The British government’s ‘war on renewables’ makes no sense. That’s what plenty of people are telling you, and on the face of they are completely right.
Take onshore wind power. Onshore wind is by far the UK’s lowest cost source of renewable power capable of delivering on a large scale.
But more than that – it’s actually lowering our electricity bills, in spite of the subsidies we pay. When the wind turbines are turning most strongly it has the effect – most would say the desirable effect – of pushing down the wholesale electricity price.
Chris Goodall has set out the scale of this effect in this fascinating article: “On the typical day when wind is producing about 7% of the UK’s electricity, the market price of power is about £7 per MWh less than when the air is completely still.”
In the process, of course, wind is also pushing down the price fossil fuelled generators are being paid. All electricity consumers enjoy the benefit of those lower prices – and the benefit is big enough to pay the entire levy raised on our electricity bills to subsidise wind.
Wind power’s net cost to consumers? A big zero
As Goodall explains, based on his analysis of wind inputs and wholesale power prices,
“when the wind is hardly blowing the typical price of power that the National Grid faces is about £58/MWh and it falls as wind power increases.
“On those relatively few occasions that wind is providing more than 20% of electricity, the price is about half this level. On the average day over the last year, the main wind farms give us about 7% of total power needs. The typical buying price at 7% wind power is £51 per megawatt hour, £7 lower than when the wind isn’t blowing at all.”
And this means that the cost of wind subsidies closely matches the price reduction in wholesale power:
“If, on average, wind power depresses the wholesale price of electricity by £7 for each megawatt hour consumed in the UK, the total impact over the year is about £2.3bn. The total subsidy for renewable electricity paid by electricity consumers this year is capped at £3.3bn. This includes solar and other technologies such as landfill gas, not just wind.
“The subsidy cost for wind – about £2-£2.5bn – may well be less than the downward impact wind has on electricity prices. The net impact on consumers may therefore be close to zero. In effect, the whole burden of wind subsidy falls on the fossil fuel generators because they obtain lower prices than they otherwise would.”
As Andrew ZP Smith writes on The Ecologist, “research in Germany and Spain has found that these cost reductions outweigh the revenue support paid to wind. Wind is not subsidised in those two countries – indeed, quite the reverse, wind lowers total costs for consumers. The thing that is called a subsidy, whether existing schemes or future ones, acts to correct a market failure.”
Which brings me to the key question: is the real problem with onshore wind power not that it’s costing us too much, but the very reverse – that it’s costing far too little – and sharply cutting away at power company profits?
This seems all too likely. “As the number of wind turbines rises, we’ll see more and more days when this source of power rises to 20% or more of total UK generation”, writes Goodall.
“If current trends persist, this will take the price of power down to £30 or below. This is, of course, is exactly the phenomenon we see in Germany today, with prices often going close to zero or below on high wind days.”
Instead, expensive offshore wind
And, it seems, that’s the last thing our government wants happening – this would, after all, have a drastic downwards impact on power company profits.
So instead its policy is to focus on offshore wind. Not that it’s a daft technology to invest in: the size of the UK’s offshore wind resource is enormous, and it has the benefit that sea winds blow more strongly than onshore, and more evenly with fewer slack periods.
But it is expensive, with current CFD (contracts for difference) bids around £114-£120 per MWh, versus around £80-£82.50 for onshore. So while it’s a good idea to invest in the technology to bring the offshore industry down the ‘cost curve’, it’s certainly not the right place to put all your wind power subsidy.
Rationally, the bulk of the money should into the lowest cost technology where it will stimulate the generation of the greatest volume of power, keeping bills low and reducing carbon emissions.
Unless, of course, that’s precisely what you want to avoid. The great thing about offshore wind is that it’s a great way of burning up your renewables support budget in a hurry – which is exactly what is happening.
Adding to the effect, UK wind power, both onshore and offshore, is much more expensive than in Denmark and Germany, as Andrew ZP Smith writes. How so? Mainly because of the high confidence that the industry and investors have in the long term continuity of the supply chain in those countries – unlike in the UK, where
“Many years of policy uncertainty and persistent meddling with the revenue schemes presents higher risks to investors. Planning regulations in England and Wales have created further uncertainty, with unpredictable local decisions …
“Even more significantly, investors in wind farm supply chains can choose to locate instead in jurisdictions which offer far greater long-term clarity and security. This is why both Denmark and Germany have strong wind supply chains, and Britain’s is still nascent.”
Solar – too much of good thing?
Today we saw the government’s plans for really major cuts in solar power – focussed on the most efficient, lowest cost solar farms, while continuing to support much higher cost domestic scale roof-mounted solar panels (albeit at a low rate).
Commentators described these cuts as “perverse”, “short sighted” and “incoherent”. As indeed they appear to be. Solar power in the UK is currently on a steeply declining cost curve, on a trajectory to becoming fully cost-competitive with gas-fired generation by 2020. It’s already down by about 80% from its price of five years ago.
And as the UK’s solar capacity grows, so too does its contribution to the UK’s power supply. On recent sunny days it has been contributing some 15-16% of the UK’s daytime electricity. And therein lies the problem.
Just as having a load of zero marginal cost wind power on the grid forces wholesale power prices down, exactly the same happens with solar – an effect already manifest in Germany, as described by Keith Barnham.
By forcing prices down in the historically lucrative daytime power market, the effect in Germany has been catastrophic for power company profits – a fact that has surely not been missed by many of those same companies operating in the UK, nor their close friends in DECC and the government.
But of course to maintain the declining cost trajectory of solar power in the UK, we need a solar industry that’s remaining in business, gaining experience, building secure relationships with financiers, and discovering ways of reducing costs still further.
So what does the UK government do? It embarks on a quick fire policy to hammer the UK solar industry as hard as it possibly can. With luck, it may not be able to get itself going again for a decade or more. No matter how much solar panel prices fall, it’s not much good if there’s no industry left to install them.
And just in case the solar industry bounces back, you can be sure a future Conservative government will come up with other ideas to keep it in its place. Think heavy planning restrictions, onerous connection costs, ‘grid stability’ surcharges – whatever it takes.
Suddenly it all makes sense
Every time the government says it wants to cut renewable subsidies to keep down power bills for ‘hard working families’, it’s telling the precise opposite of the truth. The policy nexus represented by:
* onnerous planning requirements for onshore wind
* the imposition of the climate change levy on renewable generators
* the failure to raise the ‘subsidy cap’ for renewable energy
* last year’s cuts to large scale solar farms
* today’s cuts to medium scale solar farms
* the deliberate undermining of investor confidence in renewables
* the scrapping of the requirement for new homes to be ‘zero carbon from April 2016
is clear in both its effect, and its intent. It is to maintain the oligopoly of the Big Six power companies, and their extraordinary profitability. It is to keep UK energy consumers stuck on high prices, fuel poverty and high carbon emissions. It is to set back the progress of decentralised renewable energy in the UK for a decade or more.
And the government can get away with all this thanks to a compliant right wing press that’s only too happy to mislead its readers into believing that renewable energy is pushing their prices up – when in truth, it represents their only hope of lower bills in years to come.
With challenges to its discriminatory support package for a new nuclear power station at Hinkley C now under way at the European Court of Justice, its entire energy policy may yet be unravelled and found wanting.
David Cameron may also struggle to keep a straight face at the COP21 Paris climate conference in December, where he will assure delegates of his desire for a tough and effective agreement, while doing all he can to keep the UK’s carbon emissions as high as possible. Just watch for the smirk creeping across his face as he speaks.
But for years to come it will be us – you, me, and planet – who will be paying the cost. While the fossil fuel juggernaut laughs all the way to the bank.