The UK government has denounced a new report by the independent and influential Centre for Policy Studies think-tank that claims renewable energy policies will turn out to be ‘the most expensive policy disaster in modern British history’.
The government has refuted this saying the report ignores the reality of the energy market and instead highlights the ‘dire consequences of global warming’. The report itself suggests either nationalising the energy industry or securing a permanent opt-out from the EU renewables directive and replacing renewable power with gas.
A spokesman for the Department of Energy (DECC) said: “The figures in this report don’t add up and ignore the urgent need to cut our carbon emissions. We are making sure we can keep the lights on, cut carbon emissions and keep bills down for consumers.
“By creating the world’s first low carbon electricity market, we are going green at the lowest cost, and attracting tens of billions of pounds of infrastructure investment, creating huge numbers of green jobs right across Britain.
“The report wrongly suggests that we can ditch renewables for gas, with no explanation of where we would source that from. It also appears to suggest that we should row back on the tremendous gains we have made in the fight on climate change. Given the dire consequences of global warming this is not an option.”
In the policy pamphlet published by the Centre for Policy Studies – “Central Planning with Market Features: how renewable subsidies destroyed the UK electricity market” – author Rupert Darwall states that recent energy policy represents the biggest expansion of state power since the nationalisations of the 1940s and 1950s – and is on course to be the ‘most expensive domestic policy disaster in modern British history.’
Darwall – a former Treasury Special Adviser – said: “The electricity sector is being transformed into a vast, ramshackle Public Private Partnership, an outcome that promises the worst of both worlds – state control of investment funded by high cost private sector capital, with energy companies being set up as the fall guys to take the rap for higher electricity bills.
“A rapid switch to high-cost renewable energy may be in compliance with the Climate Change Act, although unilateral action by the UK will have a negligible effect on global warming.
“And the reversal of the progress made since privatisation of the electricity industry, under the pretence of improving the functioning of markets, is a major step backwards into a world of command and control, where business decisions are taken by politicians.
“No British government has yet to produce an analysis demonstrating renewables are the most efficient way of cutting carbon dioxide emissions. Neither has any government published any value-for-money analysis to justify the use of high cost private sector capital against a public sector comparator using the State’s balance sheet.
“Including capacity to cover for intermittency and extra grid infrastructure, the annualised capital cost of renewables is approximately £9 billion. Against this needs to be set the saved fuel costs of generating electricity from conventional power stations. For gas, this would be around £3 billion a year at current wholesale prices, implying an annual net cost of renewables of around £6 billion a year.
“The logic of this analysis leads to a straightforward conclusion. You can have renewables. Or you can have the market. You cannot have both. There are therefore two options to align ownership and control:
“If renewables are a must-have – although 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.”
The Foreward to the CPS report is written by Sir Ian Byatt, a former Deputy Chief Economic Adviser to the Treasury who was latterly the UK water industry regulator from 1989 to 2000. Sir Ian commented: “Ministers have destroyed the emerging electricity market while talking of how it could improve competitive processes.
“They and their advisers have not understood that effective competition proceeds from the right structure of suppliers and works in innovative, not predictable ways.
“Good intentions – in the form of a desire to save the planet – have led to our impoverishment. “
- Government policies aim to hide the full costs of intermittent renewables, which as a result are systematically understated.
- In addition to their higher plant-level costs, 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.
- Highly subsidised wind and solar capacity flooding the market with near random amounts of zero marginal cost electricity wrecks the economics of conventional power stations. It is therefore impossible to integrate large amounts of intermittent renewables into a private sector system and still expect it to function as such.
- As a result, the State has stepped in with a patchwork of interventions to support prices. Because revenues are dependent on continued government interventions, private investors end up having to price and manage political risk, imparting a further upwards twist to electricity bills.
- Without renewables, the UK market would require 22GW of new capacity to replace old coal and nuclear.
- With renewables, 50GW is required, i.e. 28GW more to deal with the intermittency problem. Then there are extra grid costs to connect both remote onshore wind farms (£8 billion) and even more costly offshore capacity (£15 billion) – a near trebling of grid costs.
The CPS report argues strongly against renewables. It states: “The costs of intermittent renewables are massively understated. In addition to their higher plant-level costs, 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. It is therefore impossible to integrate large amounts of intermittent renewables into a private sector system and still expect it to function as such.
“Ditching the renewables target and returning the sector to the market would save households around £214 a year, assuming gas replaces renewable power.”
Official Government figures show that a typical household now pays £68 a year in green levies to subsidise renewable energy projects and to fund carbon taxes – about 5% on an annual gas and electricity bill of £1,319. By 2020 the estimates suggest such levies will hit £141.
The DECC spokesman added: “Overall, our reforms mean that average annual household electricity bills will be around £41 lower over the period 2014 to 2030 than decarbonising without these changes. The bill impacts of these new contracts have already been accounted for and published.”
Coincidentally, the CPS report echoes many of the same issues already analysed in the current POLICY PLATFORM article presently published on the Scottish Energy News website: Dash for Scottish renewables is creating an ‘economic cuckoo’ which threatens security of Scotland’s power supplies – http://goo.gl/6YDI34
The Govt. spokesman added: “The report by the Centre for Policy Studies ignores the reality of the energy market. It wrongly suggests that we can ditch renewables for gas, with no explanation of where we would source that from. It also appears to suggest that we should row back on the tremendous gains we have made in the fight on climate change. Given the dire consequences of global warming this is not an option.
“Energy supply is a core part of keeping Great Britain great. In order to keep our hospitals, homes and factories running we need a reliable cost-effective power supply, and that’s why the Government is committed to developing sustainable energy.
“The UK has some of the best wind, wave and tidal resources in Europe. By exploiting these renewable resources we can make a strong contribution to our future needs for secure and affordable low carbon energy.
“By creating the world’s first low carbon electricity market, we are going green at the lowest cost, and attracting tens of billions of pounds of infrastructure investment, creating huge numbers of green jobs right across Britain.”