Wanted – an Energy Policy Fit for Purpose

The Government needs a new energy policy – that has been clear for a while – but now even Whitehall seems to agree. Nick Butler, writing in the Financial Times, (1) says the predominant view in Whitehall – from the Treasury to the business department – is that current policies are mistaken and require radical reform. Those policies take no account of the structural fall in energy prices; the failure of new nuclear to live up to its promise; the changing pattern of demand; and, most important of all, the transformation in the global energy market being brought about by a range of new technologies. Each of those factors requires some adjustment in policy but taken together they justify a complete reset.

But given the preoccupation with Brexit, and a host of other problems in the government’s in-tray, reforming energy policy is seen as too difficult. Instead Mrs May seems to have decided to blame the energy companies for charging “high” prices – and is threatening to impose some sort of price control. A cap on household energy bills is set to be included in the Conservative manifesto, according to Work and Pensions Secretary Damian Green. He believes this could cut households bills by £100 per year. Price comparison company uSwitch said this would “do more harm than good“. Previous market interventions had led to lower switching rates which then causes higher prices for consumers. A price cap would remove any incentive for energy companies to drive down prices and fight to keep their customers, entrenching the position of the incumbent big six. (2)

The fact is the lowest-cost sources are constrained by government policy which means prices are higher than they need to be. Power produced by onshore wind, for instance, would be by far the cheapest source of renewable supply, but government policy is against more onshore wind. Conversely government seems to have an obsession with building new nuclear power stations which is costing around twice the wholesale price for electricity.

Onshore wind is now cheap enough to deliver power to UK consumers without subsidy, according to a report released by management consultancy Baringa Partners. Commissioned by Scottish Renewables, the report finds the government could deliver 1GW of new onshore wind capacity at no additional cost to consumers above the wholesale cost of power. The findings mean the cost of decarbonising the UK energy system could be cut significantly, saving consumers money on their energy bills in the process. However, realising the promised savings depends on onshore wind being given access to the energy market. It is currently barred from Contract for Difference (CfD) auctions, where developers bid for 15-year price support contracts that give them a guaranteed price for the power they generate. (3)

Ministers could let onshore wind bid in a new contracts for difference (CfD) round one, without contradicting its previous pledges to end all new subsidies, according to Scottish Renewables. The Baringa Partners’ report says 1GW of extra onshore wind capacity could be delivered at a highly competitive price of £49.40 per MWh. Baringa Partners’ said “dramatic reductions” in cost around the world in renewables and storage technology were a “game changer.” Earlier this month, the Conservative thinktank bright blue published a survey, which claimed the majority of Tory voters backed onshore wind. Bright Blue said “an unsubsidised fixed-price contract could now be offered to new onshore wind projects, which would be set at the current wholesale price. This would enable us to meet our carbon budgets in the most cost-effective way.” (4)

Conservative opposition to windfarms means we could be missing out on one of the cheapest sources of electricity, according to Adair Turner, chair of the Energy Transitions Commission – a Shell-funded industry group. Lord Turner said a report by the commission found that the cost of wind power had fallen by 60% in the past five years. The analysis predicted that by 2040, wind and solar would account for 45% of the global power mix, with hydro and nuclear making up another 35%. The group said that by 2035, wind and solar could provide 98% of power in developed countries such as Germany and the UK, with gas power stations or batteries providing backup. Nuclear would not grow its share because of cost, while progress on carbon capture and storage of emissions from coal and gas power stations has been “too slow”. (5)

Meanwhile a German auction has received the lowest-ever bid for an offshore wind power project in the North and Baltic Seas. The auction fetched an average bid of €44 per megawatt hour and one bid of zero euros, following a general trend of lower prices in similar auctions in Denmark and the Netherlands. In Germany, the bids are on top of the wholesale power price. As a result, a bid of zero euros will receive only the wholesale power price. In Denmark and the Netherlands, bids are an all-in amount, which comprises the wholesale power price, plus a “sliding tariff” that tops up the difference to the bid amount. In all three countries, successful bidders will receive a free onshore and offshore grid connection and connecting sub-sea cable. So as a result, a bid of zero euros, as in Germany, is not exactly unsubsidised. That said, it’s good to keep in mind that offshore wind projects take a while to build: last week’s German auction was for projects to be completed by 2025 at the latest. (6)

Greenpeace said: “The UK government should take note of other countries who are benefiting from this booming offshore technology and jump on board with both feet while we are still leaders in the field.” (7)

The FT said this news is likely to raise further questions about the cost of Hinkley Point C. The government has promised it more than twice the current UK wholesale power price for its electricity for 35 years. (8)

Unsubsidised renewables have become the cheapest source of new power — by far — in more and more countries, according to a new report from the United Nations and Bloomberg New Energy Finance (BNEF). In just one year, the cost of solar generation worldwide dropped on average 17%, the report found. The average costs for onshore wind dropped 18% last year, while those for offshore wind fell a whopping 28%.

The result is “more bang for the buck,” as the U.N. and BNEF put it. Last year saw 138.5 gigawatts of new renewable capacity. That not only beat the 2015 record of 127.5 GW, but it was built with a total investment that was 23 percent lower than in 2015. (9)

There’s a longer version of this article in nuClear News No.95 May 2017

  1. FT 17th April 2017
  2. BBC 23rd April 2017  and Times 24th April 2017
  3. Business Green 13th April 2017 
  4. Utility Week 13th April 2017
  5. Guardian 25th April 2017
  6. Renew Economy 19th April 2017
  7. Greenpeace 13th April 2017
  8. FT 14th April 2017
  9. Think Progress 6th April 2017
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Published: 27 April 2017