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Would We Be Better Off Now, If We Had More Renewables?

November 6, 2022

By Paul Homewood

h/t Paul Kolk

 

For a change, a slightly more objective analysis of our energy policy from the BBC:

 

 image

https://www.bbc.co.uk/news/uk-politics-63477214

It covers some of the main factors, such as:

 

  • The dash for gas in the 1990s, and consequent over reliance on imported gas
  • The failure by successive governments to build nuclear power stations
  • Lack of gas storage, going back to cancellation of plans in 2008
  • David Cameron’s cancelling of subsidies for onshore wind and solar power

The first two items are clearly making the UK more vulnerable now. But quite astonishingly I can find no mention at all of the deliberate policy of phasing out coal power, begun in Tony Blair’s day. It is this which more than anything which has made us too reliant on gas.

Gas storage is a bit of a red herring, as it can only help in the short term, and does not address the underlying problems.

But I want to focus here on the last item on the list. We have seen frequent claims this year that energy bills would not have been so high if we had built more renewable capacity. This is what the BBC say:

 

Another explanation with more weight, he said, hinges on choices made by Mr Cameron’s government.

"The first and most important one was ‘getting rid of the green crap’," he said.

The crude phrase, splashed on the front page of the Sun newspaper, was the "PM’s solution to soaring energy prices" in 2013. Back then, Labour was campaigning hard on the cost of living, promising to cap energy bills if the party won the 2015 general election.

In a surprise reshuffle, Mr Hendry was replaced as energy minister by John Hayes, who vowed to put "coal back into the coalition".

"He wanted to see a huge growth in coal," Mr Hendry said. "He did really throw the low-carbon agenda into reverse."

Over the next two years, subsidies for renewables were cut, planning rules for onshore wind were tightened, and a zero-carbon homes policy was scrapped.

Had those green policies remained, estimated annual energy bills would have been £9.5bn lower under the October price cap, according to research by energy analysts Carbon Brief.

The culling of the green deal for home insulation was particularly disappointing for Mr Huhne, who sees the policy as one of his key legacies.

So, what is the truth?

Below is the Table from the Carbon Brief report quoted:

image

 

Of the £9.5 bn saving claimed, £7.4 bn is from onshore wind and solar projects, which would supposedly have been built without the cancelling of subsidies. (They fail to explain why they were not built anyway, if they were so “cheap”). I’ll ignore the savings from “efficiency” as the report fails to calculate the cost of fitting insulation etc – they even ludicrously include electric cars in this, conveniently ignoring the fact they cost ten grand more to buy!)

For a start, it is puerile to argue that we would be better off now if we had built more renewables, when nobody at the time forecast that gas prices would rocket.. You might just as well beat the wife for not choosing the right lottery number!

The missing capacity is calculated from 2017 capacity construction, detailed in an earlier Carbon Brief report here. For onshore wind, this works out at 5.4 GW over the period 2018 to 2021. Solar power is not mentioned in that earlier report, but we are looking at about 8 GW on the same basis.

If that extra capacity had been built, we would be getting an extra 11.8 TWh from wind and 8.0 TWh from solar.

The last wind and solar farms built under the CfD subsidy system are currently priced at £100.31 and £96.33/MWh respectively. There is no evidence that construction costs have come down since they were built. However until energy prices started spiking last year, the wholesale market price for electricity has been around £50/MWh:

electricity-prices-day-a(2)

https://www.ofgem.gov.uk/energy-data-and-research/data-portal/wholesale-market-indicators

In other words, we would all have been overpaying for that wind and solar power for the last four years, to the tune of £963 million a year, or £3.8 billion over the four years. It is painfully obvious that from a purely economic view, the right decision was made to end subsidies given the facts at the time.

Even then though, it would appear that Carbon Brief have grossly overestimated their “bill for cutting the green crap” Based on their own figures, the savings from onshore wind and solar are £379 and £368/MWh respectively. But according to OFGEM, whole sale prices in September were £364/MWh, and have been around £200/MWh this year.

Therefore, with wind and solar costs of £100.31 and £96.33/MWh, the potential saving would only have been £2 billion, not the £7.4 billion claimed. (The Carbon Brief was written in August 2022, when market prices spiked at £592/MWh).

While electricity wholesale prices may be higher next year, at this year’s levels it is clear that current savings would not yet have offset the cost of subsidies between 2018 and 2021.

There is a second chart in that Carbon Brief which is highly relevant:

image

 

As we still have to keep gas and other dispatchable sources of power as back up, we still have to keep on paying their fixed costs. Indeed the intermittent working of gas power stations actually makes them less efficient and puts up the prices they have to charge.

The only correct way to compare costs is to look at avoided marginal costs of gas, which the above chart does. Between 2018 and 2022, they reckon we would have had to buy an additional £33.5 billion worth of gas, if we had not had renewables.

Sounds impressive? .

Well, not really, because in the last five years, subsidies for renewable energy have cost the UK £75.7 billion – see here. These are the costs officially listed by the OBR as “Environmental Levies”. This actually understates the true cost, as it does not include the tens of billions spent on upgrading infrastructure and balancing the grid, both necessary to cope with the intermittency of renewables.

The Broken Energy Market

Instead of trying to second guess past decision making, what both the BBC and Carbon Brief should be doing is addressing the current situation.

If they really believe that market prices will stay high, then wind and solar farms will spring up all over the place, without the need for government intervention.

But the most effective and immediate way to cut energy bills is to reform the broken energy market. It may have worked well twenty years ago, but it is actually making the energy crisis much worse now.

It is ridiculous that electricity from all sources should be sourced at the price of the costliest generation, ie gas. It is even more unacceptable that renewable generators should not only make windfall profits from this market malfunction, but that they also continue to receive subsidies worth up to £10 billion a year. Unsurprisingly Carbon Brief fail to mention any of this.

Instead of the current broken system, we should implement one based on Power Purchase Agreements, PPAs, which are commonly used in the US. Prices for power would be agreed on a long term contractual basis from major generators, with preference given to dispatchable sources. Top up power for periods of peak demand/power shortages would be separately negotiated.

Meanwhile, intermittent wind and solar power would be paid a much lower price, one which recognised their lower value within the overall system.

One final factor, which again is not mentioned by the BBC – carbon taxes.

UK carbon prices are still around £80/tonne, about four times historic levels. This is directly increasing costs for gas generators, thus putting their prices up. And, as we have seen , this also puts up prices for all generators. These carbon prices could be reduced to zero tomorrow.

37 Comments
  1. In The Real World permalink
    November 6, 2022 2:48 pm

    The actual grid price for electricity started its big rise in 2021 , long before the Russian invasion .
    One of the main reasons for the increase was a huge rise in the cost of Carbon Credits under the ETS , this led to a doubling of the cost for generators using gas/ coal / oil .
    The ETS means that wind / solar generators are given Carbon Credits by the Government , which they then sell to the fossil fuel industries .
    This had the effect of hiding the subsidies that the renewables get and vastly increasing the cost of generation for conventional generation .
    Consumers are now paying a lot more money for their energy , but gas/coal /oil
    are still a lot cheaper than wind /solar , but a constant stream of lies from the politicians / media are desperately trying to hide this .

  2. In The Real World permalink
    November 6, 2022 3:05 pm

    Another increase for customers of electricity is the cost of Grid balancing and constraint payments , neither of which would be needed for conventional generation .
    Over the last few years these have added up to something like £100 to £200 per year for each consumer , but you will not find that mentioned in the media .

  3. ancientpopeye permalink
    November 6, 2022 3:24 pm

    The huge myth about the menace of co2 is one of the causes of our present dilemma.It might be worth a deep investigation into which politicians and their backers have offshore bank accounts with connections to the so-called green energy production. Like who is getting rich on wind farms etc. how much taxpayers money is lining whose pockets?

    • dennisambler permalink
      November 6, 2022 6:55 pm

      Our King for one:
      2019
      https://www.theguardian.com/environment/2019/sep/18/wind-power-crown-estate-opens-new-bids-for-seabed-rights
      The crown estate has opened the first leasing round for offshore windfarms in a decade to usher in a new generation of wind projects expected to eventually generate an investment of £20bn.

      https://www.theguardian.com/environment/2019/jul/17/offshore-wind-auction-could-raise-millions-for-queen
      Industry experts expect the complex bidding process to raise record sums, which could increase energy bills and hand a windfall to the crown – potentially generating hundreds of millions for the Queen.

      The Crown Estate, which manages the monarch’s property portfolio, holds exclusive rights to lease the seabed around the British Isles for wind and wave power. Its profits go to the Treasury, which then sends 25% back to the royal household in the form of the sovereign grant.

      The sovereign grant was increased two years ago, from its previous level of 15%, in order to pay for extensive renovations at Buckingham Palace. It is to stay at 25% for a 10-year period, meaning the royal household should benefit directly from the money raised from the new leases.

      The Crown Estate does not make its forecasts public. However, if the government’s 2030 target is met, (at the time of writing, the Queen) King Charles could be collecting more than £100m a year within a decade.”

  4. drkenpollock permalink
    November 6, 2022 3:24 pm

    Paul, excellent stuff as usual. A peripheral point: some politicians and others still say that renewables are “nine times cheaper” than fossil fuel electricity. Two reflections: that was only true for a couple of days when the gas price peaked, but Carbon Brief made a big fuss about it and others quote it as if it were true for all time…. Secondly, does anyone with any understanding of maths talk about “nine times cheaper” rather than costing “one ninth” of fossil fuel electricity? It is enough to make you weep!

    • It doesn't add up... permalink
      November 6, 2022 8:12 pm

      It was NEVER true. Wind farms are either on CFDs, paying an average of over £160/MWh, or they on market prices plus any ROCs and REGOs they are entitled to.

      The claimed numbers were based on CFDs for wind farms yet to be built at their 2012 base prices before indexation. Of course we know that these CFDs are never likely to be taken up. All wind will get repriced under REMA to guarantee a profit. The government will have no alternative excuse it will not have alternative generation to rely on.

      • drkenpollock permalink
        November 8, 2022 10:19 am

        In my estimation, there are three sorts of people involved here. 1. the ignorant ones who pluck any favourable figure out of the air if it supports their arguments. 2. people like me who can recognise rubbish when they see it, and 3. people like you who really understand what is going on – and hence are never asked to contribute by the MSM or BBC. Please do not give up on the task, as people in category 2 like me need your knowledge and wisdom to seek to understand the way the world works!

    • November 6, 2022 8:44 pm

      That claim of 9 times cheaper is also being spouted by Biden in the US, so those costs cannot logically be the same in both countries with different energy situations.

      • drkenpollock permalink
        November 8, 2022 10:06 am

        From my limited knowledge of Jo Biden, I would say he would grab the best figure to strengthen his argument no matter what its source or reliability. Carbon Brief was the UK source. What source are you suggesting for the USA?

  5. Gamecock permalink
    November 6, 2022 3:28 pm

    ‘As we still have to keep gas and other dispatchable sources of power as back up, we still have to keep on paying their fixed costs. Indeed the intermittent working of gas power stations actually makes them less efficient and puts up the prices they have to charge.’

    The higher the penetration of wind/solar into the electricity generation market, the more marginal back up sources will go out of business. Ipso facto, ‘Would We Be Better Off Now, If We Had More Renewables?’ can be answered directly: No, you would have devastating shortages.

    Mr Homewood argues this on the basis of cost. Though valid, AVAILABILITY should be your greatest concern! Having it is far more important than what it costs; there is little price elasticity in energy.

    ‘Had those green policies remained, estimated annual energy bills would have been £9.5bn lower.’

    Leftards like the BBC have a static view of the world. It doesn’t occur to them that the addition of more W/S doesn’t happen in a vacuum. The marketplace will react to the addition; changes will occur. ‘Energy bills would have been lower’ is childishly simplistic.

  6. Jordan permalink
    November 6, 2022 4:43 pm

    I’d really like to have a firm retail supply contract, with the price linked to the cost of fossil fired power generation. My ideal would be a dual gas/coal priced contract to reflect fuel switching capability for these sources.
    Right now, with the Government obsessing over its Net Zero agenda, coal is completely banned, and there is a chance that “unabated” gas will also be banned at some point.
    All I can hope for is: “tap, tap, tap, computer says no” (for the fans of Carol Beer).

  7. Micky R permalink
    November 6, 2022 5:05 pm

    An interesting cost comparison could be made with generation that uses no renewables at all.

    Baseload: a fleet of nuclear PWR twin reactor designs as per the cost-effective 1990s proposal for Sizewell C and a fleet of coal-fired stations as per DRAX plus some proven modern coal-fired design(s).
    Intermediate: coal as above
    Peak: pumped storage and gas

    • It doesn't add up... permalink
      November 6, 2022 8:48 pm

      Big savings on grid capacity by avoiding renewables, as well as on overall capacity and on balancing charges. Comparison with the French grid is warranted. Their present problems are the result of having a lot of power stations simultaneously near end of life, which is something that should be avoided. We will shortly run into similar problems arising from the dash for gas, and already suffer from failure to renew nuclear.

      • Mikehig permalink
        November 7, 2022 5:02 pm

        That’s not really a fair comparison. EdF saw the issue coming well over a decade ago and they are nearing the end of a massive €45 bn refurb programme to update their plants and extend their working lives. I’ve not heard of anything similar being planned for our gas fleet……
        The main reason for their current troubles is the discovery of stress corrosion cracking in parts of the safety injection systems on some plants, especially the later generation. They are working through a programme of examination and rectification, if needed with a target of having all the afflicted plants back on line by the New Year. That deadline may slip thanks to strikes by the unions involved.
        A secondary reason for the low output this year was the high water temps and low levels of the rivers used for cooling by many of the plants which limited outputs.

  8. November 6, 2022 7:26 pm

    Reblogged this on sideshowtog.

  9. Joe Public permalink
    November 6, 2022 8:12 pm

    The ‘Dash for gas’ in the 1990s is entirely OFGEM’s predecessor OFGAS’s fault.

    British Gas’s policy was that natural gas was too valuable a commodity to be ‘wasted’ generating public electricity at low thermal efficiency.

    It argued that using gas for space heating etc achieved twice the efficiency / half the emissions per useful kWh vs electricity generation.

    OFGAS ruled BG had no right to dictate how its customers used the product BG sold.

    Chickens have now come home to roost.

    The answer to the Beeb’s “Would We Be Better Off Now, If We Had More Renewables?” is ‘yes’ ONLY if frequent and prolonged electricity blackouts are deemed to be better than having dependable affordable electricity 24/7.

    • Joe Public permalink
      November 6, 2022 8:18 pm

      Oooops.

      The “Would We Be Better Off Now, If We Had More Renewables?” wasn’t the Beeb’s question; but the answer given still applies.

      More so, considering the Beeb tries to whitewash OFGEM’s (historic) role:

      “The energy regulator, Ofgem, didn’t think so either. In 2009, Ofgem produced an unsettling report, which flagged dependency on gas imports as a key risk to energy security.”

    • It doesn't add up... permalink
      November 6, 2022 8:55 pm

      Had we not used gas for generation we would have gone through a longer period with an export surplus which would have been much larger at its peak, while presumably continuing with extra imported coal and maybe nuclear. The counterfactual isn’t quite as simple as BG made out. At a global level it might have made sense. For UK Ltd. it would probably have been more nuanced.

    • Gerry, England permalink
      November 7, 2022 1:23 pm

      The Dash for Gas was to avoid ever being held to ransom again by the miners union and the rail unions over coal supplies to our then power stations. It seemed a bad move to waste gas for generation when it was the ideal fuel for homes and industry leaving coal to be burnt where it was more efficient and could be cleaned up.

  10. It doesn't add up... permalink
    November 6, 2022 8:40 pm

    A bigger renewables build out would have locked in much more by way of high subsidies, since it would have entailed much more allocation in the early rounds when CFD prices reflected costs, which would have been high for the remoter locations. Also completely omitted is the consequent massive additional investment in grid capacity which is now hoving into view. James Richardson of the National Infrastructure Commission at the recent BEIS Select Committee session:

    First, we need a lot of investment in order to expand the electricity grids to bring that power from where it will be generated, predominantly in the sea and in the north of Scotland, to where demand is…

    Balancing charges would have been much higher, and curtailment a much bigger feature than it is already. Your estimates are definitely rather Conservative.

  11. Joe Public permalink
    November 6, 2022 8:53 pm

    The Beeb misleads again.

    It tries to claim London electricity prices are higher than EU average. Its own source shows otherwise:

    From here:

    https://www.energypriceindex.com/price-data

    • It doesn't add up... permalink
      November 6, 2022 8:58 pm

      I hope Londoners and EU citizens aren’t paying almost €40/kWh. It just demonstrates that BBC journalists do not know what they are talking about.

    • Ian Johnson permalink
      November 7, 2022 9:58 am

      Maybe it should be 39.51 eurocents per kWh.

      • It doesn't add up... permalink
        November 7, 2022 2:22 pm

        We should probably assume that the BBC exaggerates by a factor of 100 as a matter of course.

    • November 7, 2022 1:18 pm

      UPDATE Mon 7th Oct.
      That chart has disappeared from the BBC’s webpage which was updated approx 2 hrs ago.

      • It doesn't add up... permalink
        November 7, 2022 2:15 pm

        Wayback probably still has the evidence.

  12. It doesn't add up... permalink
    November 6, 2022 9:42 pm

    In reality the high prices have not been that long in the making. As recently as 2015we still had sufficient coal capacity to allow large scale switching from gas when gas prices are high. We used it in the aftermath of Fukushima, when Japanese bids for LNG made coal much the cheaper fuel. Clegg could have supported nuclear that would now be onstream. And of course all the ESG suppression of development of hydrocarbons that lies behind the present shortages is a much more recent thing, really only implemented at scale under the cover of the reduced levels of demand in 2020 due to global lockdowns.

  13. Jordan permalink
    November 6, 2022 9:53 pm

    “Instead of the current broken system, we should implement one based on Power Purchase Agreements, PPAs, which are commonly used in the US. Prices for power would be agreed on a long term contractual basis from major generators, with preference given to dispatchable sources.”
    Recent experience shows Suppliers do not have the financial standing to make the commitments on the other side of the PPA. So long as customers are uncommitted, a PPA leave volume risk with the Supplier.
    The PPA structure has a chance of working if the customer enters into long-term commitments to the Supplier. This needs a decisive move away from the present mindset that customers protect themselves by switching Supplier.
    We also need to ditch the idea that the Government can pick winners in the contest of power generation technology. The Government is using decarbonisation as an excuse to push wind and nuclear. It will even go as far as abolishing fossil fuels to drive this forward (as coal shows).
    This isn’t working out too well. Coal is still the winner on a global scale and the UK cannot unilaterally deem coal to be uneconomic.
    If the Government will get out of the way, we might get some proposals for new fleet of coal-fired power stations in the UK. These will help to align UK’s productivity with other major economies in the world.
    If this happens, I’ll happily play my part (as a customer) by signing a long-term supply contract to help new coal fired assets get through their final investment decision.

  14. John Smith permalink
    November 6, 2022 11:01 pm

    It was a big mistake closing reliable, dispatchable, coal fired power stations. They were working on technology to clean up the emissions.
    We would have done better to preserve gas for domestic heating and industry. It’s a very easy, reliable and relatively efficient way to space heat homes.
    The tragedy that is our nuclear industry is worth a topic in its own right. I went to university in the 1970’s with a lot of engineers that worked in our own nuclear industry. Then we decided to use other countries technology and the rest is history.
    Even the French reckon they have lost nuclear technology knowledge, as they struggles to start up the EPR at Flamanville, Normandy. Over a decade late and many times over budget.

  15. John Smith permalink
    November 6, 2022 11:03 pm

    It was a big mistake closing reliable, dispatchable, coal fired power stations. They were working on technology to clean up the emissions.
    We would have done better to preserve gas for domestic heating and industry. It’s a very easy, reliable and relatively efficient way to space heat homes.
    The tragedy that is our nuclear industry is worth a topic in its own right. I went to university in the 1970’s with a lot of engineers that worked in our own nuclear industry. Then we decided to use other countries technology and the rest is history.
    Even the French reckon they have lost nuclear technology knowledge, as they struggle to start up the EPR at Flamanville, Normandy. Over a decade late and many times over budget.

    • Keith permalink
      November 7, 2022 10:59 am

      Ageed. We never hear about the hidden cost of having high capacity grid connections at the coal sites lying unused while expensive links to windfarms have to be installed. Ironbridge is a housing estate and Rugeley an Amazon warehouse for example.

  16. November 6, 2022 11:43 pm

    “Carbon Brief is a UK-based website covering the latest developments in climate science, climate policy and energy policy.

    Leo Hickman (@LeoHickman) is our director and editor. Leo previously worked for 16 years as a journalist, editor and author at the Guardian newspaper. Before joining Carbon Brief, he was WWF-UK’s chief advisor on climate change. In 2013, he was awarded an honorary doctorate by the University of Exeter in recognition of his journalism. His books include A Life Stripped Bare, The Final Call and Will Jellyfish Rule the World?”

    about as biased as you get.

    • Graeme No.3 permalink
      November 7, 2022 12:46 am

      “Will Jellyfish Rule the World?” Given current politicians I think that was truly prophetic.
      Today we have a former member of the ousted government who wasn’t the voters choice despite being very keen on Global Muckup©, now criticising the current (Labor) PM for not going to COP27 – possibly hoping to pressure him as he did the losing PM. He’s been advised to go away at any rate.

      Global Muckup© refers to the well known saying “where there’s muck, there’s brass”. Feel free to use it anytime without charge.

  17. John Cullen permalink
    November 7, 2022 11:29 am

    Paul wrote, “UK carbon prices are still around £80/tonne, about four times historic levels. This is directly increasing costs for gas generators, thus putting their prices up. And, as we have seen , this also puts up prices for all generators. These carbon prices could be reduced to zero tomorrow.”

    1. Does anybody have a link, please, to data (ideally graphs) on the UK carbon price over time? I have twice tried (but failed!) to find a suitable link – there is plenty of background information but nothing I could find on the actual price!

    2. If regaining sovereignty through Brexit means anything other than hollow words, then surely it must mean the ability to throw off the business-destroying, inflation-driving, poverty-promoting, productivity-reducing tax that is the carbon price – after all, the biosphere loves CO2. But there seems to be a complete lack of political will, rather as though the politicians are too frightened by the prospect of potential success for UK PLC. So I almost agree with Paul; but I think he should have written, “These carbon prices SHOULD be reduced to zero today!”

    Regards,
    John.

  18. November 7, 2022 2:46 pm

    Gas storage is not really a “red herring”. Having a significant storage allows spikes in gas price to be smoothed out. No need to desperately buy LNG cargoes at whatever the going price is that week.

    • Gamecock permalink
      November 7, 2022 3:06 pm

      How many years of supply do you imagine? What is the business case for “significant” storage?

    • It doesn't add up... permalink
      November 7, 2022 4:27 pm

      Storage needs price spikes to justify investment. If must be paid for by the difference in cost between filling it and selling stored volumes. It’s precisely because those margins were too small that Rough wax closed rather than repaired in the first place.

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