Renewable energy is winning, but the government may still be underestimating it

Alasdair Cameron

14 November 2016

For years now, the energy establishment  has been obsessed with the ‘energy trilemma’. How do we meet the simultaneous demands of decarbonising energy, keeping costs down and maintaining security of supply?

For electricity at least, that problem appears to be almost over.

Last week the UK government released updated cost projections for various types of energy up until 2030. Renewables came out cheapest. 

Onshore wind is already cheaper than gas generation, and by 2020 large scale solar too will be competitive. By 2025, both will be much cheaper than new natural gas, and even offshore wind only a little more expensive. All will cost less than new nuclear.* Finally by 2030, offshore wind will be cheaper than new gas too. Coal is not even in the running.

Good though these price estimates are for renewables, they are still likely to be too high.

From 2020-2030 the government estimates that the cost of onshore wind will decline by just 5%. For solar and offshore wind they expect the ten year fall to be only 10%, despite the fact that these technologies have respectively declined in cost by 70% and 25% over the last five years alone.

There is more. Carbon Commentary have written a good blog on why some of the estimates for renewables are already looking pessimistic, meaning that by 2020 renewables will be even cheaper than the government expects.

The government has form on this. Its last batch of projections wildly over-estimated the cost of renewables, and have arguably been partially responsible for the reluctance some Ministers and civil servants have shown to seize the opportunities these new technologies offer.

There is every chance that this could happen again.  

For example, the government has predicted that some gas plants, retrofitted with carbon capture and storage (CCS) will be able to compete with offshore wind in 2025 and 2030. Perhaps, but only if we assume that CCS is deployed at a scale at which it does not yet exist, and that there are almost no cost reductions in offshore wind over the decade. If either of these is wrong the UK will end up paying more than it would have needed. In the worst case gas plants would be built in the expectation of installing CCS which is never delivered, locking in high carbon high-cost generation.

By contrast even modest cost reductions above the 10% the government is predicting from 2020-2030 will make offshore wind the better cost option.

Now, I'm not having a go at CCS - we probably need to develop it, but we should not assume it will be the cheap or easy option.

And there is more good news for renewables. Intermittency, the tendency of some renewables not to be available all the time, is becoming less and less of a problem. New grid technologies and energy storage will make it easier to integrate large amounts of renewables, greatly reducing the cost of grid balancing. 

The Minister for Business Energy and Industrial Strategy, Greg Clark, recently said fears of renewables causing the lights to go out were ‘overblown’. Paul Massara, former head of utility RWE NPOWER, wrote that with proper system planning variability ceases to be a major problem. A recent report showed how large amounts of solar and storage would actually cut system costs compared to business as usual.

So what does all this mean?

In broad terms the energy trilemma is effectively over. Low carbon energy is soon to be the lowest cost source of power (and may already be). In the future it will be cheaper still. Security of supply too will soon be a problem of the past. Renewables do not need much imported fuel, and variability seems to be a manageable issue.

That leaves just one major problem. How to decarbonise as fast as possible?

This has several implications for UK policy.

  1. Just because something is a low cost option does not mean it needs no help or intervention. Currently the structure of the energy market, punitive planning guidance and effective subsidies for fossil fuels mean that the cheapest renewables lack a clear route to market. The UK should stop blocking onshore wind and large scale solar, and put in place proper strategic planning and a mechanism to allow these technologies to fulfil their potential without harming the natural environment. Rooftop solar and offshore wind too should be encouraged on a much greater scale than they are now, to ensure costs continue to fall. For rooftop solar this need not mean a return to feed-in tariffs, but some form of transitional support is needed. For offshore wind this means more rounds of commissioning, with larger contracts to bid for.
     
  2. The future is low carbon and high tech and the UK economy must prepare. The upcoming industrial strategy, and carbon reduction plan, must place the renewable transition at its heart. Coal is already being phased out, and it is time to start imagining and setting out policy for a future without gas power generation too. Renewables and energy storage should take centre stage, not only in terms of support and commissioning, but in skills, research and development and tie-ins with other industries. This is the UK’s big chance, and it should not waste it.
     
  3. Those, like Donald Trump, who wish to back coal, are barking up the wrong tree. Backing coal and the like will not revive western economies. If renewables are cheaper in the UK, with its cloudy skies and restricted space, imagine how much cheaper they will be in the USA. Supporting these old industries could simply lock-in industrial decline.

It’s time to move on and build a better, brighter, cleaner future. I’m excited.

 

* By 2025 the estimated cost of new nuclear is £95/MW, compared to £61/MWh for new onshore wind and £63/MWh for new solar. Offshore wind is expected to be £100/MWh, however as with most renewables this is for a 15-year contract, compared to a 35-year contract for new nuclear, meaning it is justified to say it is cheaper.

 

 

 

 

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