The Government’s review of energy costs is obviously a set-up designed to argue against a major emphasis on funding currently commercialised renewables and energy efficiency technologies, so here I critique this viewpoint and suggest some ideas for what a genuinely far-sighted clean energy effort to reduce costs might involve. Ideas which, I suspect, will be comprehensively ignored by the review.
The Government has given its review of energy costs to Dieter Helm whose opinions are hostile to promoting ‘current’ generation renewables and who is anyway excluded from considering the Hinkley C contract or other issues such as the smart meter roll-out which are pushing up electricity prices.
Last year Dieter Helm argued that:
“new and emerging technologies, rather than international agreements, and the promotion of current generation renewables, will probably bring fossil fuel dominance to a gradual close. To facilitate decarbonisation, energy policy should be directed at enhancing R&D and next generation renewables, instead of supporting existing ones.”
Helm has apparently been oblivious to the fact that the enormous decline in costs that has happened in the case of solar pv and wind power has been driven not by original research (as important as that is) but by the feed-in tariff and other support schemes that have created mass markets in renewable energy technologies. Investment in renewable energy technologies now surpasses combined investment in fossil fuel and nuclear power throughout the world today. (eg, see https://www.carbonbrief.org/renewables-growth-breaks-records-again-despite-fall-investment). Even in the UK renewable energy has expanded as a source of electricity from round 3 per cent in 2002 to over 25 per cent in 2015. It is remarkable that some economists can be apparently so oblivious to the fact that technology costs decline as markets for them are expanded.
Helm avoids this fact in favour of his own longstanding antipathy to renewables and he openly favours giving priority to new gas production saying: “Now the oil and gas is worth more today than tomorrow, and hence it makes sense to maximise production now.”
Essentially Dieter Helm seems to want commercial renewables incentives to be curtailed and, in effect, incentives should be largely oriented towards encouraging more natural gas generation. A few crumbs will be doled out to industry to research into ‘advanced’ renewables. The Paris Agreement is dismissed.
I suspect that, in the energy costs review, there will be little meaningful analysis of the medium to longer term prospect for natural gas prices, which tend towards increasing prices as Norwegian, British and Dutch production declines. This means the UK prices will rise as these countries supplies become further squeezed and prices tend towards the marginal suppliers such as expensive liquified natural gas from Qatar and other places. (see, eg, https://www.platts.com/latest-news/natural-gas/london/analysis-doubts-stack-over-norways-gas-export-26390853)
Neither will there be much appreciation of the fact that the costs of renewables such as offshore wind and solar pv have plunged in recent years or that onshore wind has been deployed over the last couple of years through the Renewables Obligation for prices well below the Hinkley C contract (£70-£75 per MWh for onshore wind compared to £100 per MWh for Hinkley C in 2017 prices).
In addition the energy costs review seems likely to be a ‘prices’ review and not a costs review at all. If it was a genuine costs review it would look at how to reduce consumer bills, not prices, which means looking at how to improve the energy efficiency of the UK’s energy system. Hence energy efficiency schemes will no doubt be seen as an addition to costs when in fact they have brought bills down by large amounts, as the Committee on Climate Change has discussed.
So below are six ways that the Government could reduce costs to the consumer, none of which are likely to be recommended by the Helm review.
1. Encourage the French Government to reconsider the Hinkley C project, eg suggest to them that it is not worthwhile putting more French taxpayers money into the project. If Hinkley C is not completed, then this will save UK energy consumers enormous sums of money since they are committed to paying (in 2017 prices) £100 per MWh for 35 years.
2. Instead issue power purchase agreements to onshore wind, offshore wind and solar pv for projects in the £60-£80 range, using 15-20 year contracts by the end of which costs of renewables will have fallen further.
3. Abolish stamp duty for houses which incorporate energy efficiency, solar power and storage technologies which involve buildings which can generate more energy than they consume as studied by Swansea University’s Specific Innovation and Knowledge Centre.
4. Take the disastrously implemented ‘smart energy meter’ rollout out of the hands of the electricity suppliers and put it into the hands of the Distribution Network Operators who are now becoming Distribution System Operators.They should use the smart meters as they should be used to ensure that implementation of ‘time of use’ charging for electricity to match variable renewables with the demand for energy.
5. Abolish price competition in the domestic retail sector and replace it with competition between suppliers to supply energy efficiency (eg selling more efficient fridges, washing machines, incentivising different forms of insulation). This will encourage the suppliers to offer services that can reduce bills rather than playing games with contracts for energy prices. Common prices would be set by OFGEM using tried and tested formula used in the distribution sector.
6. Identify new sites for offshore wind deployment as well as quickly bringing forward the issue of power purchase agreements to existing projects with planning consent. The Government should take note of how, for instead in Denmark, the uncertainties and thus the costs of offshore wind have been reduced by the Government taking on the task of researching and consulting on specific sites rather than leaving this to the developers. This only adds to costs which may be part of the reason why UK offshore wind costs are higher than costs in the case of Denmark, The Netherlands and Germany.
Dr David Toke is Reader in Energy Politics in the Department of Politics and International Relations in the University of Aberdeen
This article was originally published on Dave Toke’s Green Energy Blog