Energy: low carbon, renewable, or both?

The Scientific Alliance

A report (Powerful Targets) published this week by consultants AF Mercado has ruffled feathers in both the renewable energy industry and government. The work was originally commissioned by KPMG and the headline result – that there would be a significant additional cost to meeting goals for renewable energy in addition to fulfilling carbon dioxide emissions reduction targets – was publicised by the Sunday Times in November (Ditching expensive wind farms ‘will save £34bn’).

It seems then that KPMG got cold feet. They realised that the study gave the ‘wrong’ messages for many of their clients, and chose not to publish it. In a statement, they said the study was ‘too susceptible to misinterpretation’ and that ‘the assumptions and parameters used in the model produced large swings in the financial outcomes’. But it may also have proved more of a hot potato than that statement suggests, given the firm’s close links to government. Mark Powell, their head of power and utilities, responsible for the report, resigned sometime after the planned launch date of the report; in the Sunday Times article, he was described as the author of the report.

To quote him from this article: “Taking a clinical economist’s view of hitting our carbon-reduction targets for the least cost shows that we can reach our goal for a lot less…. Trying to meet our carbon targets with a heavy reliance on renewable energy was a laudable vision, but surely it’s time to face the facts on how the huge level of investment may translate into fuel poverty.”

The base figures from the report make it clear why there is such a difference in cost. An 800MW gas-fired plant would cost £400m, while a nuclear station of equivalent capacity would be much more expensive, at £2.4bn. However, the nuclear station would also have far lower fuel costs and a longer life, making the electricity it produces less expensive than the capital cost might suggest. An off-shore wind farm of the same capacity would have the same capital cost as a nuclear plant. But the big difference is that its output over the year would only be about 30% of the rated capacity, and additional backup capacity would be needed when output was low (more gas turbines, at a further cost). Its service life would also be less than half that of a nuclear station.

At this preliminary stage, the calculations suggested that anticipated spending of £108bn could be reduced by £34bn – nearly one third – if planned wind farms were replaced by gas-fired and nuclear stations. But KPMG asked AF Consult to do their calculations again, after the article had raised concerns within the firm, the government and the renewables lobby. The problem was that the potential capital cost saving then came out even higher, at £45bn. All this, KPMG’s decision to kill the report and AF Consult’s to publish it anyway, is covered in a further article in last weekend’s Sunday Times (Blown away).

Of course, capital is not the only cost of generation. The AF Consult model was used to estimate the total cost of power generation between 2012 and 2015 for three scenarios: lowest cost (in which coal plays a big role), meeting the 80% emissions reduction target alone (with reductions driven by a large investment in nuclear and gas) and meeting both the emissions and renewable energy targets (where wind becomes a significant part of the mix).

Renewable energy was assumed to come from wind power alone, to contribute 30% of the generating mix by 2020 and to include the maximum likely number of (lower cost) onshore installations before offshore wind capacity is expanded. Total generation costs were estimated as 5.8p/kWh for the lowest cost scenario, while an 80% reduction in emissions by 2050 could be achieved at a unit cost of 7.2p. Achieving the renewables target as well would increase the cost to 8.4p/kWh.

At first sight, these figures look quite reasonable. After all, wouldn’t a reduction in reliance on imported gas be worth a modest price increase? But the report’s authors point out that their models do not include the rather significant costs of reinforcing the supply grid to accommodate the intermittent supply of wind energy and connecting the supply (much of it from rural Scotland) to demand (heaviest in southern England). Neither is it clear that full allowance has been made for lower-than-expected savings in fossil fuel, based on the experience of renewable energy in Ireland.

A large part of the additional cost for scenario three comes from offshore wind. In the report, it is assumed that 15GW of onshore wind could be built by 2020, rising to 20GW in 2030 (based on the recommendations of a 2011 Arup report to DECC). But, given the public opposition to new wind farms in the countryside, it is quite likely that meeting the renewables targets would mean greater reliance on offshore wind, at a considerably higher cost. And this, of course, takes no account of possible electrification of cars and domestic heating, all of which would need large increases in generating capacity.

This report is, inevitably, a snapshot based on certain assumptions. Like all modelling exercises, it is not the definitive truth but an illustration of what might be. But it cannot simply be dismissed because the results are politically unacceptable. Many of the same people who might rubbish these figures are perfectly happy to accept the output of climate models, which have much less grounding in reality than this considerably more focussed exercise.

But dismissed it has been. A DECC spokesman said ‘The report’s assumptions are so flawed the conclusions are near pointless’, while Dale Vince of Ecotricity said ‘This report is shoddy nonsense and should never have seen the light of day’ (see Controversial green energy report ‘very, very poor’, says government economist).

An incomplete picture maybe. Flawed may not be too strong a word. Nevertheless, this report makes a useful contribution to the debate. But it seems that the government will not be moved to rethink its position just because alternative arguments are put forward, and will for the moment continue to dig its heels in. But there is clear evidence of momentum building in the anti-wind farm campaign; sooner or later, any party with an eye to the polls must begin to take note.


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