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The True Cost Of The Climate Change Act

November 10, 2017

By Paul Homewood

 

image

http://budgetresponsibility.org.uk/efo/economic-fiscal-outlook-march-2017/

 

 

According to the Office for Budget Responsibility, the cost of Environmental Levies and the RHI scheme, (all a consequence of the Climate Change Act), will have risen to £13.5bn by 2021/22.

All of this cost is borne by energy consumers, except for the RHI, which is taxpayer funded.

But what is likely to happen to these costs in the years after 2021/22? Dieter Helm in his recent report reckons the cumulative cost will be well over £100 billion by 2030, but this appears to be way under the mark, given the costs already identified up to 2021.

There has been an ongoing conspiracy between the Government and the Committee on Climate Change to conceal the true cost of their policies.

I have therefore now undertaken a detailed study of the real costs between now and 2030, and the results are truly horrifying.

By 2030, the annual cost of the Environmental Levies and RHI will amount to £21bn. The cumulative cost between now and 2030 will be £216bn, an average of over £15bn a year.

It is worth emphasising at this stage that Environmental Levies and RHI do not account for all of the costs associated with the Climate Change Act. For instance, the growth of renewable energy has entailed huge expense in building new transmission lines and upgrading networks. I have not included items such as these, as there are no reliable figures available for them, although they are estimated to run into tens of millions.

Billions more will inevitably be spent on decarbonising transport and heating, but again these have not been officially costed.

Before we get into detail, I will describe some of the basic methodology. (I will include a more detailed explanation in a separate post).

1) My costings are based on the same power generation scenario used by the Committee on Climate Change, when they attempted to cost their Fifth Carbon Budget in 2015.

This in turn was I believe DECC’s Central Scenario.

Below are the numbers for low carbon generation for 2030. (Note – existing nuclear is not included).

image

 

2) There are, of course, many scenarios for possible generation, and they all have their impracticalities. This one, for example, contains a large amount of CCS which now looks highly unlikely to be built.

This raises the question of how it can be replaced. It is certainly too late to replace with extra nuclear in the timescales involved, whilst more wind/solar would need to be backed up with fossil fuel standby.

Given all of the many varied scenarios, and all of the improbabilities surrounding them, I have chosen to stick with the CCC’s central scenario.

If I concocted my own one, I could be accused of making up my own figures.

3) All of my calculations of subsidies are based on official data. These include:

a) Value of ROCs.

b) Strike prices already agreed for Contracts for Difference.

c) Data and assumptions from the CCC’s Fifth Carbon Budget.

d) Projections from the OBR.

e) Capacity and generation data from BEIS.

4) All costs are at 2017 prices, in other words will not change for inflation.

5) I assume that the current wholesale price of electricity, which is £45/MWh, will remain the same throughout.

This is a crucial consideration, as the higher the market price, the smaller the subsidy for CfDs becomes.

Both the CCC and Government are projecting a large increase in the market price, which helpfully allows them to claim that the cost of subsidies will be lower. However, most of this increase is due to an ever increasing Carbon Price, and is therefore an artificial concoction, which will still have to be paid for by consumers.

More on this later.

I have no idea at all what will happen to energy prices in the next thirteen years. If I did, I would soon be a millionaire! But of course, nobody else does either, which is precisely why there is no other alternative but to use the current price.

I have, however, included a sensitivity analysis, so that we can see the effect on overall costs of changes in the market price of electricity.

What we can say is that wholesale electricity prices have been hovering around the £45 mark for the last 12 months, and certainly longer.

image

http://www.catalyst-commercial.co.uk/reports/

6) I have not included the Climate Change Levy, which will cost £1.9bn this year, as this is tax revenue. I have therefore assumed it would have to be replaced if it was abolished.

The same argument applies to Air Passenger Duty, which long ago became simply another revenue raising device.

7) I have included the cost of the smart meter rollout, estimated at £10bn over the next four years.

 

 

Results

 

image

  • Annual costs will continue to rise till 2030. (Costs drop between 2020 and 2021 because the cost of smart meters drops out of the equation).
  • Between now and 2030, the cumulative cost will have amounted to £216bn, at today’s prices.
  • Amongst the largest costs by 2030 will be:

Offshore Wind – £4.9bn

New Nuclear – £2.8bn

Onshore Wind – £1.8

CCS – £3.5bn

Capacity Market – £2.4bn

 

image

 

Highlights

  • The lower prices for offshore wind achieved in the latest auction are built into the calculations, and are also assumed to apply to new capacity built beyond 2022. However, much higher costs are already locked in for CfDs already agreed to in previous auctions. The net result is that overall offshore wind will still be costing £107/MWh at today’s prices by 2030, a subsidy of £62/MWh.
  • With onshore wind again most of the capacity that is forecast for 2030, about 62%, is already locked into expensive contracts, As a result, the cost of onshore wind in 2030 will be £82/MWh.
  • In addition to any existing nuclear capacity that is still around by 2030, the CCC assume that Hinkley Point C will be up and running in 2025, producing 25.5 Twh a year, at a current guaranteed strike price of £100.40/MWh. It is also assumed that Moorside will come on stream in 2027, with output of 26.4 TWh, at a slightly lower price of £97.40/TWh.
  • Biomass capacity is now largely in place, and will cost £104/MWh in 2030
  • CCS, if it ever actually comes on stream, is assumed by the CCC to come from a number of developments, with an average cost of £112/MWh.

 

Wholesale Price Sensitivity

As far as subsidies go, changes in the wholesale price of electricity predominantly affect CfD contracts, which offer a guaranteed, index linked price. The lower the market price, the higher the subsidy therefore.

As mentioned, this analysis assumes that the current price of £45/MWh applies throughout the period.

For every increase/decrease of £1/MWh, there is an effect of £198 million a year in 2030, when there is projected to be 198 TWh from CfD schemes. As there are currently very few CfD projects in production the figure this year is 10.8 TWh, and this figure progressively increases each year between now and 2030.

So, for instance, if wholesale prices are £55/MWh in 2030, the cost of subsidies would be £1.98bn less than my projections.

 

 

Reconciling To The CCC’s Calculations

The CCC have projected a total cost of subsidies in 2030 of £8.0bn at 2014 prices, relating to ROCs, CfDs and FIT (Feed in Tariff). My calculations work out at £17.1bn.

The main difference is that the CCC have forecast a wholesale price of £84.37/MWh in 2030. This results in their estimate of subsidies being £7.8bn lower than if they had used £45/MWh.

It is worth pointing out that the CCC have also projected a a rapidly rising carbon price would account for £27.52/MWh out of the £84.37. Without this, their assumed market price would be £56.85/MWh, much closer to the current level.

It is also worth noting that the CCC have assumed that gas prices rise from their current level of around 50p/therm to 70p by 2030. This is important because they use gas prices as proxy for the market price of electricity.

The other significant difference lies in their estimate of FITs, which is £991 million, for every year from 2016 to 2030. The OBR projections, which I have used, are £1.3bn in 2016/17, rising to £1.6bn in 2021/22.

 

Final Thoughts

Even on the CCC’s projections, the cost of climate policies will continue to rise during the 2020s from their already significant level.

Yet they have grossly underestimated the true costs by adding a bogus cost of carbon into the price of conventional electricity, thus reducing the real value of subsidies for low carbon electricity at a stroke.

On top of that, they have based their figures on a 40% rise in the price of gas, something that seems extremely unlikely in a world supposedly moving away from fossil fuels.

They may be right on this, but it seems an extraordinarily risky gamble to be taking.

Between now and 2030, on current projections, climate policies in the power sector will have cost the UK £216bn, equivalent to about £8000 per household.

Not only will this have a significant effect on electricity bills, it will also be highly damaging to the wider economy.

It is time for the Government to come clean, and admit the real costs of the Climate Change Act.

 

 

References

1) ROC details

https://www.gov.uk/government/statistics/energy-trends-section-6-renewables

2) Electricity generation data

https://www.gov.uk/government/collections/electricity-statistics

3) CfD auctions

https://www.gov.uk/government/collections/electricity-statistics

4) OBR forecasts

http://budgetresponsibility.org.uk/efo/economic-fiscal-outlook-march-2017/

5) Full costings from the CCC

5th Carbon budget LCF analysis

6) My costings

Climate Act Cost to 2030

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22 Comments leave one →
  1. Jack Broughton permalink
    November 10, 2017 6:37 pm

    It would not matter if every developed country was deliberately increasing their power costs as the field would at least be level.
    However, the main competition to the UK’s future trade is from countries that are not adding massively to their base-costs.

    • Phoenix44 permalink
      November 11, 2017 10:15 am

      It would still matter. Our growth in wealth comes from increasing efficiency and productivity. Decreasing both MUST lead to a decrease in wealth. The fact that we are ll getting poorer is not any comfort to me.

  2. sivullirmiut permalink
    November 10, 2017 6:46 pm

    It’s not as though they’re doing much better in Germany with the Energiewende. Recent storm Herwart saw energy being sold for minus €86 a megawatt as windpower oversupplied the grid. Which still has a guaranteed price for the producer with a green subsidy, the German bill payer could be further stung as Austria and Switzerland buy up the cheap power for their pumped storage reservoirs, and sell it back to Germany later for a profit. https://www.welt.de/wirtschaft/energie/article170189224/Strompreis-Kollaps-durch-Herwart-offenbart-Wahnsinn-der-Energiewende.html (in German) Of course what English media who did pick up on it ran with “Germans get free energy” “or Renewables record in Germany” (http://www.independent.co.uk/news/business/news/germany-wind-power-free-energy-consumers-weekend-surplus-a8031141.html) which completely misses what actually is happeneing. https://www.thegwpf.com/stormy-wind-price-collapse-reveals-madness-of-germanys-green-energy-transition/ (with partial translation of the German article)

  3. Broadlands permalink
    November 10, 2017 6:56 pm

    Come clean? CCS negative emission technology costs have been estimated at 130 (US$) per ton of CO2 captured and stored. According to the US CDIAC just one ppm of CO2 represents 2.13 gigatons of CO2. Removing 50 ppm (to get back to 350 ppm) is more than 100 billion metric tons of oxidized carbon. Do the math on the cost. Many “gigaDollars” or “gigaPounds”. And, all of this technology will have to be done using solar and wind energy AFTER reducing emissions to zero? Are they awake?

  4. November 10, 2017 7:38 pm

    Unfortunately it does not seem to matter to any of the ‘governments’ we have had for over 20 years. Likewise the civil service. They are happy to sit there in there cosy tax-payer funded establishment and not worry about the massive national debt and the destruction of the economy that they are overseeing. They’ll be alright Jack. It would be good if we thought that they had any competence, but would you permit any of the governments and their bureaucrats we have put up with for over 20 years to organise that drinks do in a brewery?

    As for Corbyns’ lot, well that reliance on Diane Abbott to look after the magic money tree does not bear thinking about as an alternative

    • TinyCO2 permalink
      November 11, 2017 11:29 am

      It’s scary. Almost none of them seem to have logical skills. Not even basic competence. They can’t debate, do interviews, shoo off lobbyists. Business and the EU has run rings about them for years. A bunch that couldn’t see that claiming every stupid thing on expenses was risky behaviour and that groping journalists was career limiting. What exactly do they do?

      • Gerry, England permalink
        November 11, 2017 6:22 pm

        Yes, you wouldn’t think the UK is staring down the barrel of the biggest crisis any of us have known due to government incompetence. The legacy media can take a bow on that score with their shallow personality political coverage and plastering ‘Sexminster’ all over its pages instead of the growing likelihood of a £200bn hit to our economy. And if you don’t have ‘prestige’ the bubble dwellers are not interested in learning from you.

  5. CheshireRed permalink
    November 10, 2017 8:14 pm

    And this expenditure has achieved what, precisely? Higher energy prices and zero impact on both global emissions and atmospheric concentrations, which both continue to rise. ‘Pointless’ doesn’t even come close to describing this nonsense.

  6. Jack Broughton permalink
    November 10, 2017 8:41 pm

    It seems that our politicos have lost the ability to look at cost / benefits in assessing technologies. In simple terms the CCA is exporting proper manufacturing jobs (almost all of the white elephants are imported) and replacing them with zero-hours junk-work, and is denying the health service funds by squandering revenues.

    No one can show any benefit to the UK of this fiasco.

  7. November 10, 2017 9:44 pm

    I’d caution against any predictions more than 5 years into the future, cos things happen like govs change the rules, climate patterns change, new tech comes in.
    As we know the gov usually goes the other way and makes worse decisions.
    But I wouldn’t rule out innovations like sudden fusion breakthrough or mini-nukes etc. nor supervolcano going off.

  8. Athelstan permalink
    November 11, 2017 1:00 am

    A good piece of work Paul and by what I can surmise – a pretty fair assessment and you’d be right in thinking that your projections are on the low side. Alas, for God only knows what the true figures will be……………..but by then who knows what will have become of the nation, it is collapsing into a deindustrialized zone – as it is – now.
    Socialists/greens don’t care, it’s the means and by any method which always justifies the end.

    Er……………and slightly O/T but did you get a chance to read this slag heap of codswallop?

    On the day the demolition men were taking down one of Kellingley’s [pit towers and winding gear shaft heads] last reminders of its ‘super pit’……..what a sad day, crikey if the ‘greens’ were about in Ironbridge, or Darlington circa 200-250 odd years ago, we’d still be ploughing with horses and it looks as though that is what we are being forced back to, It’s a bit like Mao’s cultural revolution except that unlike 1950’s China……………we’re doing that ‘human car crash’ in slo-mo.

  9. tom0mason permalink
    November 11, 2017 4:07 am

    Great work Paul.

    Unfortunately all you have done is to reinforce the notion of a bleaker future than the one I thought of originally.

    The future’s dark, the future’s cold, the future’s very expensive.

  10. November 11, 2017 8:47 am

    Reblogged this on Tallbloke's Talkshop and commented:
    Either the Arctic, or even hell itself, will have to freeze over before our current politicians change course on their barmy and futile so-called climate policies.

    That or the electorate wakes up and tells them where to get off – unlikely while media climate brainwashing is in full swing.

    • Gerry, England permalink
      November 11, 2017 6:23 pm

      And replace them with who exactly? That’s the problem.

    • November 11, 2017 7:03 pm

      There would be plenty of climate repenters if that was what it took to get elected.

  11. Bitter&twisted permalink
    November 11, 2017 9:01 am

    The Climate Change Act. A monstrous act of self-harm.

  12. Phoenix44 permalink
    November 11, 2017 10:20 am

    “All of this cost is borne by energy consumers, except for the RHI, which is taxpayer funded.”

    All taxpayers are energy consumers, even if not all energy consumers are taxpayers.

    If the cost in 2030 is £21 billion, that is £700/household.

    The Guardian the other day was very keen to show that Brexit would cost us something similar, based on some very dubious figures – what’s the betting they will lead with this figure next week?

    • Gerry, England permalink
      November 11, 2017 6:34 pm

      I can’t see why they would since the Guardian is up to its neck in the global warming crap. Why would they want to show that their beloved green energy is costing us all?

      The likely loss to the UK economy if the current path is followed is around £200 billion. There is a general lack of understanding of what a ‘third country’ is and what the effects are of becoming one. Ignorants comments such as ‘border controls might be put in place’ abound where the truth is that border controls WILL be in place. And then few are aware that the sainted WTO rules are not a set of trading rules but a framework for creating trade deals – which explains why nobody – except possibly Mauritania but that is up for debate – trades without a number of bilateral or multilateral trade deals.

  13. November 11, 2017 10:55 am

    Reblogged this on Wolsten.

  14. Bloke down the pub permalink
    November 11, 2017 11:57 am

    When I had solar pv panels installed, part of the reasoning was that the FIT is index linked to the retail cost of electricity and as such will hopefully cushion me from the impact of future rises. Unfortunately for everyone else, as the FIT increases, so will their bills to pay for it, in a vicious circle. I’m not happy with the morals of this but heyho! needs must when the Devil drives.

  15. November 11, 2017 12:46 pm

    Reblogged this on WeatherAction News and commented:
    The cost to the consumers is baked in.

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