Nick Butler: The report published last month by Professor Dieter Helm on what the British prime minister calls “the UK’s broken energy market” is an intelligent response to the question posed by the ministers who commissioned it. The proposals it makes are radical and it will be intriguing to see if the government has the nerve to implement them. But there is a wider point of interest. Many countries are embarking on strategies of decarbonisation with the aim of reducing emissions, and there are serious reviews of energy policy underway across the world. Patterns of use vary with economic circumstances and so do existing policies. But there are some very important common aspects and those wanting to find a rational way of decarbonising at the lowest practical cost can learn a lot by understanding Britain’s mistakes. Four clear lessons can be learnt from Professor Helm’s analysis and proposals. First, set the objectives and then allow market mechanisms to identify the solutions. Second, look for the lowest cost solutions across the whole energy system. Electricity provides around 40 per cent of final energy supplies across the EU and that number should grow as more activity, starting with transportation, is electrified. But the remaining 60 per cent contains many activities, including industry and agriculture, where decarbonisation gains are possible and probably cheaper than relying on super-expensive electricity generation projects such as Hinkley Point. Third, keep ministers and inexperienced officials out of the process that allocates contracts. Fourth, remember that climate change policy needs public support. The positive and encouraging message from Prof Helm’s report is that there are realistic alternatives. The costs of decarbonisation are coming down. Well-designed policies can help reduce them further. The process of getting to a lower carbon economy does not have to involve an intolerable economic cost.
FT 6th Nov 2017 read more »
As LCOE values for alternative energy technologies continue to decline, in some scenarios the full-lifecycle costs of building and operating renewables-based projects have dropped below the operating costs alone of conventional generation technologies such as coal or nuclear. This is expected to lead to ongoing and significant deployment of alternative energy capacity. Global costs of generating electricity from alternative energy technologies continue to decline. For example, the levelized cost of energy for both utility-scale solar photovoltaic (PV) and onshore wind technologies are down approximately 6% from last year. Despite the modestly slowing rate of cost declines for utility-scale alternative energy generation, the gap between the costs of certain alternative energy technologies (e.g., utility-scale solar and onshore wind) and conventional generation technologies continues to widen as the cost profiles of such conventional generation remain flat (e.g., coal) and, in certain instances, increase (e.g., nuclear). Specifically, the estimated levelized cost of energy for nuclear generation increased ~35% versus prior estimates, reflecting increased capital costs at various nuclear facilities currently in development. Although alternative energy is increasingly cost-competitive and storage technology holds great promise, alternative energy systems alone will not be capable of meeting the base-load generation needs of a developed economy for the foreseeable future. Therefore, the optimal solution for many regions of the world is to use complementary conventional and alternative energy resources in a diversified generation fleet.
Lazard 2nd Nov 2017 read more »