Why Governments Refuse to Admit the True & Staggering Cost of Subsidised Wind & Solar

If the true and staggering cost of subsidised wind and solar power were public knowledge, there would be public outrage.

For more than a decade the wind industry and its political enablers have trotted out mythical figures, all based on fanciful modelling, claiming that the total cost of renewable power to consumers is less than the cost of their daily skinny soy latte.

The propaganda machine has been just as effective in the UK, as everywhere else.

Obfuscation, fudging and downright lying has been government policy for more than a decade. And there’s a reason for government smoke-screening: the true cost of incorporating wind and solar is absolutely staggering.

This piece by Professor Gordon Hughes from the School of Economics, University of Edinburgh is technical and complex.

However, the conclusion is simple: the economic cost of providing power sources available on demand to balance the grid and to meet changes in demand, set against collapses in wind power output, is greater than the economic value of the wind power produced.

If the economic value of wind power is reflected in the price paid for it, then the price paid to the owners of dispatchable generation (coal, gas, diesel, nuclear and hydro) exceeds the value of the wind power generated, by a significant margin.

As the level of wind power increases as a percentage of total generation capacity, the total cost incurred in balancing the grid and maintaining grid stability increases to a level magnitudes above the price paid for the wind power produced. In other words, the wick just ain’t worth the candle.

Renewable generation, constraints and the cost of balancing the electricity system
Briefing Note
Professor Gordon Hughes
10 April 2017

Over the last decade the annual cost of balancing the electricity grid has increased from £692 million in 2006 to £1,207 million in 2016 even though the average system demand has fallen from 40.1 GW to 32.6 GW. These costs are passed on to electricity consumers via National Grid’s charges for the use of the grid, which form a part of the cost of transmission and distribution of electricity.

The increase in cost has been accompanied by a large increase in the share of renewable generation as a proportion of total electricity supply. One well-publicised element of these balancing costs are the constraint payments made to wind farms to switch off that arise when particular segments of the grid are unable to cope with the amount of generation. The idea behind such payments is that they compensate such generators for the loss of revenue that they would otherwise receive, in particular subsidies that are linked to the amount of electricity which they produce.

While constraint payments are controversial, the truth is that they represent only a small part (£82 million in 2016) of the total costs of balancing the grid associated with renewable generation. The other costs, such as maintaining the frequency and voltage of supplies or ensuring adequate reserve margins, are largely ignored but fall on consumers rather than the generators whose decisions give rise to the costs. Further, constraint payments are made to wind farms with grid connections, whereas output from solar and smaller wind generators connected to distribution networks may impose even larger costs on the electricity system.

Understanding the relationship between renewable generation and balancing costs involves careful statistical analysis of a large dataset on costs, generation and demand, weather, etc for half-hour periods over 8 years from 2009 to 2016. This type of analysis has not been carried out in the past, apparently not even by National Grid, but the results are both strong in statistical terms and have important implications for energy policy.

The crucial findings concern the additional cost of balancing the electricity system for each extra MWh of either wind or solar output, after controlling for factors such as demand, weather conditions, time of day, etc. In the case of wind generation, this additional cost was £22 per MWh at the average level of wind generation in 2016 (3.1 GW). It increases to £37 per MWh at an output of 7.3 GW which was the 95th percentile of wind generation in 2016 (the amount exceeded in 5% of all half-hour periods in the year). If the amount of wind capacity increases up to 2020 or 2025 as envisaged by the Scottish and UK Governments, the additional cost of balancing the system will rise to about £80 per MWh for substantial periods of each year within 10 years.

To put these figures in context, the average market value of wind output in 2016 was £38.5 per MWh. So, at the average level of output the additional cost of balancing the system imposed on consumers was 57% of the market value of the additional output. Allowing for these costs, in net terms an additional MWh of wind generation was worth a little more than £16 per MWh. For 13% of all half-hour periods in 2016 (roughly 1140 hours in the year) the additional balancing cost per MWh for wind output exceeded the market value of the electricity produced. This situation will only get worse as more wind capacity is added to the system. The total costs of balancing wind output are projected to increase by at least 100% and perhaps as much as 200% by 2020. By then the net value of additional wind output will be negative – i.e. the additional balancing cost will exceed the market value of the wind output – in 25-33% of all half-hour periods in the year.

While the costs of balancing the electricity system associated with wind generation are high, it is important to note that the costs associated with solar generation are substantially higher. The analysis is a little more complicated because of the way in which solar generation affects the grid, so that there is a large fixed cost as more solar capacity is added while the contribution of additional output is smaller. Still, the average balancing cost for solar output in 2016 was £34 per MWh at median output and £77 per MWh at the 95th percentile. Again, the overall level of balancing costs associated with solar generation will continue to rise so that by 2020 on current projections they will be 160% higher at the bottom end of the forecast or 260% higher at the top end.

These estimates refer only to the direct costs of balancing the electricity system associated with renewable generation. There are substantial additional costs which are recovered from other charges which fall on users. For example, National Grid and Scottish Power are building the Western Link, a high voltage undersea DC line from Deeside to Hunterston, which is required to export surplus wind power from Scotland to England & Wales. When complete the cost of building and operating the link will be recovered via the transmission charges paid by all consumers. Similar expenditures on upgrading or extending core parts of the grid – e.g. the Beauly-Denny and the Caithness-Moray lines – are recovered in the same way.

The total revenue from transmission (TNUoS) charges is expected to be £2.63 billion in 2017-18 and to increase to £3.10 billion in 2021-22 (at 2017-18 prices). Almost all of the increase to 2021-22 is attributable to additional costs associated with renewable generation. On the most conservative assumptions, the transmission charges due to wind and solar generation paid by electricity consumers will increase from about £7 per MWh of renewable output in 2016 to £12-13 per MWh in 2020.

For practical purposes, the net economic value of additional wind and solar generation in the UK – i.e. the market value of the power less the additional costs incurred to transmit the power and balance the electricity system – was less than £10 per MWh in 2016 and will be negative in 2020. These are average figures over periods of high and low generation.

The net economic value of generation during windy or sunny periods is much lower than during periods of low generation – partly because the market price is lower during periods of high generation and partly because the costs of balancing the electricity system increase steeply with the level of renewable output. In 2016 the net economic value of additional wind output was zero or negative for most periods when wind output exceeded 5 GW.

This analysis refers to the whole of the GB electricity system because balancing costs cannot be broken down to national or regional level. Still it is reasonably certain that the situation in Scotland is considerably worse than the GB figures imply. A separate analysis of the economic geography of transmission constraints and the associated balancing costs shows that they are heavily concentrated at the boundary in the North of England that separates the “Scottish” electricity network from the network serving most of England & Wales.

In addition, growth in wind generation south of this border is primarily from offshore wind which is less variable than onshore wind and bears the costs of offshore transmission under separate arrangements. On the basis of the distribution of net economic value for Great Britain, it is likely that (a) at least 50% of Scottish wind generation in 2016 had a zero or negative net economic value, and (b) this proportion will increase significantly up to 2020.

The conclusion that much of the output from wind and solar generation has a zero or negative net economic value implies that money spent on building wind farms, installing solar panels, etc is almost entirely wasted. The operators may earn a satisfactory return upon their capital expenditures but this simply reflects a transfer from electricity customers that gives rise to little or no economic benefit to the country as a whole. Electricity prices for residential, commercial and industrial consumers are higher to pay for the costs of generation.

The primary argument for promoting a switch to renewable generation is that it reduces emissions of CO2. The scale of the reduction is not easy to estimate because balancing intermittent output from renewable generators requires that thermal (fossil fuel) power plants spend longer periods starting up or operating on standby, emitting CO2 but producing little or no power for the grid.

On the most favourable assumptions the balancing costs for renewable generation incurred to reduce CO2 emissions are equivalent to about £50 per tonne of CO2 (tCO2) for the increase in wind generation up to 2020 and about £200 per tCO2 for the increase in solar generation over the same period. Note that these figures cover the costs of balancing the electricity system alone. Once other costs – transmission plus the construction and operation of wind turbines or solar panels – are taken into account, the full cost of reducing emissions of CO2 by investment in renewable generation exceed £100 per tCO2 for wind power and £300 per tCO2 for solar power.

As a reference point, the UK Government’s carbon floor price implies that reductions in CO2 emissions are valued at £18 per tCO2 up to 2020. Hence, the additional costs of balancing the electricity system alone are nearly 3 times the value of the saving in CO2 emissions as a result of additional wind generation. For additional solar generation the increase in balancing costs is at least 10 times the value of the saving in CO2 emissions.

Conclusion

Critics of the UK’s energy policies over the last decade point to the need to manage electricity supply in order to ensure that the unavoidable intermittency of renewable electricity generation is offset by sources of backup generation when and where required. There are frequent references to the need to ensure that sufficient gas-fired capacity is built to replace coal-fired plants that have closed and to ensure an adequate margin of dispatchable generation. To fill the gap National Grid has entered into short and medium term capacity contracts with diesel and other generators to provide sources of emergency power when it is needed.

The analysis highlights the distortions resulting from current policies caused by the fact that intermittent generators do not have to take account of the costs that they impose on consumers and other generators. While renewable generation may be advertised as being clean and green, their economic and financial viability relies upon hidden subsidies whose costs are borne by consumers via higher network charges as well as levies built into electricity prices.

In 2020 and beyond the net economic value of new renewable generation will be close to zero and may be negative. As a consequence, reliance upon renewable generation is an extraordinarily expensive way of reducing CO2 emissions with a cost that is far higher than the upper threshold established for the energy sector as a whole.
Original Briefing

Wind power: the wick ain’t worth the candle..

 

For governments that have been peddling the myth that wind and solar lower power prices, the problem is that their constituents are being walloped with retail power bills which have doubled in a matter of a few short years. As they say, you can fool some of the people, some of the time, but you can’t fool all of the people, all of the time.

Why won’t the government admit the true cost of renewable energy?
CapX
Harry Wilkinson
23 August 2017

Everyone knows that renewable power is inherently unreliable, or as engineers put it: “intermittent”. Nonetheless, there is a plan in place to become ever more reliant on these technologies for our electricity supply.

This has forced the government into taking a risky bet on unproven “flexibility measures”, in a desperate attempt to try and manage this huge technical challenge.

These measures will have hefty upfront costs of up to £20 billion, but the benefits are uncertain, spread over many years and will be outweighed many times over by the cost of renewable subsidies. Once again, the government is failing to be honest about the significant costs involved in switching from fossil fuels to renewables.

The measures come in a package of 29 separate actions to be undertaken by government, the energy regulator Ofgem and industry, as part of a “Smart Systems and Flexibility Plan”, published by the Department for Business, Energy and Industrial Strategy in July. These actions support two key objectives: offering greater incentives to businesses to develop energy storage facilities, and making it easier for businesses to be paid for reducing their energy usage when capacity margins are particularly tight.

The shift towards a greater number of small-scale energy suppliers will force the National Grid to invest far more in the transmission and distribution networks which transport power from supplier to consumer. According to Npower this will add £114 on the average domestic bill by 2020, a 124 per cent increase compared to 2007.

An example of such an investment is the recently constructed Beauly-Denny power line, which cost £820 million and cut a horrible steel swathe through the Highlands. Time and again, promoting renewables comes at the cost of protecting the environment.

A report on system flexibility by green energy consultants Carbon Trust has led to many headlines suggesting such measures will save the country up to £40 billion. This is misleading. The Government’s own policy paper reveals the saving may only be £17 billion and is spread all the way until 2050, which equates to a more modest-sounding saving of between £500m and £1bn per year on average.

But there is a bigger problem with these calculations. The supposed savings are calculated against the cost of continuing to be straight-jacketed by draconian climate change targets, but without investing any new resources in flexibility measures. An alternative approach could be much cheaper, but it would need to deviate from the inflexible stipulations of the Climate Change Act. Indeed, the cost of meeting the Act is now running at upwards of £10bn a year, and is likely to be at almost £30bn a year by 2030. Any illusory savings from flexibility measures will be dwarfed by the cost of renewable subsidies.

This is nothing more than yet another bill for hard-pressed consumers to support “clean” technology. It has been wilfully and misleadingly trumped up as a saving, by assuming that adherence to the Climate Change Act is some sort of immovable fact of life. The truth is that it is a choice, and politicians should start being upfront about the costs of that choice.

Close examination of the full Government paper reveals that the relative benefits of the policy are unevenly spread across different types of consumers. They have presented the initiative as one of “Putting Consumers in Control”, however the reality is that the measures are focussed primarily on a small group of large corporate consumers. They stand to gain the biggest savings by regulating their energy usage: for example, by switching off large appliances when capacity margins are tight.

Despite the significant costs, Britain will still be forced to rely on a core of gas-fuelled power stations to provide power while the wind is not blowing and the sun not shining. These stations will be rarely used and so become expensive to maintain. In one scenario considered in the Carbon Trust study, these power stations will still have a combined capacity of 16 GW in 2020, but they will only be used 6 per cent of the time because subsidised renewables have prioritised access to the National Grid.

The Government has thus conspired to make all existing technologies uneconomic. New technologies on the other hand may well become competitive before 2050. All the eggs are being put in the basket of already failing renewables.

Fossil fuels have powered the economy since the industrial revolution, making us all better off, and freeing people from the tyranny of being tied to the land. Now these gains are being gradually eroded by politicians who have put corporate interests and renewable energy lobbyists above the common interest.

But they refuse to be honest about it. Yet again, the Government and assorted interests are presenting significant costs as “savings” and asking us to be grateful for it.

The policies may well generate savings compared to a policy of building new renewables without flexibility measures, but that does not mean that they do not come with costs to the economy as a whole. This is the inevitable result of putting the attempted regulation of carbon dioxide before all else, and at any cost. A more balanced approach to energy policy has never been needed more.
CapX

Theresa, it’s time to come clean on the cost of renewables.

About stopthesethings

We are a group of citizens concerned about the rapid spread of industrial wind power generation installations across Australia.

Comments

  1. Our technology is so complex these days and most people use it but don’t seem to need to know how it works. How many people understand how a computer or a cell phone work? We tend to accept what we don’t understand without needing to know details. Also, even though many people are well educated by today’s standards, they’ve never been taught crtitical thinking.These people are easy to brainwash. They accept the voice of authority without question.
    It is “crazy” and “frightening” indeed.

  2. Unbelievable, crazy, unnecessary attempts at controlling CO2 emissions are destroying economies and countries world wide. It’s amazing and frightening how easily people can be indoctrinated (brainwashed) to believe human CO2 emissions can cause climate change.

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