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FES Costings

December 2, 2020
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By Paul Homewood

 

The National Grid have just published the costings for their Future Energy Scenarios, which they issued in the summer.

Some of the assumptions used are dodgy to say the least, some might say crooked!

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Our Future Energy Scenarios examine different pathways the energy system could take between now and 2050. Each scenario sees 30 years of change with more electric vehicles, renewable energy and different ways of heating our homes. Strategy Manager Rob Gibson explains our assessment of the relative costs of each of these scenarios.

Each year we produce four Future Energy scenarios – different pathways for the future of energy over the next 30 years. They are aimed at informing industry investment and supporting decisions on energy policy.

The potential changes to the energy sector are illustrated across the different scenarios, including assumptions around deployment of renewable energy,  take up of electric vehicles, and investment in new technologies such as hydrogen and carbon capture technologies too.  In three out of the four scenarios Great Britain achieves its Net Zero by 2050 target.

The aim of our project was to cost the scenarios for the energy sector to enable comparison across these four Future Energy scenarios. Importantly, our project doesn’t provide the total cost of meeting net zero to UK Plc and does not include costs related to energy demands from a number of areas such as aviation, shipping, rail, agriculture and industrial and commercial heat demand. 

https://www.nationalgrideso.com/news/analysing-costs-our-future-energy-scenarios

 

The detailed document is here.

You may recall that I previously took a close look at one of the scenarios – Consumer Transformation, as this was the most likely one. Of the others, System Transformation assumed large scale roll out of hydrogen, and another, Leading the Way assumed the most rapid decarbonisation.

The fourth scenario was Steady Progression, which the Grid have tried to present as the base case in their new costings. However that is not the case, as this scenario also assumes decarbonisation in power and transport:

 

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The message from the National Grid is that there is little difference in costs between any of the options, when accumulated between now and 2050. Consumer Transformation (CT) is for instance £110bn more expensive than SP, at current prices, small in total terms:

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However, as we have already seen, there is no genuine base case shown. There are also a host of decidedly dodgy assumptions made.

For a start, all of the costings include a “carbon cost”, which rises from £47/MtCO2 in 2020, to £129 in 2050. Carbon does not have a “cost”, so it artificially increases the cost of Steady Progression (SP) by £93bn in the electricity generation sector alone. Quite ludicrously it shows as a saving of £124bn on Leading the Way (LW), simply because it includes negative emissions from BECCS (Biomass with Carbon Capture).

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SP also has the highest costs shown for transport, £116bn more than CT. There are three reasons for this:

1) CT assumes there are fewer cars on the road, and that we use public transport more; therefore total costs will be lower. I somehow don’t believe people will regard themselves as being “better off” as a result!

2) The assumed price of an EV will drop by 25% between now and 2030. Of course it may, and people will no doubt flock to buy them then. But given the looming shortage of raw materials, the price is just as likely to rise.

3) Fuel costs for EVs are pitched at 5p/mile, which is realistic for home charging, but public charging will more than double that figure.

To make matters worse, they are assumed to be 11p/mile for petrol/diesel. Excluding fuel duty, costs will be around 7p/mile, based on 40mpg.

 

Then we come to residential heating, where CT adds £339bn to the cost of SP, which effectively assumes business as usual:

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£339bn equates to £11.3bn a year between now and 2050, but this does not tell the whole story, because most this extra cost will be borne in a relatively short space of time, as gas boilers are phased out, and replaced by expensive heat pumps and the necessary insulation.

Depending on how quickly this phase out occurs, this will probably be during the 2030s.

Insulation under CT is estimated at £313bn over thirty years, which is about £12,000 per home.

To cap it all, the FES assumes that the wholesale cost of natural gas will rise from 43p/therm in 2020 to 70p in 2050. According to OFGEM, gas prices have been well 50p for most of the last few years, and at 25p pre-pandemic.

Certainly there is a case to be made for prices rising back to 2012 levels, but that cannot be regarded as a central scenario.

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https://www.ofgem.gov.uk/data-portal/all-charts/policy-area/gas-wholesale-markets

 

If gas prices remain around 2019 levels, the SP heating cost has been overestimated by about £5bn a year – maybe £100bn till 2050.

By the way, I am a total loss as to how replacing gas heating with hydrogen can save money, as ST implies!

 

 

To summarise:

  • Heating costs will rise by at least £400bn over the period.
  • There is no evidence that EVs will lower driving costs.
  • Carbon pricing has artificially lowered the cost of electricity generation by at least £100bn.
  • Given the above, CT will likely cost at least £600bn more than SP.
  • SP includes decarbonisation of power, a process that is already adding £10bn a year to electricity costs, a figure which will remorselessly rise for at least the next two decades.
  • Adding this lot together, the cost of Net Zero will be at least £1 trillion over the next thirty years, even before other costs are added in, which have not been considered in this study.
16 Comments
  1. Penda100 permalink
    December 2, 2020 2:49 pm

    Love the photo – is that a desperate consumer making his own electricity by blowing on a hand turbine? Every child knows that running around the garden with it in your hand makes it go much faster.

    • Nancy & John Hultquist permalink
      December 2, 2020 4:37 pm

      The photo image is the modern equivalent of Rodin’s bronze “The Thinker.”
      As within the bronze head, not much is going on in the modern version.

  2. Harry Passfield permalink
    December 2, 2020 3:17 pm

    I guess there’s no BAU or BAU+. I bet their remit was allow for CC.

  3. Nancy & John Hultquist permalink
    December 2, 2020 4:33 pm

    The following 3 things are serious delusions:

    1: negative emissions from BECCS (Biomass with Carbon Capture);

    2: replacing gas heating with hydrogen;

    3: EVs will lower driving costs;
    _ _ _ _ _ _
    My thought:
    Some “climate cult” folks actually believe this stuff, while others
    are positioned to make a lot of money.
    The former are going to be disappointed.

  4. jack broughton permalink
    December 2, 2020 5:06 pm

    You have done very well to have got so much of the info from the reports. I downloaded them all a few weeks ago, but deleted them as they are so difficult to follow and full of glossy pics rather than facts. The cross references to the other documents and continuous jargon were also frustrating.

    My view is that the document is an attempt to show that consensus exists by confusing the main issues. The assumptions and maybes are frightening in that this document will be used to push the climate change agenda without proper debate of the costs / benefits.

    Before the document is considered the underlying assumptions of AGW ought to be properly considered. If climate change is blindly accepted, the costs of £ 1 t +++ will be squandered and the UK will move back to the 1950s where the common man could not afford a car or central heating, all because some computer programs gave pre-determined answers.

    • Phoenix44 permalink
      December 2, 2020 6:37 pm

      It’s a classic confirmation model. The answer was known and then you just keep tweaking the assumptions until you get the right result. Done it myself many times!

      Look at the price of gas – apparently a huge decrease in demand will lead to an increase in price. Yet electricity costs will fall as demand rises. Because otherwise the whole thing falls apart.

  5. December 2, 2020 5:21 pm

    I congratulate you Paul (and not for the first – or the last time) for spending so much time and effort to get your head around all this unnecessary crap. Much of it leaves me cold, I’m afraid. I am stuck in the realms of why any of it is even necessary. How those who govern us, and make the rules, can simply plough ahead without the empirically-based facts, defeats me.

  6. December 2, 2020 6:08 pm

    This is the modern way.
    Decide what you want to do and then adjust your assumptions to provide a justification.
    Obfuscate at length so even the numerate give up.

  7. Phoenix44 permalink
    December 2, 2020 6:32 pm

    I can’t find the discount rates used? Any luck with that?

    It’s just guesses fiddled to show the result they want. The true baseline is do nothing and uses the costs from the Stern Report. But as those costs are not outweighed by the benefits of a warming world until way beyond 2030 then this would then be shown to utterly disastrous, a lunatic policy of mass impoverishment. And we can’t have that.

    • It doesn't add up... permalink
      December 2, 2020 7:52 pm

      You have to work backwards. First, download their complete report package, which is a zip file that includes an xlsx workbook.

      https://www.nationalgrideso.com/document/181961/download

      Then find the Fg.1 and Fg.2 tabs. The first gives the NPV of each scenario for convenient reference (add the breakdowns up). Insert an extra column in front of the cashflows table in Fg.2 and put the negative of the NPV for each scenario in it, and use the IRR spreadsheet function on the cashflow. I get 3.5% for all scenarios.

    • December 2, 2020 9:27 pm

      3.5% they say, per Treasury Green Book

  8. Joe Public permalink
    December 2, 2020 9:08 pm

    “By the way, I am a total loss as to how replacing gas heating with hydrogen can save money, as ST implies!”

    It cannot. It’s a physical impossibility.

    Producing hydrogen has a massive negative EROEI.

    BTW – Ben Pile has made this video:

  9. It doesn't add up... permalink
    December 2, 2020 9:47 pm

    I do suggest reading the industry comments as a pointer to some of the idiocies in the FES:

    https://www.nationalgrideso.com/document/177781/download

    It also reveals some of the idiocies of the green zealots who have been hired by some of the companies, demanding the impossible in the interest of puritanical purity of being a zero. Some highlights:

    A strong area of agreement amongst the respondents was that policy needs to be put in place as soon as possible in order to support the deployment of fuel switching technologies. Due to investment cycles, many stakeholders believe that a policy framework must be put in place during the early 2020s. There is currently little incentive for companies to invest in these expensive technologies. Such policy may include targeted funding for sectors, for example mirroring the Clean Steel Fund, or increasing carbon taxes. Stakeholders also stressed the importance of policy targeted to increase investment in carbon capture and hydrogen technology. While many see the potential for a green recovery, others worry whether the coronavirus pandemic will delay investment in such technology.

    More subsidies and regulatory fixes please!

    Most respondents thought that heat pumps would be unable to meet peak heat demand on their own and that significant insulation (similar to Nordic countries) or some form of backup heating would be needed to meet peak heat. All respondents thought that heat pumps would not be able to meet hot water demand on their own and some form of hot water creation system would be needed. There was a range of views on our insulation assumptions, with some saying that high levels were desirable and others that to get to high efficiency levels would be extremely disruptive. Government policy is seen as key in this area.

    Have they read Prof Kelly’s assessment that this is perhaps a £2 trillion item?

    One respondent noted that the modelling underestimated the energy required for EVs, noting evidence showed EVs currently use more energy than our sources showed.
    There were two strongly opposing comments on our Vehicle to Grid (V2G) modelling approach. One view being that evidence shows consumers become used to such technology, will adopt to it easily and we should be showing a higher take-up. Another being that consumers would not waste their money on V2G and so our analysis was irrelevant.

    Perhaps they should be looking at battery degradation costs?

    As I start to dig I am getting more and more snowed with apparently absurd assumptions and omissions. It would take a large number of posts to look at each in turn.

    • Joe Public permalink
      December 3, 2020 11:48 am

      “As I start to dig I am getting more and more snowed with apparently absurd assumptions and omissions.”

      Mirroring the similar myths about Hydrogen being our heating salvation.

  10. jack broughton permalink
    December 3, 2020 12:49 pm

    I remain full of admiration for Paul and IDAU for wading through the documentation and finding the important bits. I took a similar view to some of the others in that I could not face the drivel that one has to go through to get there…… Great reviews, thanks.

    Todays “news” was focussing on the summer death toll caused by global warming: another try at whipping-up a fear-campaign: the nonsense that underlies the claim will not be discussed nor will the meaning of excess deaths, nor will the winter death reductions that would be an obvious corollary of the hypothesis.

  11. Coeur de Lion permalink
    December 4, 2020 10:39 am

    Midday Sunday 6 December (my birthday) will be a really bad time for windmills.

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