Memorandum by Dr Rayner Mayer and Dr Roger
Bentley
COMPARATIVE COST
OF FOSSIL
FUELS AND
RENEWABLE ENERGY
0. Renewable energy sources will be installed
in large numbers once the cost of renewable energy becomes cheaper
than that derived from fossil fuels. This cross over point cannot
be fixed as the resource base of fossil fuels is finite and so
its cost will rise as the resource depletes. Renewable energy
sources, by contrast, are wide spread, abundant and inexhaustible
as they derive directly or indirectly from sunlight so their cost
base will always be low.
PEAK OIL
1. The world's supply of conventional oil
is close to peaking and may already have peaked; out of about
100 oil producing countries over 60 have already peaked. The North
Sea and the North slope of Alaska are examples of two of the biggest
finds in recent decades yet within one generation the production
in both these regions has peaked and is in sharp decline.
2. One of the more independent assessments
comes from ASPO, the Association for the Study of Peak Oil and
Gas, whose latest production estimates for all hydrocarbon (HC)
resources is illustrated below. What is significant in terms of
economics is the sharp decline in total hydrocarbon supply once
the peak has past. A 3-4% reduction per year will quickly cause
huge imbalances between demand and supply leading to further price
increases, and possibly rationing.
THE 2004 UPDATED SCENARIO FOR OIL AND GAS LIQUIDS
UPDATED BY COLIN CAMPBELL (http://www.peakoil.net/uhdsg/Default.htm)
3. In times of rising prices, producers
can afford to reduce production for geo-political reasons or to
maximise recovery from their fields thus aggravating an already
unstable situation regarding supply. There is also a strong economic
argument that suggests that it is better to leave some oil and
gas in the ground to help future generations. As we discussed
before the HOL Select Committee on Energy Security in 2001, "the
concern that we have about energy security is not what happens
if we and a number of other groups are wrong, but what happens
if our predictions [of peak oil and gas] are correct".
DASH FOR
GAS
4. Any large scale switching of supply from
oil to gas for applications such as electricity generation, transportation
or heating, will simply bring forward the date of the supply peak
for gas. Our best estimate is that this is likely to follow 10
to 15 years after the oil peak provided no large scale switching
occurs. Once oil and gas have peaked, production will inevitably
decline as smaller, deeper fields have to be developed and so
the rate of production will decline.
MAKING THE
TRANSITION
5. Fossil fuels are primarily used for generating
electricity, transportation and heating. Eurelectric, the European
Union of the Electricity Industry, has investigated the transition
to 2050 and has produced a report "Electricity production
in a carbon constrained world". This report concludes that
the carbon content needs to be reduced by 60% for each unit of
electricity generated. Renewable energy sources are regarded as
a very important part of any future electricity mix.
6. Transportation is the sector which will
have the greatest difficulty in making the transition. The industry
itself seems unable to relate their products to the likely timescale
of peak oil—so the concept of very fuel efficient vehicles
with an efficiency of 3 litres/100 km (90 grams CO2/km) for passenger
cars in city traffic is still a vision. Cars are still being marketed
with emission rates up to 300 grams CO2/km thus bringing forward
the day of peak oil.
7. There are many means of providing renewable
heating, so the transition from oil and gas to renewable heating
sources will be easy to accomplish.
RISING MATERIAL
COSTS
8. The rising price of oil and gas will
increase the cost of materials that require large amounts of energy
during their production. Metals like aluminium and steel are the
most affected which will increase the capital cost of fossil fuel
plants.
9. Renewable sources use materials much
more efficiently and so are likely to become more cost effective
than conventional energy sources. Even wind turbines with their
large blades made from glass reinforced plastics will be less
affected as the price of these materials is rising much slower
than of metals.
IMPROVING TECHNOLOGY
RENEWABLE SOURCES
10. The technology of renewable energy sources
is still maturing so increases in efficiency and performance will
continue for some years (for photovoltaic, maybe for decades).
This will enhance the cost competitiveness of renewable energy
sources.
IMPACT OF
INCREASING DEMAND
11. As many of the renewable technologies
vary diurnally, improved short term storage of electricity will
help to smooth fluctuations in supply. For renewable energy sources
such as solar thermal, hot water can be stored in hot water cylinders.
However, these cylinders require an extra coil so that the solar
heated hot water can transfer its heat to the water store. The
buildings regulations should be changed to require all storage
cylinders to be sold with this extra coil fitted to reduce the
cost of fitting solar water heaters at a future date.
MICRO-GENERATION
12. The greatest impact of renewable energy
sources will be micro-generation, that is small scale renewable
generation of electricity, hot water, space heating or space cooling
for use in the home or in an adjacent cluster of homes. This will
reduce the need for centralised generation of electricity and
equally important reduce the losses and costs associated with
transmission and distribution. There is little reason why some
form of micro generation could not be included in every dwelling.
13. Increasing demand for micro renewable
sources will lead to reduction in costs. Specific examples of
this include:
— manufacturers willing to train installers;
one prominent heat pump supplier aims to train 1,000 installers
in 2008;
— trained installers able to offer
renewable sources rather than fossil fuel systems for heating
to consumers;
— for ground source heat pumps, drilling
contractors are now purchasing specialised drilling equipment
which will reduce drilling time and cost for drilling bore holes;
and
— increasing sales will be reflected
in reduced unit costs.
INTEGRATION OF
MICRO-GENERATION
INTO NEW
BUILDINGS
14. Integration into the building is easy
for new dwellings so the additional cost will be low and can be
financed via the mortgage. For example, by installing under floor-heating
rather than radiators, the delivery temperature of the hot water
will be 35° C rather than 60° C so the standing losses
will be less. As the efficiency of a heat pump depends upon the
uplift temperature (the difference between source and output temperature),
for 35° C output, heat pumps will typically produce 4 units
of heat for each 1 unit of energy consumed. This gives an effective
efficiency of 400% compared with 95% for a condensing gas boiler.
To maximise the output of photovoltaic electricity or solar thermal
hot water, the building and roof orientation can be optimised.
For wind turbines, the height and shape of adjacent buildings
is critical.
INTEGRATION OF
MICRO-GENERATION
INTO EXISTING
BUILDINGS
15. As the replacement rate of the housing
stock is less than 1%, micro-generation will primarily need to
be fitted to existing buildings. Photovoltaic and solar thermal
arrays can generally be fitted to pitch roofs with the appropriate
orientation and small wind turbines can also be roof mounted.
Biomass and heat pump systems can use existing distribution systems.
However, costs will be higher than for new-build where the appropriate
plumbing and wiring can be readily installed. These one-off costs
are a better investment for society than subsidising continued
fossil fuel heating through winter fuel payment.
BUILDING SCHOOLS
FOR THE
FUTURE (BSF)
16. This is an ambitious Government programme
to rebuild or refurbish all secondary schools in England and Wales
at a estimated cost of £50 billion. The declared aim is by
2016 for all schools to be carbon neutral for which the Government
is willing to finance an extra £70 per square metre. This
will provide a high market for micro renewable energy sources
which will bring a significant reduction in both capital and running
costs.
Q1. Fit of renewables into the UK energy policy
17. At present, renewable sources are seen
as like-for-like replacement of fossil fuels in generating electricity
to be fed into the grid. Neither the Government nor the Select
Committee have fully recognised that the potential for renewable
heating is as great as that of renewable electricity; as first
quantified in the EU 1997 White Paper. Of all the European industries,
Danish firms, on the one hand, have dominated the manufacture
of wind turbine generators since the erection of the first modern
style turbines in 1975 at Nibe. On the other hand, since 1980,
Sweden has been the dominant manufacturer of heat pumps which
concentrate renewable heat located in the air, ground or water.
The reason why these two countries are world leaders is due to
a combination of long term energy planning, favourable tax regimes,
informed and educated citizens and an understanding of transforming
the market.
Q2. Barriers to greater deployment
18. The most important barriers include—
— lack of information and knowledge
of the potential for renewable energy sources at a micro as well
as macro scale; the "Kyoto in the Home" project is trialling
such resources with the help of an EU grant, but this work will
cease in December 2008 unless an alternative source of funding
can be found;
— no sense of urgency to replace fossil
fuel boilers by renewable heating sources in central heating systems
as the concept of limits to supply of fossil fuel is not yet accepted
by central Government or many press commentators; the Energy Performance
in Buildings Directive only requires providing advice about the
use of renewable heating systems for buildings which are greater
than 1,000 m2 after the boiler is 15 years old; it would be sensible
to reduce this limit to say 50 m2 so that house owners are faced
with a clear choice;
— lack of trained installers to install
heat pump, solar water heaters and other micro renewable sources;
industry should be encouraged to train such installers who will
then be able to advise people of the economics of switching from
fossil fuel to renewables at the end of life of their current
boiler; and
— inadequate buy back tariff of renewable
electricity attached to the home (micro wind and photovoltaic);
utilities should be required to buy back at a rate commensurate
with renewable generation as part of their public service obligation.
TECHNICAL LIMITS
TO THE
AMOUNT OF
DEPLOYMENT
19. The current model of centralised generation
of electricity and production/supply of gas involving electricity
and gas grids is not suitable for large scale micro generation
of renewables attached to homes. It will be more efficient for
the surplus of renewable electricity and heat to be stored by
the end user(s); the end users being typically a cluster of houses
at the end of the distribution grid. Dispersed micro-generation
will reduce the local variation in wind and sunshine and so can
stabilise the supply.
Q3. Technological advances
20. The imminent oil and gas peaks require
large scale Government intervention to support industry in bringing
forth readily identifiable technological advances. This should
be carried out at European scale and UK funding made available
directly to Eureka approved projects. The Technology Strategy
Board's current policy of rotating calls for proposals should
be scrapped in favour of open calls based on a set of technology
priorities which reflect current global issues such as limiting
climate change, how to manage the transition away from fossil
fuels towards renewables, limiting environmental pollution and
adapting to global warming.
Q4. Effectiveness of current government support
21. For renewable electricity, a feed in
tariff would be easier to understand and operate than a renewable
obligation certificate and is much more likely to stimulate growth
of renewable electricity as has been observed in other countries
eg Germany. To encourage renewable heating sources for new
buildings, a minimum level of renewable energy (that is renewable
heating a well as renewable electricity) should be set for all
size of dwellings. This would extend the Merton Rule which
many local authorities have adopted and this minimum level should
be set at 20% of all the energy used in the home. As renewable
heating sources are much cheaper than renewable electricity sources,
this would create a growth market for such heating sources. For
existing buildings, the obligation in the energy performance
bill to survey a heating system after 15 years should be extended
to cover buildings of all sizes above say 50 m2 and for the installer
to provide a report on the economics of replacing with a renewable
as well as non renewable source. These two clauses should be added
to the new climate change bill under discussion by Parliament.
Q5. Role of transmission and distribution
networks
22. The networks need to be able to accept
as well as supply renewable electricity. With micro generation,
this is not likely to be a concern provided that there are local
loads to absorb any excess generation. Some storage at source
of supply could be mandated. For larger wind farms at community
level, the grid may need strengthening locally; this should be
financed from operating revenues of the network as a public obligation.
Utilities will have to manage demand as well as supply which is
not easy if both are fluctuating in a random manner; however current
cost meters and maximum demand switches on the supply to any dwelling
will help to manage demand. Smart metering and time-of-day tariffs
will help to regulate demand from some industry sectors.
Q6. External costs
23. The prime concerns are visual impact
and audible noise from wind farms. The visual impact can be reduced
by careful siting of turbines and comparing the intrusion of more
turbines at a lower height. The noise impact is related to the
level of background noise and again can be reduced by careful
siting and new design. These external costs are much lower than
fossil fuel or nuclear power generation.
Q7. Costs of renewables relative to fossil
fuels and nuclear power
24. The inability of supply to meet the
demand for oil and gas is resulting in rapidly increasing prices
even before production decreases. Nuclear power is handicapped
by decommissioning costs, the magnitude of which are uncertain.
Thus the timeframe over which renewables will be cheaper than
other sources of generation for electricity is likely to be well
within the lifetime of any new power station to be built today.
Q8. Costs and benefits of renewable sources
for transport and heating
25. As half of Britain's energy requirement
is for low grade heat, this is most economically supplied by renewable
heating sources directly. Of the three renewable sources, heat
pumps, particularly ground source, are likely to have the greatest
impact as they are already a volume product in continental Europe.
Renewable energy sources have a much high capital cost and lower
running cost than fossil fuel systems. For example the installation
of a small ground source heat pump to heat a typical well insulated
family home will cost about £8,000 whilst a condensing gas
boiler will cost about half this amount. As the heat pump will
save about 15,000 kWh gas per year, the annual savings amounted
to £250 in 2002, £500 in 2008 and as much as £1000
in 2012 if the current rise in price of gas continues. So the
major impact of rising fuel prices is to reduce the payback time
for recovering the higher investment cost of renewables.
26. The most likely renewable source for
transport is electricity as electric drivelines are much more
efficient than diesel drivelines. This electricity can be provided
by a variety of sources including renewables and even fuel cells
if the technological challenges can be overcome.
Q9. Meeting EU renewable targets for 2020
27. At least half of the target could come
from renewable heating sources primarily heat pumps and the remainder
other half from renewable electricity generation. Transport is
unlikely to make any significant contribution to this target on
this timescale.
Q10. Costs of carbon emissions
28. The cost of carbon should be raised
in line with the recommendations of the Stern report. This will
help initiate the transformation to more renewable sources of
energy in transport and housing.
Q11. Bio fuels
29. Bio fuels can have useful local impact
and should be pursued, but cannot be a major energy source on
a national scale. Bio fuel production should be limited to crops
which are not useful for feeding humans such as algae.
24 May 2008
REFERENCES
Communication from the Commission Energy for
the future : Renewable sources of energy: White Paper for a Community
Strategy and Action Plan. COM(97)599 final (26/11/1997).
Written and oral evidence to the HOL Select
Committee on Energy Security Monday 29 October 2001 by Roger Bentley
and Rayner Mayer 14th HOL report 2001/2 p39-48.
The Role of Electricity: A new Path to Secure
and Competitive Energy in a Carbon-Constrained World. Eurelectric
Brussels 2007.
For status of heat pump technology consult European
Heat Pump Association web site www.ehpa.org
Rayner Mayer is a Senior Visiting Research
Fellow at the University of Reading, Foundation Chair of the European
Heat Pump Association 2000-06, Former Chair of Bus Working Group
(Low Carbon Vehicle Partnership) and teaches part of the MSc renewable
energy course at the University of Reading.
Roger Bentley is a visiting Research
Fellow at the University of Reading, Head of R & D for Whitfield
Solar, Secretary of Association for the Study of Peak Oil and
Gas 2002-05, Secretary Oil Depletion Analysis Centre, London 2001-02.
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