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UK's cities the key to clean energy growth

The UK's cities are the key to decarbonising the country's energy mix and transitioning to locally-produced power, a new study says

The report, City energy: a new powerhouse for Britain, by The Institute for Public Policy Research (IPPR) said if cities drive investment in low-carbon sources of energy and set up and run local independent energy supplies they could transform the UK's energy sector. 

This municipal ownership of clean energy would help cities to keep energy bills low, by reinvesting subsidies in energy efficiency, and help to alleviate fuel poverty, it said.

The report recommended that the UK government opens a local authority energy unit within the Department for Energy and Climate Change specifically to steer cities and local authorities towards having autonomy in energy supply and delivery for their area. 

The IPPR argues that smaller scale electricity generation is increasingly cost effective, supports growth of smaller energy companies and delivers local jobs and growth. "Local generation technologies like solar and medium-scale wind are radically transforming how energy systems operate, bringing to an end the dominance of centralised generation and distribution," Nick Pearce, director of the IPPR, said. "This will create a system which is much more diverse and competitive. Cities should grasp the opportunity this presents."

Cities adopting this approach should help subsidies for low-carbon power to benefit their communities rather than the big suppliers that dominate the UK's utilities sector. Localising the UK's energy supply and delivery sector could severely dent utility companies' profits. 

Citibank suggests that the rise of local power generation, combined with the development of more efficient energy systems, will halve the market share for utility companies over the next two decades. Falling costs of renewable energy, such as solar power, will help drive this transition.

Britain's power regulator Ofgem said in 2012 that electricity supply would tighten as margins, the amount of spare generation capacity on the country's electricity grid, could fall from 14% in 2012 to just 4% per cent in 2015-16. A combination of the global financial crisis, tough environmental targets for reducing carbon emissions and the closure of ageing power stations would all tighten supply and lead to higher prices for consumers, it says.

In March a parliamentary committee said the UK's financial stability and its greenhouse gas reduction targets are in jeopardy because of a gaping shortfall in low-carbon investment.

The UK's Environmental Audit Committee (EAC), which reports on UK government energy policies to the House of Commons, the lower house of parliament, said that low-carbon investment is less than half of the £200 billion ($330bn) needed in energy infrastructure funding alone by 2020. Between £8bn-10bn is being invested in the UK's power sector per year, the EAC warned, out of the £20bn per year needed. 

Around 20% of the UK's existing electricity generating capacity will be shut down over the next 10 years, according to government figures. Without new green capacity the UK is unlikely to reach its national carbon emissions reduction targets, it said. The UK wants to cut carbon emissions by 80% by 2050, relative to 1990 levels.

The EAC said that to deliver the UK's emissions reduction targets it will need investment in new low-carbon infrastructure, which could cost as much as £550bn over 10 years. Another £125bn could also be needed for residential energy efficiency improvements by then, the IPPR said. 

The IPPR report identifies three ways in which cities could access the funding needed to invest in low-carbon energy and to help the UK achieve its decarbonisation targets. By investing in municipal bonds local authorities in cities could raise capital independently from national government funds, it said. Bonds have been used in the past to raise money for municipal energy infrastructure.   

The report also suggests local authorities in cities could invest pension funds in low-carbon sources of energy, such as renewables, and make use of available funds from the Green Investment Bank (GIB). 

The GIB, which was established by the UK's coalition government in 2012, has helped to provide funding for low-carbon energy by financing initiatives such as low-energy street lighting and by offering local authorities low fixed-rate loans. However, the bank does not have its own power to borrow, which limits its potential to fill the green finance gap. The government had pledged to allow the bank to borrow from 2015, as long as the UK's debt reduction targets are met.

Shaun Kingsbury, chief executive of the GIB, has said the bank could raise up to £60bn to fund low carbon energy infrastructure if the government lifted restrictions on its ability to borrow in capital markets.

The question of how to improve energy security while making a country's energy supply greener is a key challenge in the battle to mitigate the effects of climate change globally. This is a particular issue for the world's city-dwelling population. 

According to the World Health Organisation (WHO) 70% of the total global population will live in cities by 2050, up from less than 40% in 1990. The WHO expects the global urban population to grow by around 1.5% per year, between 2025 and 2030. By the middle of the 21st century it will almost double, increasing from approximately 3.4bn in 2009 to 6.4bn in 2050. 

As cities account for two-thirds of the world's energy consumption and around 70% of global carbon emissions they must drive the transition to low-carbon economies.

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