Experts slam Centre for Policy Studies report on costs of renewables policy

The figures in a new report claiming renewable energy is the “most expensive domestic policy disaster in modern British history” don’t add up, according to DECC (Department of Energy Climate Change) and several experts.

The report, by free-market think tank Centre for Policy Studies (CPS) also fails to address the “urgent need to cut our carbon emissions”, DECC told The Telegraph, adding: “We are making sure we can keep the lights on, cut carbon emissions and keep bills down for consumers.”

Several academic experts in energy policy echoed the government’s analysis, criticising its use of cost data, analysis of the risks of variable energy generation from renewables, and assertions on the challenge of integrating renewables into the energy system.

They also reiterated that the report downplays climate change as a problem.

Industry trade association RenewableUK’s director of policy Gordon Edge said the report contained  “a plethora of misunderstandings and exaggerations” as well as cherry-picking dodgy data.

The CPS report claims that gas replacing renewables in a free market (ie no renewables subsidies) would save households £214 per year — much higher than DECC’s £141 per year for renewables support in 2020.

If you take it at face value there are some problems with this premise, according to Bridget Woodman, the director of the Energy Policy course at the University of Exeter. She told Unearthed the idea “is completely based on the assumption that the gas price will stay low”.

Renewables costs falling rapidly

Even if the gas price does stay low, onshore wind and solar costs may be able to compete with new gas generation approximately in the 2020s.

The recent competitive Contracts for Difference auction showed the cost gap between the technologies narrowing.

The government’s climate change advisers, the Committee on Climate Change (CCC), have said that a scenario where switching out renewables for gas by stopping renewables subsidies before the technologies are more mature was not “economically sensible”, while decarbonising the energy industry by 2030 would have a “very limited impact” on electricity prices.

Dodgy analysis and data

Meanwhile, RenewablesUK’s Edge said the author of the report Rupert Darwall “makes claims about the cost of grid investment and ‘backup’ which are either massively overstated, attribute extra costs which have already been accounted for in the price, or both”.

In particular, Edge highlighted that comparisons in the CPS report between the capital costs of gas and renewables are “pointless, as CCGT [Combined Cycle Gas Turbine – a kind of high efficiency gas plant] costs are predominantly for fuel” – adding that it’s the levelised costs – which is a way of calculating costs that includes capital costs, fuel and maintenance over the amount of time the plant spends generating electricity –  that need to be compared.

He also told Unearthed that the author’s assumption that “the capital cost of onshore wind is double that of CCGT” was out of date.

Meanwhile Woodman slammed the report’s use of Nuclear Energy Agency data as “not terribly credible” in system costs discussion.

Renewables intermittency costs under £10 a year

“Government policies aim to hide the full costs of intermittent renewables, which as a result are systematically understated,” the CPS report press release states.

But this is disputed by Professor Catherine Mitchell, Professor of Energy Policy at the University of Exeter and Robert Gross, director of policy at Imperial College Energy Futures Lab.

Gross highlighted that the cost per household for intermittency in 2020 is around £6 to £8 per year, according to recent calculations.

Professor Mitchell said in Germany, where renewables make up around 28% of generation (compared to around 18% in the UK), power prices have dropped.

“German wholesale prices have dropped by about 40 percent because of variable power — renewables displace expensive fossil fuels and bring down peak prices.”

She said an electricity market that integrates renewables, energy efficiency and demand-side management (which can reduce demand for electricity at peak times) is needed.

“Another way of looking at this is that we need more interconnection with Europe, or greater development of storage technologies to mitigate the intermittency problem,” Woodman added.

Economics of coal and gas plants ‘wrecked’ by renewables

On a related point to intermittency, the CPS argues that renewables’ variable generation and – zero marginal running costs – “wrecks the economics of conventional power stations”.

Professor Mitchell points out, however: “This may not be good for fossil fuels but it is good for consumers.” This is because the costs of generation from fossil fuel stations depends on the cost of coal and gas, and these can be volatile.

In the report, the author highlights the fact that renewables subsidies displace gas rather than coal, which is more carbon intensive. But this is a market and policy failure that the carbon price is low, rather than a problem with renewables, argues carbon trading experts Sandbag.

And if coal-to-gas switching takes place – as Sandbag analysis shows started to take place last year – it will still give rise to significant carbon emissions compared to renewables — unless carbon capture and storage (CCS) is used, which is unlikely because it’s still in its infancy and not currently economically viable.

DECC’s policy scenario with a lot of gas in it results in electricity with a carbon intensity of 200g/kWh instead of the 50g/kWh by 2030 that the CCC say is needed to mitigate climate change — “tantamount to an abandonment of the UK’s contribution to limiting global warming to two degrees”, according to a policy briefing from UKERC.

Lots of gas in the electricity mix would also be “incompatible with meeting legislated carbon budgets” set out in the UK’s Climate Change Act, the CCC wrote in 2012.

Renewbles part of decarbonisation pathway

“No British government has yet to produce an analysis demonstrating renewables are the most efficient way of cutting carbon dioxide emissions,” the author of the CPS report writes.

For a start, this isn’t true. As Jim Watson, director of UKERC, told Carbon Brief: “The Department for Energy and Climate Change, its predecessors and the CCC have produced a lot of analysis showing what the most cost effective way to cut emissions might be in the medium and longer term.

“Renewables almost universally come out as part of that pathway.”

The absolute most cost efficient way of reducing carbon emissions is saving energy in the first place – investing in energy efficiency or setting up demand-side management measures – Woodman told Unearthed.

Following that, there are renewables and nuclear. The recent Contracts for Difference auction indicated that contracts for onshore wind (around £82 per MWh) and solar (between £50-79 per MWh) were cheaper by comparison to the strike price awarded for Hinkley (£92.50 per MWh).