The true cost of UK renewables policy is massively understated and household bills could be £214 per year lower if renewables were dropped in favour of gas, according to a report published today by the Centre for Policy Studies, a free-market thinktank.
The report’s cost estimates are out of line with government figures and its proposed alternative to renewables of relying on gas would be incompatible with UK climate targets. Carbon Brief takes you through some of the details with the help of several energy policy experts.
Cost of low-carbon
Today’s new report says it costs UK households £214 a year to support renewables. This is based on a set of simple calculations and assumptions, for instance, that peak UK electricity demand is 60 gigawatts. This overestimates the need for new capacity as demand is much lower and was around 53 gigawatts last winter.
The estimate differs from government figures, which suggest the cost of supporting renewables was £45 in 2014 and will rise to £92 in 2020 and £127 in 2030. It’s worth noting that the 2030 figure would include support for new nuclear plants as well as renewables.
The report claims these figures hide the true cost of renewables, such as the cost of strengthening power grids and providing backup for intermittent renewables.
But in a statement Gordon Edge, director of policy for Renewable UK, says:
“The report makes claims about the cost of grid investment and ‘backup’ which are either massively overstated, attribute extra costs which have already been accounted for in the price, or both.”
The government’s Committee on Climate Change (CCC) also says renewables costs to households are much lower than the report’s estimate. The CCC puts them at £35 in 2013, £75 in 2020 and £95 in 2030. It says these figures include the cost of balancing renewables.
Overall, the CCC says decarbonising the power sector by 2030 “would have very limited impact on electricity prices in the 2020s relative to alternative approaches”. The CCC has a useful page on frequently asked questions around climate change and the costs of UK action.
Going for gas
The report’s alternative to renewables is to rely on gas instead, which it says offers the saving of £214 per household. It says “ditching renewables and encouraging shale [gas] fracking is better economics and more effective at reducing carbon dioxide emissions”.
So, could the UK hit its carbon targets with lower-carbon gas instead of low-carbon renewables, nuclear and carbon capture and storage? Rupert Darwall, the report’s author, tells Carbon Brief he hasn’t checked if his proposal would be compatible with UK carbon targets.
In a 2013 report on electricity markets the CCC discusses a scenario where investment in low-carbon power virtually stops in the 2020s, with gas picking up the slack. The CCC says this would not be an “economically sensible scenario”. Another CCC letter says extensive use of gas in 2030 and beyond “would be incompatible with meeting legislated carbon budgets”.
A more strongly-worded policy brief from the UK Energy Research Centre (UKERC) says going for gas instead of low-carbon power in the 2020s “would be tantamount to an abandonment of the UK’s contribution to limiting global warming to two degrees”.
Michael Grubb, professor of energy policy at University College London, tells Carbon Brief:
“The author [of today’s report, Rupert Darwall] seems to be perfectly content for the UK electricity sector to become 70-80% dependent on natural gas, irrespective of concerns about security, carbon emissions, or price volatility.”
Jim Watson, director of UKERC, tells Carbon Brief:
“The report’s claim that no British government has yet to produce an analysis demonstrating renewables are the most efficient way of cutting carbon dioxide emissions is simply wrong. The Department for Energy and Climate Change, its predecessors and the CCC have produced a lot of analysis showing what the most cost effective way to cut emissions might be in the medium and longer term. Renewables almost universally come out as part of that pathway.”
Incompatible with carbon targets
Since Darwall’s money-saving alternative appears to be incompatible with UK carbon targets, Carbon Brief asked if he thought the UK should stick to emissions-cutting aims. He says this question is “irrelevant”.
Darwall tells Carbon Brief:
“This is not about the principle of decarbonisation, which is a given in one respect. The right approach to decarbonisation is a carbon tax. Do I see the UK’s Climate Change Act [and its binding carbon budgets] as a given by 2030? No, I don’t.”
Darwall has repeatedly called for UK renewables support to be scrapped. In a 2010 article, he wrote that the UK should ” tear up” its “unaffordable” renewables obligation. He authored a 2014 report calling for an end to renewables support, using similar arguments to those set out today.
He has authored a book on the history of climate change and has written many articles on the topic. Writing in National Review this January, he says that “climate science is not normal science” and refers to “global-warming adherents”.
Today’s report says the only alternative to scrapping renewables support is to renationalise the energy sector. Renewables “flooding the market with near-random amounts of zero marginal cost electricity wrecks the economics of conventional power stations” meaning it is “impossible” to integrate large amounts of renewables into a privately-run energy market, Darwall says.
Jon Ferris, head of energy markets for consultancy Utilitywise tells Carbon Brief:
“Inflexible renewables and nuclear may reduce the ability of generation to match fluctuations in demand, but rather than destroy the market, this will create market conditions in which demand response, electricity storage and interconnection can be rewarded for providing flexibility.”
Richard Howard, head of energy and environment for right-leaning thinktank Policy Exchange, tells Carbon Brief Darwall’s two options are “clearly the extremes”. He says they offer a choice of an energy system that is nationalised and low carbon, or market-based and high carbon.
“There are shades of grey in between. Our view is that the market alone will not deliver decarbonisation, so there is a need for some degree of state involvement, albeit that this can be achieved within a market framework.”
Will Straw, associate director for energy, transport and climate change for left-leaning thinktank the Institute for Public Policy Research, tells Carbon Brief:
“If Britain is serious about tackling climate change, renewables will have to be part of the energy mix. Indeed, solar and onshore wind are already far cheaper than other low-carbon technologies like nuclear power, and carbon capture and storage.”
DECC says the report “ignores the reality of the energy market”. It says:
“By creating the world’s first low carbon electricity market, we are going green at the lowest cost, and attracting tens of billions of pounds of infrastructure investment, creating huge numbers of green jobs right across Britain.”
The CCC says the most cost-effective route to a low-carbon UK includes a decarbonised power sector in 2030 using a combination of nuclear, renewables and carbon capture and storage.
Today’s report is the latest in a long line of similar studies to disagree. They offer apparently cheaper alternatives that are either politically infeasible, like renationalisation, or amount to abandoning the UK’s low-carbon ambition.
Update 16:45 - We added quotes from DECC and Jon Ferris.
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