not positive. Taken together these matters raise many questions about the wisdom of the current UK policy’s commitment to onshore wind for the bulk of the renewable energy target.

This study focuses attention on one particular area of potential impact in the United Kingdom, the impact on tourism, an area dominated by small businesses and of pivotal importance to the rural economy as a whole. Twenty-five percent of all registered businesses are in rural areas.

The rural visitor economy is worth £14 billion in England alone and supports up to 800,000 jobs. Research shows that for an average 75% of visitors, the quality of the landscape and countryside is the most important factor in choosing a destination. Between 47% and 75% of visitors felt that wind turbines damage the landscape quality. In North Devon turbines would deter 11% of visitors, at a cost of £29 million and the loss of 800 jobs. Approximately 7% of visitors would not return to Cumbria, which would result in a loss of £70 million and 1,753 jobs. In the South West, just a 5% overall reduction in visitor numbers would lose the region £400 million and 15,000 jobs. Because of the multiplier effect, a reduction of visitors can have far-reaching consequences for the overall regional economy, a fact richly illustrated during the Foot and Mouth crisis. The evidence shows that in some areas, 49% of all sectors of rural businesses experienced a negative impact.

We argue that the current trend towards high levels of wind energy development onshore presents an unacceptable threat to rural businesses and runs counter to almost all other aspects of Government policy relating to the rural economy. This has important implications when assessing the overall cost-benefit equation of the current renewable energy policy.

An important part of the energy equation is measures to improve energy efficiency. Originally planned to be a major part of the Energy White Paper 2003, contributing up to half of the reductions in CO2, we question the opportunities for small businesses to play a more positive role, via renewables and microgeneration.

Finally, for the small business sector as a whole, we argue for a change in strategy, one which acknowledges current failings and moves to more balanced, sustainable energy portfolio of low carbon technologies that will serve to ensure security of supply while containing price volatility. These are crucial factors to ensure economic growth and confidence in long-term investment for businesses in the UK.

Recommendations

1. Security of supply at stable, affordable prices is imperative for UK’s businesses to remain competitive in a global market. Action must be taken now to ensure that adequate quantities of dispatchable, clean, generating capacity is planned, financed and built between now and 2020.

2. In his keynote address to the Social Market Foundation on the 19th of December 2005, the Energy Minister, the Rt Hon Malcolm Wicks MP, was at pains to emphasise that there is no one solution to the energy problem, a position we regard as differing from the twin-track, gas and renewables, strategy outlined in the Energy White Paper of 2003. We welcome this new emphasis on pluralism in the energy portfolio, and fully support the suggestion that renewables, alongside a risk-hedging mix of conventional technologies, are a vital part of the overall energy mix.

3. Existing measures to tackle climate change are flawed and should not be intensified. Rather, the United Kingdom needs to reassess its role in fulfilling its international responsibilities to global climate change policy, and redesign its strategy to provide an economically compelling example to the developing world. A thoroughgoing review of the Renewables Obligation and the Climate Change Levy in line with this reconsideration is, therefore, essential.

4. The new strategy must involve a more balanced approach to renewables for electricity, including expanded support for technologies capable of larger scale firm generation such as tidal and biomass in addition to exploring the potential of microgeneration and renewable sources of heat, particular within local decentralised energy systems.

5. Independent research should be undertaken with small businesses to confirm the level of awareness of renewable technologies relevant to their day-to-day operations and available financial energy efficiency incentives. The results should determine a comprehensive marketing and PR strategy to engage the business community.

6. The effects on the rural economy of onshore wind development should be a material consideration in the determination of the applications for development and should constitute part of the cost benefit analysis. A greater cross-departmental co-operation producing an integrated approach to policy and systematic ‘rural proofing’ will continue to support a sustainable, vibrant, and diverse rural business sector.