Nothing generates column inches these days like discussion about the costs of our future energy mix. And rightly so. Our ageing fleet of power stations, our increasing reliance on imported fossil fuels and the need for us to reduce carbon emissions all add up to one thing: we need investment.
Here at DECC we’ve developed an open-source, peer-reviewed online tool, the 2050 Calculator, to help us understand the uncertainties, to expose the trade offs and to make sure our policies today are not regretted decades hence. The Calculator now includes costs and takes a whole-economy approach to assessing the varying plausible scenarios for keeping the lights on and meeting our statutory target of cutting emissions by 80% by 2050.
No one scenario is assured but, by way of illustration, our most cost-effective scenario (the so-called Markal pathway) foresees a future that is marginally cheaper than doing nothing. Crucially, Markal would result in a balanced electricity generation mix in 2050 with 33GW of nuclear, 45GW of renewables and 29GW of fossil fuels with CCS.
Contrast this to AF Consult’s new report ‘Powerful targets: Exploring the relative cost of meeting decarbonisation and renewables targets in the British power sector’, reported in the Sunday Times this weekend. This claims renewables are a costly addition to our future energy mix.
But the report’s conclusions are undermined by its assumptions, which skirt over four crucially important factors:
First, electricity demand is set to increase. All of our main scenarios for 2050 tell us that we need to plan to meet an increase in demand of between a third and two thirds, as transport and heating shift onto the electricity grid. AF Consult massively underestimates this and as a consequence risk us not having enough electricity to power the country and failing to meet our carbon targets.
Second, diversity of energy technology is crucial. As no one can yet say for sure what the relative costs will be decades hence, the Government’s approach is not to be captured by any technology lobby. Each has its place in a technology race between renewables, nuclear, and clean fossil fuels in which the lowest cost technology wins the largest market share and keeps bills down for consumers. AF Consult appear to be trying to second-guess the unknowable, and as a result put all of our eggs into just two energy technologies. The build rate using just CCS and nuclear would be unrealistic, risky and costly.
Third, the costs of renewables are already being driven down. Our renewables target is an industrial policy aimed at accelerating reductions in the costs of renewable generation. Onshore wind has already come down in price, hence why we have proposed to cut the subsidy it gets by 10%, and the offshore wind industry is working towards reducing costs to £100/MWh by 2020. Add to that the wider economic benefits of investment and jobs in advanced green industries that will have a global market.
Lastly, and perhaps most importantly, gas prices are uncertain and volatile. In contrast to renewables, the signs are that gas prices will be higher in future. Even with shale gas there is no certainty that supplies or prices would filter through to the UK. The IEA for instance foresees gas prices rising to 2030 as demand pressures outweigh supply boosts. Today’s consumers are already bearing the brunt of gas price volatility. The Arab Spring and Fukushima last year contributed to driving up gas prices which pushed up the average dual fuel bill by £175, eclipsing the £20 a year current cost of subsidising renewables. While gas will still play a role in the future, home grown renewables will help insulate our economy and consumers from depending excessively on gas imports and the volatility that accompanies that.
Consumers would not be well served by an energy strategy based on short-sighted analysis that pins all its hopes on just two energy technologies and then crosses its fingers that gas prices come good. If it were, we’d not keep the lights on and meet our carbon targets, and the consumer would certainly be worse off. All credible analysis agrees that renewable energy has a central role to play in the low carbon technology race under way.
The consumer is at the heart of the decisions we’re making today to design tomorrow’s energy system, but the bargain basement is not the place to look for a responsible long term energy strategy.