Keeping energy costs down

Consumer prices for gas and electricity have to cover various fixed costs – the distribution network, maintenance, metering, administration etc – but are determined primarily by market prices for fuel. With oil, coal and gas prices being relatively low, Europeans should normally be looking forward to a period of stable or even falling utility bills.

However, climate change policy has changed this situation. By requiring suppliers to generate increasing proportions of electricity from renewables – wind in particular – and by effectively taxing the use of fossil fuels, prices are being pushed up inexorably. The extent of this is made crystal clear in a new report for the Scientific Alliance by Capell Aris and Colin Gibson, both with enormous amount of experience in the electricity generation and supply industry.

This report takes a critical look at the latest National Grid Future Energy Scenarios, these being: Gone Green, Slow Progression, No Progression and Consumer Power. Briefly, these are:

  • Gone Green – a world where there is a focus on long term environmental goals, greenhouse gas targets have been reduced significantly and we are on course to meet the 2050 emissions targets.
  • Slow Progression – Some progress towards decarbonisation but restricted by economic conditions.
  • No Progression – Business as usual, with affordability trumping green ambition
  • Consumer Power – A prosperous, market-driven world in which consumer wishes overshadow emissions reductions.

This is a wide spread of possibilities. We can easily understand that the Gone Green scenario is unlikely to be a cheap option, but the report finds, surprisingly, that even No Progression is not the least cost option we might think.

An examination of the National Grid’s Future Energy Scenarios – Cost of Supply is a follow-up to a recent paper looking at the security of supply. In a recent newsletter, I discussed the supply problems associated with an undue reliance on wind and solar generation (Renewables cannot guarantee security of supply) and referred to the first report’s conclusion that at least six new gas-fired power stations would be needed to avoid the unacceptably high risk of loss of supply inherent in the scenarios presented.

The consequences of power failure would be much more serious for modern societies than for those half a century ago. As well as losing light and heat and television, most businesses would be unable to operate, banking and other commercial transactions would stop and travel would be at best very severely disrupted as the electronic systems we rely on shut down. Re-connecting areas of the country would also be more difficult as the complexities of grid balancing are made worse by the variable output of wind farms. As well as the inconvenience, economic losses would quickly escalate.

The problem is nicely illustrated by a snapshot of UK supply and demand at 8:15 this morning. More than half of the total demand of 38GW (well below winter evening peaks) was supplied by gas-fired stations, with wind producing less than 3GW (7.5%) and the output from solar being essentially zero.

Currently, western European weather is dominated by a high pressure area over Scandinavia, blocking the normal Atlantic weather pattern. At the boundaries of the high- and low-pressure systems, it is quite breezy, but elsewhere it is quite calm. Such patterns can, not infrequently, produce calm, cold conditions during winter, with wind farm output often being even lower. This is the sort of situation where there must be alternative sources of supply.

Two alternative scenarios are considered by Aris and Gibson: Gone Nuclear and Gone Gas. In both cases, no new renewable generating capacity is built, but existing capacity is used until the end of its operational life. Both scenarios see a rapid increase in installation of efficient combined-cycle gas turbines, in the case of Gone Nuclear to be gradually replaced by nuclear as new stations are commissioned. The installed capacity grows to 122GW compared to the 186GW envisaged for the Gone Green scenario.

The consequences are that the gas generation capacity can be used much more efficiently and hence at lower cost than in the NG scenarios, where it is used as backup and lies idle for significant periods. The net result, inevitably, is lower costs. The total system costs, including transmission, reserve provision etc over the operating lifetime of the plant are the best comparative measure for the various scenarios. By 2035, both Gone Gas and Gone Nuclear give a figure of about £100 per MWh, with even No Progression being some 30% higher. The three other scenarios, which make substantial progress towards emissions reduction targets, are considerably higher still, with Gone Green costing about £170 per MWh.

This, of course, covers only the electricity component of the energy supply. At present, the only realistic way of making big cuts to emissions from the heating and transport sectors would be convert these also to electricity, vastly increasing the size, complexity and cost of the generating fleet.

Starting a further ‘dash for gas’ would be anathema to many, since it puts further significant emissions reductions on hold. But the reality is that we would be better to do this and use the money saved to develop low-emissions generating and energy storage technologies that are really up to the task of Going Green. In the long run, decarbonisation could be carried out more effectively and at lower cost. Decision makers should read these two reports carefully and take heed of the messages.

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