Supplementary memorandum by the Renewable
Energy Foundation (REF)
This document provides the textual underpinning
of the oral responses of The Renewable Energy Foundation to the
possible line of questioning provided in advance of the delivery
of oral evidence to the House of Lords Select Committee on Economic
Affairs. Draft questions are in bold type.
1. How do the costs of generating electricity
from renewables compare to fossil fuel and nuclear generation?
What are the current estimates for the costs of "greener"
fossil fuel generation with carbon capture and storage, and how
do these costs compare to renewable generation? What impact do
these various forms of electricity generation have on carbon emissions?
We will deal with each of the sub-questions
in turn.
How do the costs of generating electricity from
renewables compare to fossil fuel and nuclear generation?
The cost of energy from a generator is determined
by the capital expenditure required for the plant, the cost of
capital (which will be determined by the market's perception of
risks associated with a particular technology), the cost of its
fuel input, the achievable load factor, operation and maintenance
costs, decomissioning costs, and integration costs such as grid
expansion, balancing costs, and overall system impact costs. From
the consumer's perspective, or that of the United Kingdom as an
economy, it is the overall system cost that is of focal interest,
but determining the factor for the introduction of a particular
generation type is no simple matter, and in the case of renewables
is both complicated and variable from technology to technology.
At a superficial level, and generally speaking,
renewables are more capital intensive in comparison with most
conventional generators. We would refer the Committee to the recent
detailed and valuable study by Pyry for the Department of Business,
Enterprise and Regulatory Reform, Compliance Costs for Meeting
the 20% Renewable Energy Target in 2020, in particular the CAPEX
cost estimates given in the Annex (p 23), part of which we reproduce
here, converting the cost to sterling for convenience:
|
| Technology | Cost: £/kW
|
|
| Onshore wind | 1,239
|
| Offshore wind | 1,755
|
| Biomass | 2,048
|
| Biowaste | 4,269
|
| Biogas | 2,732
|
| Solar PV | 4,717
|
| Solar Thermal | 2,452
|
| Large Hydro | 1,258
|
| Small Hydro | 1,557
|
| Geothermal | 1,278
|
| Wave | 3,130
|
| Tidal Stream | 3,414
|
|
These can be compared with CAPEX costs for conventional generation
as noted below in a chart reproduced from work undertaken for
REF by IPA Energy intended to compare the costs of the Severn
Barrage with those for the currently prominent renewable technologies,
namely wind off- and onshore, and conventional generators.[1]
Note that the estimates for the cost of offshore and onshore wind
here are somewhat lower than those presented by P½yry.
However, while renewable generators are generally speaking
more capital intensive, several have very low or no fuel input
costs, for example wind power, and this is a real merit. Nevertheless,
to a significant degree this benefit is for most renewable technologies
counterbalanced by load factors that are low even if a market
is guaranteed for all energy that may be generated. The load factor
for onshore wind, for example, is generally less than 30%, while
even offshore wind will only be in the region of 35-40%. The exception
is biomass, which is theoretically capable of load factors comparable
with conventional generators, though this of course has a fuel
input cost.
There is some uncertainty as to operation and maintenance
costs, particularly for the less well-developed renewable generators
such as wave and tidal, though the Committee could again be referred
to the P½yry study on this matter.
However, when all the matters are combined most estimates
of cost show that renewables are currently more expensive on a
p/kWh basis than conventional generators. The following data has
been provided to one of our advisors, Professor Laughton, by PB
Power, and represents their estimate of the costs of electricity
generation in May 2008.[2]
|
| Energy Source | Cost of
Electricity:
p/kWh
|
|
| Wave | 21.8
|
| Tidal | 12.6
|
| Wind-offshore | 10
|
| BFBC | 7 |
| Open Cycle Gas Turbines | 7
|
| Integrated Gasification Combined Cycle (IGCC)
| 6.4 |
| Wind-onshore | 5.6
|
| CFBC | 4.6
|
| CCGT | 4.2
|
| Coal Plant | 4.2
|
| Nuclear | 3.8
|
|
Precise estimates vary, and for comparison we provide the
following chart illustrating another range of estimates (including
a carbon price of 20/tCO2), again from a study prepared for REF
by IPA Energy.
In spite of minor variations we note that estimates are generally
in agreement. However, in relation to some renewables there is
a great deal more to say, particularly in regard to balancing
and overall system impact, the costs of which are contentious
and hard to grasp. With regard to balancing the Committee will
be aware of the United Kingdom Energy Research Centre literature
review on this matter which reports a range of £5-£8/MWh
of wind energy at a 20% level of penetration, and the recent Pyry
study for BERR, which is more optimistic and based on the older
Quantifying the System Costs of Additional Renewables in 2020
(2002), reckons on £1.2/MWh below 20% penetration (by MWhs),
and £2.85/MWh above 20% penetration (by MWhs). The cost is
clearly significant, rises with increased levels of renewables
on the network, and should be borne in mind, but is not overwhelming.
However, in relation to overall system impact there is confusion,
and uncertainty, and we are particularly concerned about this.
A good starting point here is the Pyry study method of calculating
the cost of a renewable technology as being the cost of the renewable,
broadly calculated, minus the cost of the conventional technology
displaced (the "counterfactual" cost). We have already
seen that this would in probably all cases result in a postive
cost, but we are concerned that some methods are too generous.
The P½yry study, for example, certainly seems to assume that
if n GWhs of renewable energy are generated, then the counterfactual
is the cost of the GWs of conventional generation that would be
required to produce n GWhs at a notional load factor. Now for
some technologies that would be correct. 1 GW of biomass generation
would indeed obviate the need to construct approximately 1 GW
of gas, say. Biomass is a fully despatchable technology, and has
the potential for high load factor; its capacity credit is high.
But for most other renewables technologies the capacity credit
will be low. The Severn Barrage, for example, although predictable,
would have a capacity credit of approximately 17% of its installed
capacity, giving 1.5 GW from 8.6 GW installed. In other instances,
notably wind, the capacity credit is very much lower. We know
that European experience, in Germany and Denmark, is that wind
power provides little capacity. Indeed, one of Europe's leading
energy analysts, Mr Paul-Frederik Bach, until recently the Deputy
Director of Eltra, now Energinet, the Danish Grid Operator, has
said quite plainly that from a planning perspective wind should
be attributed a capacity credit of zero. This matters since both
National Grid and the UK government assume that roughly the square
root of the installed capacity can be regarded as firm, with 25
GW giving 5 GW firm. Mr Sinden's statistical work on wind speeds
has been often taken as confirming this point, and showing that
there is something rather special about British wind. REF obtained
the same Met Office data set used by Mr Sinden, and commissioned
a major study modelling the power flow from 25 GW of wind power
spread over the United Kingdom. This work, which is forthcoming
in the journal Energy Policy, shows conclusively that the capacity
credit of wind in the UK will in fact be little different from
that in Europe, ie extremely low, around 5%, and for very high
penetrations much lower.
This has a very significant effect on the counterfactual
cost calculation. Let us say that we aim to provide some 45% of
our electricity from renewables, with some 35% points of that
from wind power, some 135 TWhs. We would require some 52 GW of
wind, assuming a load factor of 30%. That is a very large installed
capacity, with a high capital cost, somewhere in the region of
£30bn to £80bn, depending on the mix of onshore and
offshore.
However, if it supplies little or nothing towards the firm
capacity requirements of the UK its value, its counterfactual
cost is simply the fuel saved. That saving could be real, but
it may be dearly bought. If we were to add 52 GW of wind to the
portfolio, we would still require a conventional, despatchable
portfolio equivalent to the peak load plus an acceptable capacity
margin, say upwards of 10%, which would give us about 70 GW. As
the Committee will be aware the UK is currently faced with the
necessity of rebuilding much of its conventional fleet, probably
as much as 30 GW by 2020, some 40% of the fleet. That is in itself
a large capital burden, just under £15 billion assuming the
use of the least capital intensive technology, Combined Cycle
Gas Turbines, and approaching £25 billion assuming a mixture
of gas, coal, and nuclear.
Furthermore, the total grid generation portfolio would comes
to over 120 GWs, but its GWh market would remain unchanged. Consequently,
the still indispensable conventional plant now has a greatly reduced
market, which is uncertain from year to year, in other words it
will operate at a much reduced Load Factor, and hence the cost
of that conventional generation, the p/kWh it must charge, will
rise, and it may rise very significantly, roughly between 1p/kWh
and 2p/kWh, which represents an ongoing cost burden for the UK
of upwards of £5 billion pounds per year.
Furthermore, the sketch above assumes that this very large
wind carpet will have unfettered access to the market, but it
is clear that 52 GW will fairly often be generating at levels
exceeding total UK load. Even if every other generator were curtailed,
and this isn't feasible for technical reasons, then the wind output
would still need to be curtailed, reducing its load factor. In
such a situation wind would either have to be rewarded for curtailment,
or its generation fixed costs would increase. One might add that
curtailment would also result in missed targets if their satisfaction
had been premised on unfettered output.
Our point here is that the cost of renewable generators is
complicated, and much higher than might be superficially apparent.
What we conclude from the analysis is that there are thresholds
beyond which the UK should not go, and that these thresholds may
be rather lower than is currently envisaged in various UK and
EU targets. Getting the best from renewables, on this view, involves
obtaining the fuel saving without increasing system costs beyond
the value of that fuel saving. This is not an easy problem to
solve.
What are the current estimates for the costs of "greener"
fossil fuel generation with carbon capture and storage, and how
do these costs compare to renewable generation?
The costs of CCS without Enhanced Oil Recovery are high (CAPEX
may be, as per the chart above, between £1,250 and £1,500
per MW installed), and on a par with the superficial costs of
renewables, but the resulting plant will have a high capacity
credit, and their overall system impact costs will be very much
lower.
Given this, and other considerations, it is clear that the
potential for application at scale is greater than that for renewables.
If there is continuing political will at a global level to reduce
emissions on a very large scale CCS is unavoidable. China and
India combined will, according to the IEA, build 800 GW of new
power stations in the next eight years, 98% of those power stations
being coal-fired. We can be fairly certain that in spite of rising
prices the world's fossil fuels will continue to be fully exploited
for the foreseeable future, and only CCS will be able to render
this use almost free of emissions. We emphasise, however, that
renewables will not be redundant in such a system, but combining
broad deployment of CCS with a correctly proportioned renewables
portfolio to save fuel and reduce overall system costs is an interesting
problem, and deserves study.
What impact do these various forms of electricity generation
have on carbon emissions?
While it is tempting to concentrate on the fact that a generator
is carbon-free or nearly so at the point of generation it is important
to recognise that just as costs should be seen from the system
perspective, so emission levels need to be approached as a quality
of the overall system, not of individual components. As has been
pointed by Malcolm Keay of the Oxford Institute for Energy Studies
in his 2006 book, The Dynamics of Power, the addition of large
quantities of renewable generation may well have a causal influence
on the technologies chosen by investors for the conventional portfolio,
and it is conceivable, and perhaps probable, that the result would
be a system that was less clean than it would have been if no
renewables or a smaller or differently structured renewable component
had been introduced. Get the renewables right, and the savings
of both fuel and emissions could be welcome; get it wrong, and
we may be worse off than if we had done nothing. For example,
at present, we would argue that the combination of the NETA/BETTA
system and the Renewables Obligation has so distorted investment
that the UK is plunging headlong into a second dash for gas (there
is 20 GW in planning and pre-planning) exactly coinciding with
fierce international competition for this fuel, resulting in high
and volatile prices. We predict that the UK will probably, force
majeure, be obliged, if at all possible (and there are doubts
about the feasibility of this), to run obsolete coal plant with
low thermal efficiencies and consequently high emissions per MWh.
That said, there is a not entirely theoretical interest in
taking the point of generation perspective, and asking how much
carbon-dioxide would be saved when 1 MWh of renewable electricity
from wind, or biomass, or tidal energy is accepted by the grid.
Putting aside the question of the carbon-footprint of the generation
plant itself, which will vary enormously from site to site, there
is real uncertainty as to what the emissions of the displaced
MWh of conventional generation would be, partly because there
must be uncertainty as to what generator is displaced at a particular
instant, and partly because you don't know what generators will
comprise the future portfolio. If the generator is controllable,
as biomass is, then it could in theory be paired to displace emissions
from the dirtiest remaining generation sets on the network, say
low thermal efficiency coal at 0.9 tonnes per MWh. If the generators
are uncontrollable, then you have a radical uncertainty. You don't
know when it's coming on to the grid, and you don't what the future
portfolio will look like.
Government currently recommends using a current grid average
emissions factor when calculating the savings of renewables, at
point of generation, which is about 0.43 tonnes per MWh, about
half the emissions of coal. But in the future it seems probable
that uncontrollable renewables will run in tandem with gas plant,
possibly very high efficiency gas plant, with emissions at around
0.3 tonnes per MWh. A point of generation calculation of this
kind is useful only insofar as it provides a rough grasp of the
cost per tonne of emissions abatement under any subsidy support
mechanism or fiscal instrument such as a carbon tax.
The answer to the question, then, is that the emissions savings
from renewable technologies are to a surprising degree uncertain,
whether examined at the point of generation, or, more appropriately
at the overall system level. It is partly for this reason, and
partly because of limitations on the scale of deployment, that
we have for some time being developing the view that renewables
should not be seen as the royal road to emissions saving, but
rather as fuel savers. This is a subtle point, but one which has
considerable importance for the design of policies to reduce emissions
and facilitate renewables adoption. Simply put, they should be
kept rigorously separate.
2. In 2006 the REF wrote that the Government "has
not yet recognised the acute need for security of supply of imported
fossil fuels" and that it "is naively sanguine about
future fossil fuel prices and availability". What are the
implications of this for renewable energy policy? How do, and
should, renewables fit into Britain's overall energy policy?
Rising fossil fuel prices, and growing intensity of competition
for these resources at any price, make the saving of fuel an extremely
important activity in all sectors. The most important response
to this need in the electricity industry will be the introduction
of improvements in thermal efficiency, which will be a straightforward
matter for the UK since we have some oldest and least efficient
coal stations in Europe, and in the diversification of the conventional
portfolio with nuclear generation. However, renewable generation
will support this strategy if correctly applied. But for this
they must be team players, and the levels of deployment must not
exceed certain thresholds determined by 1. technical sophistication,
or lack of it, and 2. economic matters. That is to say, although
we will get better at integrating variable renewables, perhaps
through improvements in the storage of electrical energy, we mustn't
run before we can walk; and that while rises in fossil fuel prices
make increased levels of renewables attractive it is important
to avoid the costs associated with excessive adoption.
Domestic technologies such as Ground Source Heat pumps and
Solar Thermal for hot water, have a very significant potential
for cutting gas demand and reducing household expenditure, and
might function as part of a gas depletion policy, a policy which
in our view is badly needed.
Transport is more difficult. Realistically, biofuels are
likely to remain a niche activity, extremely valuable where they
are economically attractive, say in rural areas near the point
of production, but the overall future of transport seems much
more likely to be electric.
To summarise, renewables fit into the UK's energy strategy
as fuel savers, and will be increasingly attractive if the price
of conventional energy continues to rise.
3. The REF manifesto of 2005 stated that Government policy
"asks more of renewables than can be reasonably delivered
and is thus condemning the sector to failure". Is this still
the case and, if so, why? How much renewable energy can "be
reasonably delivered"?
It is not only still the case, but the problem has if anything
intensified. The EU renewables targets propose that some 20% of
Europe's Final Energy Consumption (FEC) should come from renewable
sources by 2020, with at least 10% of transport fuels being from
renewable sources. For the UK this is rendered as a target of
15% of FEC by 2020. That would probably entail an enormous burden
on the electricity sector, which might be required to produce
as much as 45% (some analysts think more) of electrical energy
(MWhs) from renewable sources. This would require extraordinary
levels of renewables capacity, resulting in the 120 GW grid discussed
in an earlier response, but since no one has any idea how to integrate
such a vast fleet of uncontrollable generators even if this capacity
is built much of its energy will be curtailed because the instantaneous
output exceeds demand. If this occurs, the targets will be missed.
Furthermore, to succumb to panic and require such a level
by mandate will simply result in the adoption of sub-optimal technology,
a very significant opportunity cost.
While it is easy enough to see that the current proposed
levels exceed our understanding and are unreasonable, it is much
harder to determine what a reasonable level might be, partly because
this will change over time as technologies improve, partly because
the nature of the conventional portfolio into which renewables
have to fit is hard to predict. This matter, amongst many others,
leads us to suppose that it would be better to leave the correct
level to emerge from the free action of market participants.
4. Last year Dr Constable said the present set-up of the
renewables obligation—which requires electricity suppliers
to supply a specific proportion of their power from renewable
sources—"has been a disaster for the renewables sector".
Why is this and what do you think of the Government's proposed
changes to the scheme? Are there other changes to the scheme that
you would like to see?
The RO, which at present provides some 60% of the income
of a renewable generator, is a blunt instrument providing hyper-profit
for the least capital intensive ticket to the subsidy stream.
Initially this was land-fill gas, a good technology and hardly
in need of subsidy, and latterly it has been wind, and mostly
onshore wind, a technology which is limited in scale of deployment,
and if correctly sited doesn't require subsidy.
The RO then has narrowed development focus on to those technologies
which least require support, and thus depleted the resources available
for other technologies which are either in need of technical development,
for example tidal stream, or are more capital intensive such as
biomass.
It has also created a perverse incentive for wind developers
to install plant in locations where there is fundamentally little
wind resource. For many years the wind industry has premised its
output on a 30% load factor onshore, and this is routinely used
in planning when stating benefits. But in fact over 80% of onshore
windfarms fail to achieve this load factor (Professor Jefferson
of the Metropolitan Business School will be presenting data to
you on this point). The RO, then, has created permanent subsidy
clients, and, this is critical, has encouraged the saturation
of the available space for wind on the UK grid with underperforming
plant.
It's difficult to find anything positive to say about the
RO except that the Government doubtless meant well in introducing
it. We therefore welcome the current proposals to band the obligation,
which will improve it, but we judged last year that such revisions
should be seen as a step towards abolition. At present, with rapidly
rising fossil fuel prices it seems to us that the RO may simply
be needless and should be dispensed with immediately so that the
renewable sector can respond freely to market incentive with innovation
and broad-based experimentation.
5. You have argued that the Government should eventually
abolish the renewables obligation. What should replace it? Do
you support a feed-in tariff guaranteeing a higher price for electricity
generated from renewable sources? How would such changes affect
the investment plans of electricity generators, which are presumably
based on the existing renewables obligation?
As noted in response to the previous question, we are currently
sceptical of the need for any long-term income support mechanism
for renewables. If these infant technologies are not to be permanently
infantilised they must be exposed to tempering fires of competition,
and rising fossil fuel prices will provide the demand to draw
technologies forward to prove themselves.
With regard to the investment plans of electricity generators:
while it would be embarrassing for Government to have to cancel
the RO it would also prevent the waste of nearly £1 billion
pounds a year, and the probable waste of some £30 billion
by 2027. The government has a duty to the electricity consumer,
a duty which over-rides any other considerations, and in any case
the failure to correct a manifestly flawed system brings government
into disrepute. Clearly, investment behaviour would change without
the RO, but these changes are desirable and would in fact be beneficial
for the consumer and for the long term future of the renewables
sector.
We enthusiastically endorse public expenditure to support
energy research, particularly in the universities. R&D in
the energy sector has been declining relative to other R&D
for many years (50% in the last two decades, according to the
International Energy Agency), and it is in the public interest
to reverse this trend.
We accept that there may be a case for the provision of capital
grants to built projects. Since this has the merit of encouraging
development without leaving the consumer or taxpayer with a long-term
ongoing cost. Similarly, if government is determined to provide
income support to renewables then this support must be strictly
time limited, and for short periods, say five years. It must be
clear to investors that the crutches will be kicked away, and
that only projects that can stand up independently in the near
term should be adopted.
6. How much investment in Britain's transmission and distribution
networks will different renewable energy sources require compared
to other forms of generation? Are the current transmission and
distribution systems capable of managing a large share of intermittent
renewable electricity generation and, if not, how should they
be changed? Are the rules on connecting capacity to the grid supportive
of renewables?
Very significant expansion of the UK network would be required
to accommodate the levels of uncontrollable generation described
above (50 GW of wind, for example). We know for example that Germany
is currently looking at some 1,200 miles of new Extra High Voltage
grid by 2020 to accommodate wind, at a cost of some £2 billion,
with additional expansion and reinforcement in the medium voltage
grids at an additional cost.
More modest levels of renewables adoption would still entail
significant grid expansion, and National Grid estimated in 2004
that this could be estimated at approximately £250,000 per
MW in Scotland, some £50,000 to £100,000 per MW in England
and Wales, with overall expansion costs in the region of £65,000
to £125,000 per MW installed. Ofgem in 2005 evidence to the
Environmental Audit Committee referred to a cost of £300/kW.
National Grid's 2004 estimate referred to a total cost of some
£3.7 billion as being required for anticipated levels of
wind 2020 (ca. 25 GW).[3]
Assuming £125,000 per MW installed, we can estimate that
50 GW of wind would require some £6.25 billion of investment.
Estimating the effect on electricity prices of such expenditure
is a little uncertain, and it is not an area in which we have
special knowledge, but one estimate of which we are aware suggests
that for every £1 billion pounds of grid investment, electricity
prices must rise by £3/MWh, so for £6 billion pounds
of investment there would be an implicit standing charge of £18/MWh,
which is a significant overhead.[4]
7. The REF has argued in favour of carbon capture and storage
for coal-fired power plants. What measures, if any, would you
like the Government to take in this area?
The processes required to capture and sequester CO2 are in
themselves expensive, and they furthermore entail a thermal efficiency
penalty on the power station (more fuel is needed to produce a
unit of electricity). While the use of captured CO2 has an economic
value when employed for Enhanced Oil Recovery, such uses will
be necessarily limited. Storage in saline aquifers has no economic
value.
Therefore, other things being equal, a power station equipped
with CCS is a more expensive means of generating electricity than
a similar power station without CCS. Unless there is legislation
to compel or reward the adoption of CCS the market will not move
towards its adoption. However, there is no reason why such legislation
should not be successful. The emissions of Sulphur dioxide (SO2)
have, for example, been successfully reduced by legislation requiring
the reduction of this pollutant, which resulted in the adoption
of costly equipment that also reduces the efficiency of the power
station.
Nevertheless, economic obstacles are highly sigificant, and
would increase the cost of European electricity and thus degrade
European industrial competitiveness unless other economies also
adopted CCS.
Thus while we support CCS as a means of reducing emissions
(indeed it is unavoidable if global emissions are to be held in
check) adoption is absolutely conditional on continued commitment
to reduce emissions of greenhouse gases on a global scale. If
there is no such co-ordinated global policy the UK would be better
advised to spend the money on adaptation responses domestically
and in granting overseas aid for such responses.
8. You have argued that the lack of support for offshore
wind has been regrettable because this sort of renewable generation
produces electricity close to centres of high demand such as London.
In your view, was this lack of support likely to have been a factor
in Shell's recent decision to withdraw from the London Array offshore
wind farm? Does Shell's withdrawal call into question the economics
of offshore wind farms? How much more support, from what kinds
of alternative policies, would offshore wind require?
We have no special knowledge of the factors underlying Shell's
decision in this case, but generally speaking we conclude that
the Renewables Obligation has probably put the brakes on offshore
wind development in the UK. That said, the direct cause of Shell's
reassessment is probably subsidy intervention in the United States.
Left to itself, domestically and internationally, the market would
have invested in high wind sites, that is to say sites with expected
Load Factor of greater than 35%, as a hedge against increasing
fossil fuel prices. The precise quantity that would be wise for
the UK is hard to determine, but might be somewhere around 10
GW, less than half the minimum load of 25 GW. At 35% load factor
this would produce about 30 TWhs, about 8% of UK electrical energy
generation.
As noted above, we would not now support long term income
support for such projects, but government could assist in many
other ways, for example by taking steps to ensure that such developments
do not come into conflict with national security considerations
at sea.
9. How do the costs and benefits of renewable electricity
generation compare to renewables in the other key forms of energy
consumption—transport and heating? Should the Government
be doing more to support the development of renewables in heating
and transport?
A gas depletion policy is badly needed, and renewables for
heat could be particularly significant, both through biomass and
ground source heat pumps. Indeed, they have that field pretty
much to themselves, and would dovetail perfectly with other aspects
such enhanced insulation. That said, we should recognise that
GSHP would transfer some load from the gas grid to the electricity
system. This doesn't constitute an argument against GSHP, but
it does serve as a reminder that is very hard to do only one thing,
and we should be ready for these other consequences.
Renewable heat development is particularly attractive in
that it buffers the UK against rising gas prices at the point
of consumption, at the level of the individual consumer, where
savings can be passed on instantaneously. Renewables in the utility
scale electricity sector, if correctly applied, could save fuel
and mitigate against rising prices, but these savings would not
necessarily be passed on quickly or directly to consumers, or
indeed at all. If there is a question of prioritisation, then,
yes, renewable heat is more attractive than utility scale renewable
electricity.
With regard to microgeneration of electricity, I'm afraid
that we are sceptics. REF was a co-funder of the study launched
yesterday by BERR and other partners, but we draw pessimistic
conclusions from the results. Far from leading to the conclusion
that mandatory targets for microgeneration would be wise, we see
the costs as astonishingly high and the gains as very modest.
Uptake of microgeneration of heat will be self-motivated, and
needs little government help (0% VAT might help, however), but
to mandate the microgeneration of electricity in the domestic
environment will only drive in sub-optimal technologies at enormous
expense.
Renewable transport fuels are certainly interesting, but
the scale of their application is modest (even 10% of final consumption
seems economically stretching at present). Again, a government
mandate seems unwise.
A consistent thread through our answers today has been that
government shouldn't be attempting to design renewables uptake.
Our best chance of realising the benefits from renewables at reasonable
cost is allow individuals, businesses, and corporates the liberty
to select those renewables that seem likely to be beneficial for
their own purposes. Government is not in a position to be able
to judge this with any degree of accuracy.
10. How would changes in the cost of carbon—under
the European emissions trading scheme—affect the relative
costs of renewables and other sources of energy? Would a more
effective carbon emissions trading scheme remove the need for
special support of renewable energy?
Emissions trading or a carbon tax would undoubtedly be preferable
to the current income support mechanisms for renewables, for the
simple reason that it would focus on the ends rather than means
and would allow the market to choose the most effective route
to reduced emissions. A tax could also be fine-tuned from year
to year, and removed if no longer needed.
SYSTEM LOAD
FACTOR AND
GENERATION FIXED
COSTS
A Note
3 July 2008
JOHN CONSTABLE,
RENEWABLE ENERGY
FOUNDATION
It seems probable that in order to meet the EU 2020 target
of 15% of Final Energy Consumption from renewables some a very
heavy burden will fall on the electricity system. I estimate that
this will be as high as 45%. If this quantity of of UK MWhs are
generated from renewables, this is 45% of the market that is denied
to conventional generators. However, the presence of a very large
fleet of renewables delivers little firm capacity, with the result
that the conventional portfolio is reduced by a modest degree
only. Consequently, while it is necessary to maintain a quantity
of despatchable generators, mostly conventional, equivalent to
peak load plus a reasonable margin, these conventional generators
will now be operating at low load factor, thus increasing their
costs. The effect of low load factor on generation fixed costs
can be seen from the following chart produced for me by Professor
Michael Laughton.
Chart 1
GENERATION FIXED COSTS (P/KWH) AND PLANT LOAD FACTOR
At present the system load factor for the UK is approximately
0.6, entailing, as the chart indicates, a generation fixed cost
of 2p/kWh. To deliver 45% renewable electricity would require
a very large overall system, perhaps as large as 140 GW, consisting
of about 71 GW conventional and 69 GW renewable, then the portfolio
we calculate that conventional load factor would fall to just
under 0.43, with a generation fixed cost of approximately 3p/kWh,
an increase of 50%.
July 2008
1
IPA Energy + Water Consulting, Severn Barrage Costing Exercise
(March 2008). Back
2
Communication, PB Power-Costs include capital expenditure, fuel,
operation & maintenance, general overheads and carbon emissions. Back
3
Lewis Dale (National Grid), System Costs of Wind Generation, presentation
to Ofgem discussion day, 24 May 2004. Back
4
We are grateful to Professor Michael Laughton for the following
reasoning: Taking the recent cost estimates of the Beauly to Denny
transmission line as an example the expenditure required is £190m,
where the return on capital with depreciation, running costs and
maintenance added, required a net annual charge to the consumer
of £22.32 million pa. ("Overview of the Proposed 400kV
Overhead Transmission Line near Beauly, Scotland", Report
by ICF Consulting, 3 August 2004). By this measure every £1
billion required for new transmission facilities is matched by
an implicit standing charge of 0.3p/kWh. Back
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