HC 517 The Economics of Wind Power


Submission from Sir Donald Miller F.R Eng, FRSE
Chairman SSEB/Scottish Power 1982-92

1. Introduction

a. In any discussion about costs we need to be clear about the basis being used. DECC have made a practice of quoting discounted levelised costs but this is at best a rough and ready, and sometimes misleading, approach for costing alternative generation policies. In an electricity supply system the operation of any generating unit has implications for the operational costs incurred by other units and for this reason utilities assess costs of alternative generation investments using a model of the whole system. With their greater resources, there should be no difficulty in DECC, in conjunction with National Grid, using this more rigorous approach, but in what follows I have necessarily employed the levelised cost basis as currently used by DECC.

b. DECC in their report ‘Estimated Impacts’ have provided estimates of costs to consumers but they make it clear that not all the costs (e.g. system effects), have been included. As these are very significant they have been included in my costings, although on a conservative basis.

2. Costs of Wind Power to the Consumer

a. The history of energy use since man first harnessed draught animals to improve his productivity has been the steady development of increasingly intensive (and consequently lower cost) energy sources. The present emphasis on renewable sources attempts to reverse this trend. Wind energy is essentially a low intensive energy source requiring very large and slow running machines which are and will remain inherently expensive. No amount of development can have more than a marginal effect on this

b To generate electrical energy equivalent to 30% of UK requirements in 2020 in accordance with Government targets would, after allowance for smaller amounts of hydro, biomass and other outputs, require some 36,600 of wind plant .With high levels of wind penetration on the system, because of wind’s unpredictability and short term variability, it is necessary at all times to have fossil fuelled plant running in reserve at part load. This involves capital and running costs which are inseparable from wind power and which must necessarily be included in the equation when comparing the costs of alternative generation such as nuclear or CCGT which do not require this back up.

c. In what follows I have examined cost data on capital and running costs of different types of generation as given in published reports commissioned by DECC from the following firms of Consulting Engineers.

Mott MacDonald Consulting Engineers.

Parsons Brinkerhoff Consulting Engineers

Arup Consulting Engineers

Poyry Consulting Engineers

For system costs I have referred to a Report by the Institution of Engineers and Shipbuilders in Scotland - (Author Colin Gibson, retired Power Network Director National Grid)

d. Consistent with these sources of data the total costs for energy from onshore wind are typically £187/MWhr. This is the cost of bulk energy at a point on the high voltage transmission system where it is delivered into the lower voltage distribution systems to service consumers. It comprises capital costs, return on capital (including profit) for the developer, operation and maintenance, costs of additional high voltage transmission including losses, the provision of back up generating capacity equivalent to some 92% of the wind capacity (for when the wind does not blow or blows too strongly) as well as the costs of running the back up plant inefficiently at part and varying loads. The £187/MWhr has to be compared with the current cost of bulk energy from conventional generation of some £60/MWhr. The whole of these costs have to born by the electricity consumer whether in the form of costs for bulk energy, direct subsidy (presently one ROC per Mohr), levies by National Grid for additional transmission costs and higher bulk energy prices from the provision of back up plant and its operation at lower efficiencies.

e. For offshore wind the costs are significantly higher at £265/MWhr with much of the additional costs recovered via a larger subsidy, (two ROC per MWhr).

d. In summary therefore the total additional costs to consumers in year 2020 of meeting the UK target of 36,600MW with a mix of on shore and off shore wind installations can be set out as follows: - On shore Off shore

Installed capacity MW 14,400 22,200

Energy output TWhrs per annum 31.5 62.2

Costs (capital and running) as above £/MWhr 187 265

Costs per annum £ Bn 5.89 16.48

Total costs per annum £ Bn 22.37

Cost per annum for CCGTs instead of wind £ Bn 8.64

Extra costs for wind energy instead of CCGTs £Bn 13.73

Share of costs/annum £ Bn-domestic consumers (1/3rd) 4.58

- commercial and industrial (2/3rd) 9.15

Including Vat @ 5% (domestic) £Bn 4.81

20% (commercial and industrial) £ Bn 10.98

Additional direct cost in bills per domestic consumer/annum £192

f. Based on an average household annual bill of £500 this £192 represents an increase of 38%. This is a direct result of current wind energy policies. Moreover if say some 90% of commercial and industrial costs eventually find their way through to consumers the total additional cost of these policies averaged over the 25M households in the UK amounts to some £590 per annum each.

g. These costs, large as they are, are further increased as a result of other aspects of energy policies such as the Carbon Trading and Emissions and Energy Consumer Obligations. DECC estimate (they say conservatively) that in total these will result in an increase of some 20% in electricity prices to domestic consumers in year 2020. Added to the above system costs the total increase in electricity price for the domestic consumer would amount in 2020 to 58%. These are very significant increases in price when one third of domestic consumers are already estimated to be ‘in fuel poverty’ and when even higher wind penetrations are proposed for the years beyond 2020.

3. Effectiveness in Saving CO2 Emissions

a. The assumption that each MWhr of electricity generated from wind saves the equivalent in CO2 emissions from fossil fuel power stations would not be supported by any engineer with experience of operating power plant. The considerably lower efficiency of the back up thermal plant running at part loads together with the additional losses from frequent deloading and reloading as the wind strength varies, all consume additional fuel. The jury is still out on the exact implications of this but there is accumulating evidence from analysis of actual system operations both in the USA and more recently for the Irish Grid that high wind penetrations save little or negligible emissions of CO2 and can in some circumstances actually lead to increases.

4. The Need for Thorough Audits

a. It may seem surprising that UK governments, before adopting energy policies which have such drastic effects on the UK economy and electricity consumers, have failed to carry out comprehensive audits either of costs to consumers or the effectiveness of wind energy in reducing CO2 emissions. If such audits are to carry the weight they should, they would best be carried out under the auspices of a professional and independent steering agency such as The Royal Academy of Engineering.

June 2012

Prepared 10th July 2012