ECIU’s Richard Black spells out why this week’s Aurora Energy Research report into the hidden cost of renewables is the most important energy story this year On Tuesday, after reading Aurora Energy Research’s report on the costs of adding solar power to the grid, I tweeted that I’d just read the most important energy story of the day. After a bit more thought, I’m upgrading. I’ll name it as a contender for the most important UK energy story of the year. The then Energy and Climate Change Secretary Amber Rudd’s department briefed the Mail on Sunday last August that she’d commissioned a study from the consultancy Frontier Economics that would tot up these hidden costs, with a DECC source adding ominously: ‘Many in the energy industry have suspected that previous governments have been “economical with the truth”’ about the economics of a low-carbon transition.’ Then, when Ms Rudd delivered her long-awaited ‘reset speech’ in November, she announced that renewable generators would be held ‘responsible for the pressures they add to the system when the wind does not blow or the sun does not shine’. More than a year on, that Frontier Economics report has yet to be published. Insiders in the Department of Business, Energy and Industrial Strategy (BEIS), which inherited DECC’s responsibilities, say it’s tucked away in a drawer somewhere while civil servants decide what to do with it. Into that vacuum steps this week’s Aurora report. And its conclusions are fascinating. Aurora concludes that currently, solar power’s ‘hidden costs’ in the UK amount to £1.30 per megawatt hour (MWh). That hikes the total cost of solar by less than 2 per cent. As a technology devoid of fuel costs, the more solar generation you add, the further the wholesale electricity price falls. But there’s a limit, because after a while, you’re adding something virtually free to something that’s already very cheap; so the additional costs rise faster than the additional benefits. Aurora concluded that having 40GW solar capacity on the grid by 2030 would, net, carry a higher additional cost than currently – £6.80/MWh. Even at this pretty high (but doable) level of solar capacity, we’re below the estimate of the Committee on Climate Change, the government’s statutory adviser, which recently put the ‘hidden cost’ of renewables at about £10 per MWh. But now we get to the really interesting bit. Aurora next modelled the ‘hidden costs’ if you also have 8GW of battery storage on the grid by 2030 – again, a realistic estimate – in addition to the 40GW of solar capacity. Now, the ‘hidden costs’ disappear, becoming a ‘hidden benefit’ – saving £3.70 per MWh. But the key takeaway from the Aurora report is this: you have to do the economics by looking at the system, not at individual technologies. The smart, low-carbon flexible grid, as advocated by the National Infrastructure Commission and EnergyUK just this year, is a system – not a bunch of random technologies. I don’t particularly care how much the indicator lights or the hubcaps or the aerial on my new car cost – but I do care about the price of the whole thing.
Business Green 7th Oct 2016 read more »