How to manage intermittency is one of the challenges of weather-dependent low-carbon electricity. It is not simply about paying for back-up for when nature refuses to play ball. Sometimes blazing sun and gusting winds can cause the opposite problem: too much electricity. Then plants must be paid to shut or turn output down to stop them overloading the network. However, there is one melancholy constant in all this balancing and back-up activity: it generates additional so-called system costs. A recent report by the UK’s business and energy department, Beis, shows how, when these are factored in, they can change the relative economics of different low-carbon energy sources. Much of the recent story has been about the plunging cost of renewables. For instance, in 2013 the UK government estimated that an offshore wind farm opening in 2025 would generate electricity for £140 per megawatt hour (MWh). It now forecasts that could be achieved for just £54/MWh. The report sees this trend continuing. By 2035, it estimates an offshore wind farm might on average produce power for as little as £41/MWh; and large-scale solar just £33. However, these figures exclude those system costs, mainly because the solar or wind developer does not have to meet them. At present, these are simply spread across the network as a whole. When you add them in, as the Beis report does, attributing them to the generating source that caused them, the picture changes. Take the 2035 figure of £41/MWh for offshore wind. With estimated system costs on top, Beis believes the all-in price is closer to £59 to £79 (43-92 per cent higher). For solar, £33/MWh becomes £45-£61. In each case, the range depends on how widespread the use of these renewables is, although does not set out the precise assumptions it is using.
FT 7th Sept 2020 read more »