One of the key questions in the often-polarised debate on renewable energy, in public, in parliament, and in the media, is “Can we afford it?”
There are many ways of answering yes to this, in terms of the potentially ruinous cost of failing to tackle climate change, the need to secure supplies of clean energy from local sustainable sources, and the benefits of creating jobs and stimulating technical innovation, but often the debate swings inexorably back to pounds, shillings and pence – “How much does it cost?”
Let’s just turn that debate on its head for a moment. Another question that we very rarely see asked, especially in some sections of the media, is “How much do fossil fuels cost?”
The Overseas Development Institute shone a spotlight on this question last week, when they issued a report which stated that the UK Government still gives £5.9 billion to fossil fuels in subsidies per year, compared to £3.5 billion to renewables.
Notably, their report quotes the Prime Minister David Cameron speaking at the UN Climate Summit in 2014, calling on fellow member states to join him in “fighting against the economically and environmentally perverse fossil fuel subsidies which distort free markets and rip off taxpayers”.
Hear, hear to that. But as the ODI report goes on to note, “while other nations have reduced fossil fuel subsidies, the UK has reduced taxes on fossil fuel production, increasing subsidies to fossil fuel producers”.
The language from Government about renewables is typified by the Energy Secretary Amber Rudd repeating the mantra that the time has come to end financial support for a raft of renewable technologies and let them “stand on their own two feet”.
Government needs to be careful here; it runs the risk of appearing to be favourably disposed towards fossil fuels while castigating renewables, laying itself open to accusations of creating an un-level playing field.
Later this year, Government will run a second Capacity Auction. The first one in 2014 was criticised for subsidising old coal to stay on, and subsidising new highly polluting diesel generation plants, while acting hastily on its commitment to end subsidies to onshore wind.
In a way, it’s ironic that the debate focusses so often on the cost of supporting renewables, at a time when onshore wind is already a front runner in terms of offering best value for money of all technologies, outpacing fossil fuels, and is close to becoming in effect, subsidy-free.
The Government’s advisory body, the Committee on Climate Change, published a report last month which showed that onshore wind will be generating electricity at a lower cost than gas, the cheapest fossil fuel, by 2020, and that offshore wind will become cheaper than gas by 2025.
So we need to reframe the debate, and look instead at which technologies we can use to keep the lights on at the lowest possible cost. The real question is “What offers the best value for money?” The answer involves retaining onshore wind in the energy mix, maintaining investor confidence in offshore wind so that costs can continue their rapid decrease, and looking to the future by nurturing the marine energy sector.
As the CCC noted in their report, an increase in low-carbon generation leads to lower wholesale electricity prices, as wind farms have no fuel costs and are relatively cheap to operate and maintain, unlike gas-fired power stations. It’s known as the Merit Order Effect.
Allowing a full range of technologies to develop and compete in technology-neutral auctions is the best way to ensure that consumers are paying as little as possible to support the growth of renewable generation. But Government must also be transparent over the ways in which it subsidises high carbon alternatives.
And by the way, cost-effectiveness has to be assessed in the broadest terms, to make it comprehensive. That means it has to include a realistic carbon price, including, for example, the costs to the health services of burning fossil fuels. Once we start doing that, we’ll be edging towards that elusive level playing field which politicians agree they also want, but have yet to deliver.
Maf Smith is RenewableUK’s deputy chief executive worked for a grid and regulatory consultancy, Xero Energy, and for much of this time was seconded to the Department of Energy and Climate Change to work on Electricity Market Reform.
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