ONE of the great lines of the proponents of renewable power is that the input energy (mostly wind and solar) is free, therefore producing renewable energy is less expensive that from fossil fuels. Even though wind isn’t always available and therefore needs some back-up power – usually gas fired – the more wind generation there is the less gas will be needed and therefore the cheaper energy will be.
There’s just one problem: that’s not what the evidence shows. The reality is that there is a close correlation between the amount of wind generation and the increasing price of electricity. More renewables makes electricity more expensive.
I’ll prove it. The graph below comes from government data (the BEIS DUKES data set and the Asset publishing service).
The grey line is the gas price for a large user (in p/kWh). Over the 14 years of the chart it’s pretty much the same.
The green line is the proportion of electricity from renewables (excluding nuclear). The great rush for renewables has certainly delivered an impressive amount of capacity.
The purple line is the ratio of the non-domestic electricity price to the gas price. (I’ve used the non-domestic price to avoid price caps distorting the truth). This tells us that up to 2013 a kWh of electricity was about four times the cost of a kWh of gas. That’s not surprising, it takes about 2.5 kWh of gas to make one kWh of electricity and of course there are the operating and capital costs of the power plant to consider, plus the transmission costs.
Yet since 2013 the proportion of renewable electricity has trebled, but electricity is now seven times as expensive as gas. Greta’s gang will scream ‘Correlation is not causation!’ Fair enough; what could have caused this, then?
It can’t be the gas price, because that was pretty much constant.
The gas power stations are still there, so they still have costs. But now they are used 30 per cent less. If they were running 8,000 hours a year in 2004 they’re running 5,600 hours a year now. While this reduces the amount of (then) cheap gas that they need, it doesn’t alter the fixed costs, which now have fewer hours to be recovered so the fixed cost per hour increases. Who pays? You do.
That’s not all. There are the subsidies hidden in the Climate Change Levy. The subsidy regime for electricity generation is almost impenetrably complex. (The theory behind them was to encourage investors to take the risks of new technologies by guaranteeing that they would make a profit. Wind and solar are hardly new any more – but that’s an argument for another day). Fortunately the subsidy regime has been unpicked by the Renewable Energy Foundation who have produced the chart below. The subsidy rate for electricity is increasing, even though the technology is mature. The risks have decreased but the rewards remain. Who pays? You do.
It gets worse. There is a dynamic market for electricity which ensures that when you flick a switch the power flows. This market is competitive, the electricity companies buy from the lowest priced supplier. If there is a shortfall, as there increasingly is if the wind doesn’t blow (or the sun doesn’t shine) as anticipated, the gas generators can charge huge amounts. Price spikes of over £1,000 per MWh (i.e. over £1 per kWh) are not unknown. These may last for only half an hour, but they add up and drive the average price of electricity up further. Guess who pays?
Unbelievably, it’s worse than that. Some renewable energy is provided via a Contract for Difference (CfD). This sets a ‘strike price’ which is constant for duration of the contract. If the market price falls below the strike price the government pays the difference, if the market price goes above the strike price the wind farm pays the government. In a perfect world over a year the strike price would come out at the average market price. But, as I have shown above, the more renewables there are the higher the average price of electricity will be. Like Pangloss, renewables enthusiasts have cause and effect back to front; the average market price has risen to the cost of renewables because of the pricing mechanisms.
I’m sorry, but it gets worse again. Energy is at the heart of everything that we consume and do. No energy, no civilisation. This means that the cost of energy is a factor in every transaction; just as there’s embedded CO2 in everything. So if the price of energy rises so does the price of everything; it’s called inflation and it’s already a problem. Who pays? You do.
There’s more. Many of the subsidies being paid are index-linked to inflation. So if inflation goes up the subsidies go up, driving the price of electricity up and causing more inflation. It’s called an inflationary spiral. You know who pays, don’t you?
Finally (for now) there is the question of who owns the wind farms and solar parks that receive the subsidies that are contributing to the inflation spiral that’s making you poor. While some accrues somewhere in the UK, and therefore should trickle down, quite a few of our wind farms are owned outside the UK. (The ownership is as opaque as the subsidy structure). So that money is not being reinvested in the UK and can’t contribute to growth. Quite possibly it may be paying no tax either.
All of this is a disgrace. I’d like to pretend that this was a Pulitzer prize-worthy piece of investigative journalism, but it isn’t. I just looked at some publicly available data and did the (trivial) maths. Given the number of business and energy journalists, and the vast number of civil servants (whom we pay) involved in the whole drive for net zero, how is it that not a single one of them has noticed this, brought it to a minister’s attention or even told us, the poor saps that are paying for it?
This deranged and deluded system needs to be put on hold. No new renewable subsidy agreements should be entered into and the Prime Minister and his minions (we pay for them too) must explain how they propose to deliver the energy that the country needs at a price it can afford.