Revolutions cost money, and the UK government’s green revolution as detailed in its renewable energy consultation is no exception, with the government expecting its policy aimed at meeting its EU 2020 renewable energy target to cost at least a cool £100 billion over the next decade.
Given the cost and scale of the policy, which involves building 7000 wind turbines, it is not surprising that experts have cast doubts on the government’s renewables vision. The Royal Academy of Engineering believes the engineering problems have been totally underestimated, if taken into account at all, with vice president Sue Ion asking: ‘How on earth can you present a plan which is as ambitious as the one laid out without any thought as to how you will tackle the project management, supply chain and deployment challenges?’
If the engineering challenge is daunting the investment challenge is even more so. It was only two months ago that Shell publicly pulled out of the London Array offshore wind project citing cost issues and explaining it could get a better return by investing in onshore wind projects in the US. Shell is not the only company openly to question the economics of UK offshore wind power, with Centrica and E.On both independently commenting that wind economics were at best marginal.
And the economic forecasts are unlikely to improve substantially in the near future. Even allowing for the current high price of oil, which in turn is supporting firm wholesale electricity prices, the strong global demand for wind power is pushing up the price for turbines, with costs increasing by more than a third over the past two years to £1.5 million and expected to increase by a further 10% a year through until 2010. And as these cost increases do not take into account rising steel prices the turbine costs could conceivably escalate further.
The undeniable truth is that wind energy is expensive, making it heavily reliant on government subsidy through the Renewables Obligation. It also has the lowest load factor of any generation source with the exception of large barrage projects and solar panels. Analysts put the average load factor of onshore wind at 23% and for offshore wind at 25%. This compares with 85% for coal, gas, nuclear and CHP, with small barrage projects at 30% and large barrage projects at 22%.
A report from the Centre for Policy Studies, Wind Chill, argues that the government’s wind capacity proposals are too expensive, are overambitious in requiring a twenty-fold increase in just over a decade, and impractical because the UK does not have the capability to build the proposed capacity and the grid cannot cope with the strain imposed by the incremental capacity increases. In its conclusion the report says wind power should only play a negligible role in plugging Britain’s looming energy gap.
Rushing to the defence of wind power, as expected, the British Wind Energy Association accused the CPS report of myths, half-truths and misconceptions. It reasons that wind only accounts for a third of the Renewables Obligation off-take and that it is only more expensive to produce than more traditional forms of energy because of capital construction costs. It says both oil and gas prices have doubled in the last year and that when this is combined with a carbon price of r25-30/t wind is competitive in price.
Of course if the Renewables Obligation were stripped out, wind would not be competitive, and there is still the added cost of back-up generation with the BWEA conceding that on average, UK offshore wind farms only run at maximum capacity for 45% of the time.
Somewhat surprisingly the BWEA compared the load factor of offshore wind with nuclear, reasoning that nuclear only had a load factor of 61%. Yet this was only because of the problems with ageing boiler units that caused a number of reactors to be closed. If it had compared wind load factors with those of gas or coal it would have to concede that by comparison wind is indeed intermittent and unreliable.
It is not just wind power that is facing increased economic scrutiny, with the government’s proposal for a large tidal barrage across the Severn being accused of being expensive compared to other sources.
A recent report from Frontier Economics says the justification for a barrage should flow from its being the least cost option amongst the range of options available to meet government’s renewable objectives. Yet it says that its analysis suggests that under a range of plausible scenarios, a large barrage on the Severn is expensive compared to alternative ways of generatingrenewable electricity, and that there appears to be sufficient capacity to use other technologies to meet the barrage’s output and government’s targets. It concludes that considerable new evidence would be needed to make a large barrage in the Severn estuary an attractive option for meeting government’s overall objectives.
Wind and tidal power are important within the context of renewable energy because without them the UK cannot meet its EU target. A report from the Renewables Advisory Board says that to achieve the last one percent of the 15% target by 2020 will require a further 6 GW of wind power, mostly offshore, bringing the total offshore capacity to about 24 GW, and/or the Installation of the Severn Barrage, half of which would count towards the 2020 target provided construction begins before 2016.
No one doubts the importance of developing renewable energy capacity, and in the long-term this will provide the backbone of Europe’s, and the world’s, energy supply in much the same way that fossil fuels do today. But 2020 is not long-term. It is barely a decade away, and as such must be viewed and treated as a medium-term target with a renewables policy that realistically addresses this time frame.
The current long-term ‘consensus’ on emissions is for a minimum 50% cut by 2050 below the 1990 base year, while the short-to-medium-term target is for energy security at an affordable price. These two objectives should not be mutually exclusive, but there is a risk that trying to achieve the bulk of a long-term emission target within the next decade will unintentionally undermine the more immediate objectives of supply security.
It is simply not practicable to increase the UK’s renewable share of generation from less than 5% today to around 35% within twelve years. And by focusing this capacity growth on offshore wind and the Severn Barrage the UK will be relying on the lowest load factor sources of generation where the plant economics are at best marginal and even that only because of government subsidies.
An alternative strategy of investing part of the renewable expansion cost in a more expansive carbon capture and storage development programme would be more beneficial. In the short-to-medium term it would ensure security at a much reduced emissions output, and it would enable the progressive development of renewable capacity to meet the long-term climate targets.
Renewable energy will play an important role in the future energy market, but its contribution to generation has to evolve over time to ensure that supply security is not compromised during the transition from a carbon to a low-carbon/renewable generation market. Now is not the time for a renewables revolution.
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