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Mine's cheaper than yours: gas and wind proponents trade mangled statistics

  • 20 Aug 2012, 15:00
  • Robin Webster

It's notoriously difficult to predict what energy markets are going to do. Sometimes, it's equally difficult to understand what those predictions mean. Recent debate about the cost of wind has sparked a series of misunderstandings from opponents and proponents alike. So where have they got confused? We take a look.

No.1 : The Express on Gordon Hughes

A couple of weeks ago, a front page article in the Express said that according to University of Edinburgh economics lecturer,  Professor Gordon Hughes, the government's green crusade "blunder" will cost £124 billion, before adding: "the same electricity would be provided by modern combined gas cycle plant for £13 billion - nearly 10 times cheaper".

As we found out when we dug a bit further, this isn't quite right. Hughes's report, published by the Global Warming Policy Foundation, compared his calculations for the capital cost of building the infrastructure, and did not include the total cost of supplying the electricity. In other words, this comparison for the cost of gas and wind ignores the cost of gas.

No.2 : Peter Lilley on Gordon Hughes

But the Express isn't the only one. In putting questions to a Department of Energy and Climate Change (DECC) minister about the calculations, Conservative MP Peter Lilley doesn't make the distinction clear either. He says:

"Figures in the report by Professor Gordon Hughes, the professor of energy economics at Edinburgh university, "Why Is Wind Power So Expensive?" … [show] … The cost of providing a given amount of power by wind plus open-cycle gas turbines is greater than the cost of using efficient combined-cycle gas turbines by a factor of 10."

In the previous question, Lilley asks explicitly whether the government has compared the capital costs of meeting the government's 2020 renewable target and meeting the same level of electricity demand using gas plant. But "Providing a given amount of power" doesn't make it clear that he's discussing capital costs - it sounds a lot like he's forgotten about the cost of gas, too.

No.3 : Maria McCaffery on Gordon Hughes

In an article published in BusinessGreen on Friday, the chief executive of the trade industry group RenewableUK Maria McCaffery writes:

"Among the more absurd assertions put forward in this [Hughes's] paper is the contention that wind energy is 10 times more expensive than gas, but his comparison is flawed. He fails to include the cost of gas itself and only includes the cost of building a gas-fired power station and the infrastructure to go with it."

Again, as skeptic blog Bishop Hill points out, this isn't quite what Hughes's report says - it's just how others have interpreted it.

No.4 : The GWPF on Gordon Hughes

So everyone's a bit confused. But it's not hard to see why. The GWPF press release for the report reads:

"The necessary investment for this Wind scenario would amount to about £124 billion. The same electricity demand could be met from 21.5 GW of combined cycle gas plants with a capital cost of £13 billion - the latter option is cheaper by an order of magnitude."

Although the word 'capital' is in there, it's not stressed in the press release that this calculation doesn't take into account the cost of gas. At the very least, the GWPF could have been a lot clearer.

No.5 : Maria McCaffery on DECC

In her article, McCaffery also defends the cost of renewables. She writes:

"DECC has done the maths - if we carry on burning gas, oil and coal to generate electricity, our household bills in the year 2020 will be significantly higher than if we invest in new sources of clean energy like wind power."

DECC released figures in November of last year indicating that by 2020, green energy measures will, on average, lead to a £94 (or 7%) reduction in household energy bills compared to what they would have been in the absence of policies.

But the reason for the relative fall is the proposed implementation of energy efficiency measures intended to reduce overall consumption of energy, not measures designed to increase uptake of renewable energy. This graph illustrates DECC's argument:

Screen Shot 2012-08-20 At 14.42.03

Source: DECC

We contacted RenewableUK to ask where it got its figures from. It pointed us towards a remark by DECC's Chief Scientific Officer, David Mackay, in the Telegraph last December:

"...Doing nothing to reduce carbon emissions would prove even more expensive [than depending on fossil fuels] because of rising energy prices."

The Telegraph article says that this is based on numbers calculated using DECC's Energy Calculator - which RenewableUK responded to at the time. But the figures refer to the average annual cost to consumers up to 2050 and not to 2020. So it doesn't really seem right to use them to substantiate McCaffery's statement about 2020.

It's worth pointing out that this doesn't necessarily mean that McCaffery's wrong. DECC calculates the impact of its proposed green energy policies on bills by 2020. But it doesn't consider what would happen if we don't implement them and continue to rely on fossil fuels. In the absence of comparative figures, it's hard to know whether the assertion that household bills in the year 2020 will be "significantly higher" if we carry on fossil fuels than if we invest in renewable energy sources like wind power is right or not.

The Committee on Climate Change (CCC) has done some of the relevant number-crunching. It says that according to its analysis, decarbonising the power sector by 2030 is the cheapest option - cheaper than investing in gas. (p.110). Under a 'central' scenario for future gas prices, says that CCC, "consumers face significantly lower costs overall  - equivalent to a saving of £23 billion" if we decarbonise by 2030.

Although again, the devil is in the detail. The CCC's numbers are based on analysis carried out by consultants Redpoint. For its predictions to bear out decarbonisation will also rely on nuclear and successful demonstration of carbon capture and storage technologies as well as more renewable power.

Anyone for tennis?

Will energy bills rise or fall in the future? Is wind power or gas the cheaper option? Do green policies add costs - or take them away? Commentators, politicians, thinktanks and NGOs are all busy batting competing figures back and forth, as though the UK energy debate were a particularly complex game of tennis.

Meanwhile, many of the underlying assumptions - about the future price of gas for example, or changes in investment patterns - remain unstated. Perhaps because of this, numbers often get mangled in interpretation. All this is worth bearing in mind next time someone gets up to serve.

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