Costs of renewable energy

• Report: The Economics of Renewable Energy
• House of Lords Economic Affairs Committee

In its Report, 'The Economics of Renewable Energy', the Committee accepts that the Government has committed the UK to increasing its use of renewable energy and does not propose that they go back on that, although it is sceptical as to whether the proposed EU target for the UK, of 15 per cent renewables by 2020, can be met. It also cautions that an over-reliance on intermittent power generation, in pursuit of the target, could prove both costly and risky.

The Committee understands that for the Government to meet its EU target, under current policies the share of electricity generated from renewable sources would need to rise from 5-6 per cent to 30-40 per cent. It calculates that the higher costs associated with renewable generation, in comparison to conventional or nuclear, would increase electricity generation and transmission costs by £6.8bn a year, or 38 per cent. This translates into an £80 annual fuel bill increase for the average household.

The Committee also raises concerns about security of supply. The report points out that the scope for significant increases in the most reliable sources of renewable electricity supply - hydro-electric, domestically produced biomass and solar - is limited in the UK and that we have little experience of tidal barrages or wave. This leaves wind turbines, in particular, as the most readily available source of increases in renewable electricity. But the turbines only operate intermittently, when the wind blows, and cannot be relied upon to generate electricity when it is needed. Meeting the Government’s targets is likely to result in a dependence on intermittent renewables for electricity supply unprecedented in Europe.

Because of intermittency, a significantly greater capacity of wind based generation is needed than for conventional or nuclear generation for any given output of electricity. Furthermore, without major technological advances in electricity storage and increased interconnection between the UK and Continental grids, renewable generation will have to be backed up with conventional generating capacity to guarantee undisrupted supply. The Committee argues that wind generation should be seen largely as additional capacity, rather than a substitute for the substantial number of old coal and nuclear plants which are scheduled to be replaced by 2020.

Based on the costs and difficulties the Committee identifies in achieving rapid expansion of reliable, renewable electricity generation, the report calls on the Government to give a firm lead in maintaining a stable investment environment for alternative forms of low carbon power generation. The Committee points out that nuclear energy presents a viable, low-carbon alternative that is not intermittent and can be produced at a significantly lower cost than renewable energy; and that fossil fuel generation with carbon capture and storage, if and when it becomes available, could be another option. The report argues that it is important that:

"Incentives to promote those renewables which offer only intermittent supply do not divert attention from, and deter investment in other low carbon generation options and thereby risk power shortages…the most reliable low-carbon alternative to renewables is nuclear power."

The Committee goes on to consider the possibility of renewable heat providing a greater contribution to increasing the UK’s level of renewable energy usage. It points out that 2/5th of the UK’s energy usage goes on heat as opposed to only 1/5th on electricity. The Committee argues that some options for renewable heat such as biomass and heat pumps can be cheaper than renewable electricity and do not suffer the same risks of intermittency of supply. The report calls on the Government to put as least as much emphasis on encouraging the development and use of renewable heat as they do on renewable electricity generation.

Other recommendations in the report include:

• The Government should not seek to increase the use of biofuels until the costs of carbon abatement associated with its use as an alternative energy supply are reduced.

• The Government should consider establishing a substantial annual prize for the best technological contribution to producing economical renewable energy and promote research into electricity storage technologies to overcome the problems associated with intermittency.

Commenting Lord Vallance, Chairman of the House of Lords Economic Affairs Committee, said:

"We accept that the UK Government, along with others, must take steps to reduce carbon emissions. However we are concerned that the dash to meet the EU’s 2020 targets may draw attention and investment away from cheaper and more reliable low carbon electricity generation - such as nuclear and, potentially, fossil fuels with carbon capture and storage. Equally, the Government’s focus on renewable electricity generation should not be allowed to overshadow other, more promising roles for renewable energy, such as renewable heat.

"The UK is most likely to adopt wind power as its main means of producing more renewable electricity. This has an inherent weakness in that it cannot be relied upon to generate electricity at the time it is needed. Current policies would take the UK into uncharted territory, with a dependence on intermittent supply unprecedented elsewhere in Europe. To guard against power shortages, wind turbines would need to be backed up with conventional generation. Together with the requirement to replace almost a quarter of the UK's older generating capacity by 2020, this represents a massive investment programme. Whether it is achievable in the time available is open to doubt.

"In addition, the Government should not allow its pursuit of the immediate 2020 target to take its eye off the longer term. Much more research needs to go into more effective and economical forms of renewable energy, and into electricity storage technologies which could mitigate the inherent problems associated with intermittent supply."