‘Cut the brown crap’: Committee’s clear signals to government

Richard Black digs into new power sector report from the Committee on Climate Change

By Richard Black

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Today’s report from the Committee on Climate Change is a sober and evidence-based diagnosis and prognosis on the UK’s power sector.

Read it a different way, however, and it’s also a rather political document, highlighting messages that it believes the government needs to hear.

Subtle digs at plans to end support for renewables too early, at the Capacity Market that marginalises flexibility, at bizarre claims on the cheapest form of low-carbon electricity, at the absence of market signals after 2020… all these are in there, if you know what you’re looking for.

Most notable of all is a shot across the bows of the Department of Energy and Climate Change (DECC) regarding a research paper it’s commissioned from consultancy Frontier Economics on the ‘true costs of renewable energy’.

Estimating the 'true costs' of energy can be contentious. Image: Chancey Davis, Creative Commons Licence
Estimating the 'true costs' of energy can be contentious. Image: Chancey Davis, Creative Commons Licence

DECC leaked news of the study’s existence to the Mail on Sunday a few months back in an article headlined ‘Energy review spells end of the green bandwagon: Spotlight on true costs of power generation could save us billions’.

Featuring an unspecified ‘energy expert’ alleging that previous governments ignored additional costs associated with connecting renewables to the grid, the sub-text was clear: ‘renewables are not as cheap as the headline numbers suggest, and we’ve commissioned a study to prove it’.

Renewables that generate intermittently do incur extra costs because there have to be mechanisms in place for either reducing demand or substituting additional supplies of electricity when output is low, and grid operation becomes more complex.

(As an aside, it’s also true that large-scale coal, gas and nuclear stations also incur extra costs: the grid has to keep enough backup generators spinning to compensate if one of the big stations suddenly breaks – something that’s unlikely to be a problem with renewables, where output is more variable but also more reliable and predictable, with each unit much smaller).

The Committee calculates that these extra costs amount to about £10 per megawatt hour (MWh). It notes that the government has awarded contracts to onshore wind and solar farms coming online over the next few years at around £83 per MWh; so when you add on the extra £10, that comes to about the same number as the £92.50 per MWh guaranteed to the Hinkley nuclear power station.

That’s now; and in the next few years one can expect the prices paid for onshore wind and solar to continue falling, while that for Hinkley continues inexorably to rise with inflation.

Inconvenient truths

The fact that the Committee cited the prices paid at auction for onshore wind and solar is in itself worthy of note.

When DECC briefed journalists a few weeks back on the cost of Hinkley, it preferred not to use real prices but those it had predicted back in 2012 – which, conveniently, had renewables more expensive than nuclear. This led to a brief furore over a misleading graph on the BBC website – misleading because it was based on DECC’s figures – which was subsequently corrected.

The Frontier Economics ‘real cost of renewables’ report is due to be published next month; and if it comes up with a significantly higher figure for additional renewable costs than £10 per MWh, that’s obviously going to raise suspicions that DECC has made sure it got the answers it wanted to justify its recent conversion from renewables to nuclear and shale gas.

Request for clarity

Is the Treasury running UK energy policy? Image: HM Treasury, Creative Commons Licence
Is the Treasury running UK energy policy? Image: HM Treasury, Creative Commons Licence

So what other signals does the Committee send to DECC – and, we shouldn’t forget, to the Treasury, which effectively controls UK energy policy at the moment?

Its report is clear that the point of subsidising low-carbon technologies is to establish a thriving market in which ‘competitive deployment’ drives down costs. It’s talking in the context of less mature technologies such as offshore wind and carbon capture and storage (CCS), but the point can also be seen as a corrective to the prevailing government narrative on solar power, that the falling price for panels will on its own bring cost-competitiveness.

The Committee says – not for the first time – that policy uncertainty causes renewables costs to rise, because investors perceive a higher risk. And it points out that there is as yet no clarity on what policies will be in place after 2020.

In other words: if you want renewables to be cheaper, Mr Osborne and Ms Rudd, set out your policies soon and stick to them.

Security through flexibility

The big non-news of last week was the regular appearance, as reliably as cuckoos in spring, of autumn warnings that the lights are going to go out if we continue down this hazardous low-carbon route. (As our recent report shows, there have been nearly 500 such stories over the last decade, while countries such as Germany and Denmark that use intermittent renewables more than the UK have fewer power cuts.)

The Committee concludes unequivocally, just in case people in Treasury are inclined to believe the scare stories: ‘It is possible to ensure security of supply in a decarbonised system with high levels of intermittent and inflexible generation’.

The key, it says is to use flexible mechanisms as much as possible – demand response, interconnectors, and flexible gas plants to fill in the big gaps.

It’s hard to see this as anything other than a dig at the design of the Capacity Market, designed to ensure enough generation capacity on the system from 2018 onwards. In last year’s auction it banned interconnectors, and granted demand-side providers just 0.7% of contracts awarded - a decision that is now being contested in European court.

High price keeps bills down

What signals are the CCC sending to the Government? Image: Joshua Miller, Creative Commons Licence
What signals are the CCC sending to the Government? Image: Joshua Miller, Creative Commons Licence

Perhaps the most pertinent messages of all are in the overall economics piece. Onshore renewables will be cost-competitive with gas in the early 2020s, the Committee calculates – so long as gas pays for the costs of its carbon emissions.

(That is at odds, it should be noted, with other studies showing cost-competitiveness with gas by 2020 without a rising carbon price – but that’s another story.)

The politically interesting bit of the Committee’s calculation is that if the Chancellor allows the carbon price to rise – which currently he isn’t – that will reduce the amount levied on customer’s bills to support decarbonisation.

However, concern over the UK carbon price is being widely cited this week as a reason why steel factories are closing – so one can see how politically unattractive a renewed rise might be right now.

But not doing so means more money – more ‘green crap’ – on energy bills. It’s his choice.

The Committee on Climate Change is a statutory advisor to government. And while that advice is supposed to come in the form of policy, not politics, the Committee has some wise heads on board capable of taking a view that extends beyond this week’s scare story, whether that is ‘Blackout Britain’ or ‘soaring bills’.

On both policy and politics, it’s giving advice worth listening to.