It is claimed in a new report churned out by the Centre for Policy Studies that renewables-based power generation subsidies have destroyed the UK electricity market.
Author Rupert Darwall, a former Treasury special adviser, spouts that the costs of intermittent renewables are “massively understated”.
He asserts that current UK energy policy represents the “biggest expansion of state power since the nationalisations of the 1940s and 1950s”, that it is “on course to be the most expensive domestic policy disaster in modern British history” and that, by “committing the nation to high-cost, unreliable renewable energy, its consequences will be felt for decades”.
And: “To keep the lights on, everything ends up requiring subsidies, turning what was once a profitable sector into the energy equivalent of the Common Agricultural Policy.”
In addition to their supposed higher plant-level costs, Darwall states that renewables require massive amounts of extra generating capacity to provide cover for intermittent generation when the wind doesn’t blow and the sun doesn’t shine.
“Massively subsidised wind and solar capacity floods the market with near random amounts of zero marginal cost electricity,” he blows.
“It is therefore impossible to integrate large amounts of intermittent renewables into a private sector system and still expect it to function as such.
“Worse still in a highly capital intensive sector, because prices and therefore revenues are dependent on government interventions, private investors end up having to price and manage political risk, imparting a further upwards twist to costs and prices. The fact that investors have to do this in other sectors routinely too, not least in oil & gas, seems to escape Darwall.
He goes on: “A policy framework to encourage renewables that systematically conceals their true costs will result in higher costs and higher electricity bills for the same quantum of renewable capacity.”
Darwall says that, before adopting EMR (electricity market reform), UK policymakers should have evaluated it against a public sector comparator so that the net cost/benefit of using private sector capital was identified and quantified, rather than being implicitly assumed.
The report states that, without renewables, the UK market would require 22GW of new capacity to replace old coal and nuclear but that, with renewables, 50GW is required; that is, 28GW more to deal with intermittency.
On top of that there are extra grid costs to connect both remote onshore windfarms (£8billion) and allegedly even more costly offshore capacity (£15billion). According to Darwall it would amount to a near trebling of grid costs.
“Against this needs to be set the saved fuel costs of generating electricity from conventional power stations. For gas, this would be around £3billion a year at current wholesale prices, implying an annual net cost of renewables of around £6billion a year. The cost of renewables is even higher compared to coal, which is being progressively outlawed.”
Outrageously, Darwall claims that intermittent renewables destroy markets.
“You can have renewables. Or you can have the market. You cannot have both. The hybrid of state control and private ownership is far from optimal and inherently unstable.
“At no stage has there been any published analysis demonstrating that the use of private capital delivers better value for money than a public sector comparator.”
His report says there are two options to align ownership and control:
If renewables are a must-have – although it is alleged that no government has made a reasoned policy case for them – then nationalisation is the answer;
Or the state cedes control, ditches the renewables target and returns the sector to the market.
Interestingly, Darwall calculates that nationalisation removes political risk thereby cutting the sector’s cost of capital. “Together with the savings from abolishing retail competition, it would cut average bills by around £72 a year now, and £92 from 2020.”
But by contrast, ditching the renewables target and returning the sector to the market would save households around £214 a year, assuming gas replaces renewable power.
The saving would be greater using coal but this would depend on securing a permanent opt-out from the EU renewables directive and any successor policy imposing targets on individual member states.
In contrast to the Darwall claims, there is a growing body of evidence showing that new generation renewables . . . primarily wind and photovoltaics, are becoming the cheaper option and that, with effective grid management, windpower and photovoltaics can be cheaper than fossil fuels, even without subsidies.
The shift to contracts for difference . . . an auctions-based system for the bidding of new projects . . . that has kicked off in the UK and which is attracting keen interest across the EU, is expected to help drive down the costs of renewables. However, Darwall made it clear back in 2012 that he was opposed to such a mechanism, even though CFDs are an instrument of financial markets.
In the motherland of modern capitalism, cheap coal, dirt cheap gas and privately operated energy, the US, even there it is acknowledged that such renewables can compete.
Last month, fresh analysis pumped out by the US Department of Energy said that wind power would be cheaper than electricity produced from gas within a decade, even without a federal tax incentive.
Cost reductions and technology improvements will apparently reduce the price of wind power to below that of fossil-fuel generation, even after a $23-per-megawatt-hour subsidy provided today to windfarm owners ends.
“Wind offers a power resource that’s already the most competitive option in many parts of the nation,” Lynn Orr, under secretary for science and energy at the Energy Department, said.
“With continued commitment, wind can be the cheapest, cleanest power option in all 50 states by 2050.”
It has been calculated that, increasing wind energy to 35% of US electricity supplies by 2050 should lead to both cost to consume and emissions-related benefits. Wind energy provided 4.5% of US power supplies in 2013.
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