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Unreliable: Wind farms in the North Sea — a lot of money for a poor return 

In private, the best-informed analysts now agree that Britain's environmental policies have put the country on track to have the world's most expensive electricity. This is mainly because our competitors are almost certain to choose cheaper routes to emissions reductions, such as natural gas, or to shun emissions reductions altogether. The Coalition's own Annual Energy Statement for 2010 concedes that by the year 2020, nearly one third of the average domestic electricity bill will consist of green energy charges imposed by law (£160 out of £512, or 31 per cent). Business will be hit even harder, with environmental charges for the average medium-sized non-domestic user accounting for £404,000 out of £1.224 million, or 33 per cent.

If other economies are more cautious in loading burdens upon their wealth creators, Britain will be a less attractive place in which to deploy capital, with obvious implications: high green charges on domestic bills might be merely questionable when household income is both stable and generous, but they would surely be indefensible in the context of lower wages and unemployment.

Government takes comfort from estimates that energy-saving policies, for example to encourage the use of better fridges, will reduce annual domestic electricity bills by £187 in 2020, and by £128,000 for non-domestic consumers. Such savings are desirable, but they are also extremely uncertain, even improbable. And if, as seems likely, these savings do not materialise, then consumers will be looking at very testing bills made still more trying by environmental policies. They may not like what they see.

Public awareness of these concerns has been inhibited since the costs of environmental legislation tend to be moderate in the short run, with the pain of the full impact only likely to be felt in years beyond the political horizon. However, it is clear that the impact of subsidies is already economically significant even if it is not yet psychologically salient. Britain is obtaining only a fraction of its electricity from renewable sources, just under 7 per cent in 2009-2010. The wholesale price of that quantity of electricity would be approximately £1bn, but the Renewables Obligation, a complex subsidy paid to generators but drawn indirectly from bills, adds a further £1.4bn, more than doubling the cost to the British consumer.

In its first three months, from July to September 2010, the Feed-in Tariff for microgeneration (guaranteed prices to support, among other things, solar photovoltaics [PV] and wind turbines up to a capacity of five megawatt) has produced roughly 0.005 per cent of UK annual demand, at a cost of £2.6m. This generous support has encouraged the construction of an installed capacity of microgenerators totalling 59 MW. To put that in perspective, peak load in Britain on a cold winter's afternoon is nearly 59,000 MW.

The implication is that should renewables contribute a large share of national needs in 2020, then environmental costs will become politically visible. If some 30 per cent of UK electricity were renewable in 2020, this would require an ongoing annual subsidy of upwards of £6bn (assuming an average subsidy of 5p per unit).

Furthermore, the subsidy is not the end of the additional costs implied by the policies. The character of most renewables increases overall system operating costs. Wind power, for example, requires sufficient flexible conventional generation to meet demand at times when the wind fleet is all but becalmed, and major grid expansion. Such costs are inherently difficult to estimate, but they are very unlikely to be trivial.

The question is whether these generous levels of tax and spend — and the Renewables Obligation is classed as such by the Treasury and the Office of National Statistics — will produce any compensating benefit. The government's own Impact Assessments are not encouraging. The lifetime cost of the Feed-in Tariff scheme is £8.6bn, while its benefits, including climate change benefits, amount to only £420m (technically, the Net Present Value is negative £8.2bn). Government's figures for the revised Renewables Obligation needed to meet the 2020 targets shows that costs exceed benefits by £33bn. The emissions savings fail the government's own cost-effectiveness tests.

Although such policies should never have been allowed to proceed, they duly became law under Labour and the Coalition has yet to grapple with this toxic inheritance. Indeed, it would seem that the current government has persuaded itself that the transition to a low-carbon economy will redeem the situation.

In a speech to the Confederation of British Industry last October, the Prime Minister David Cameron said of the offshore wind programme: "It's a triple win. It will help secure our energy supplies, protect our planet, and the Carbon Trust says it could create 70,000 jobs." Well-meaning talk of this nature needs to be tempered with cool reason. While the gross effect of public expenditure on renewables may well be positive, the net effect is likely to be negative as the costs of creating jobs in the green sector reduce activity in other areas. An authoritative 2009 study from the Rheinisch-Westfälisches Institute for Economic Research (RWI) in Essen notes: "Initial employment benefits from renewable policies soon turn negative as additional costs are incurred. Trade, and other assumptions...claiming positive employment turn out to be unsupportable." Such wealth destruction is hardly surprising when it is considered that the subsidies per worker in the German solar PV industry exceeded €175,000, far in excess of average wages. The study adds: "It is most likely that whatever jobs are created by renewable energy promotion would vanish as soon as government support is terminated, leaving only Germany's export sector to benefit from the possible continuation of renewables support in other countries such as the US."

Spain's experience is even worse. In a May 2010 document, the country's Ministry for Industry showed that businesses were paying 17 per cent more for electricity than their European competitors, largely as a result of subsidies to renewables, which were €5bn in 2009. It also noted that whereas prices should have fallen due to cheap fuels, they actually rose because of environmental policies.

Moreover, because Spanish energy companies do not recover the full cost of renewable generation from consumers, but accumulate government debt instead, one company alone, Endesa, was owed €8.3bn by the state at the end of September 2010. The total "tariff deficit", as it is called, amounted to around €16.5bn in 2010, and according to the ministry, will increase by a further €2bn in 2011 in spite of efforts to rein in subsidies. Whether Spain has fared any better than Germany in its attempt to create a self-sustaining green or low-carbon economy is also open to doubt. A study by Gabriel Calzada Alvarez of Madrid's Universidad Rey Juan Carlos has estimated that the market distortions needed to create one green job destroyed two jobs in other sectors. Since 2000, each green-sector job has cost €570,000, with wind-industry jobs costing €1m. The details here are debatable, but they are consonant with German experience, and do not bode well for Britain.

Perhaps the most instructive example, and of particular relevance to the Coalition, is the Japanese solar thermal hot water industry. In response to the first oil shock, governmental support created a market that was by the early 1980s installing 2.7m square meters of panels a year. Unfortunately, the resulting companies were weak and the products were either poor or poorly installed, with the result that the industry not only collapsed as the oil price fell but, due to consumer disenchantment, has failed to recover in recent years in spite of higher hydrocarbon prices. Installation rates have flat-lined for the last decade at around 0.25m square metres a year and it is at least arguable that the Japanese solar thermal industry is less vigorous than it would have been had the government never offered a helping hand. The Japanese call this the "solar tragedy".

All told, subsidies and targets are unlikely to be a successful means of driving energy system change, and probably entail government responsibility for the income of a large part of the electricity sector, perhaps in perpetuity, with consequential gross inefficiency and wealth destruction through misallocation of resources.

Despite these dismaying precedents, the Coalition is attempting to drive a green industrial revolution by means of state-guaranteed rates of return for investors in nearly half the electricity sector. The Government's own figures show that this will be expensive, resulting in costs that will seem all the more insupportable if natural gas prices remain low. In addition, current ambitions may have disastrous opportunity costs. To achieve targets, government must commit itself to currently available emerging technologies and thus will forestall or forego as yet unknown inventions and innovations.

No one knows whether there is a green low-carbon economy waiting for us in the more distant future, but we can be confident that the current policies — the EU Renewables Directive, the Renewables Obligation, the Feed-In Tariff and the Green Deal — are most unlikely to deliver such an outcome. Indeed, they are probably counterproductive, since they insulate nascent technologies from competition and thus infantilise them.

But push is coming to shove, and as quotidian pressures make themselves felt, the green subsidies will be slowly reduced, and our short-term electricity needs met by patched-up coal and nuclear stations, and by older gas plants. A new generation of Combined Cycle Gas Turbines is likely, though build rate will not be of satisfactory scale or pace if government fails to restrain the growth of subsidised on- and off-shore wind power, which is damaging the investment case for all unsubsidised technologies.

Concerns over gas availability and price appear to be alleviated by the unexpected growth of global shale gas production, though there are residual anxieties that the UK may become overwhelmingly dependent on one fuel for reliable electricity. As a consequence, there will be pressure for nuclear and for high-efficiency super-critical coal after 2020.

There is a strong argument for steering into this skid, rather than looking away as the Coalition seems inclined to do. Britain could renegotiate a more realistic and equitable commitment under the EU Renewables Directive (one quarter of the EU-wide costs of the scheme fall on us), while the various renewables subsidy mechanisms could be wound down or cancelled retrospectively for those generators whose capital has been recovered. Instead, government could announce a combination of a carbon tax and a realistic set of emissions regulations. The emerging Emissions Performance Standard might be a basis, but will need revision if it is not to discourage any and all conventional generation.

Regulation and judicious tax could be used to specify the character that we wish to obtain of our electricity system, so that the energy sector can quickly find the most cost-effective way of realising that desire insofar as it is practical to do so. However, this would require significant improvements in the transparency of Britain's electricity market, which at present is far from truly liberal. Many of the costs imposed on the consumer are still concealed and there are areas in which relevant information is either difficult to obtain or simply non-existent, inhibiting new market entrants and preventing understanding of problems and system inefficiencies that might be solved by novel technologies. The government's forthcoming Electricity Market Reform could serve as the vehicle for such a radical programme, but it would require all of the PM's charm to overcome the objections of vested interests.

With current errors decisively corrected in this way it is just possible that we might see the beginnings of a self-supporting low-carbon economy that also generated sufficient wealth to fund adaptation to climate change, should that be necessary. By contrast, the present policies can only offer emissions reductions through further deindustrialisation and significant economic contraction, effects that are unlikely to be popular with the electorate whatever the weather.

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Pete H
March 5th, 2011
2:03 PM
Bill S January 23rd, 2011 9:01 PM "The point always made when discussing renewable energy economics seems to be that they don't supply energy at the low costs we've become accustomed to using finite fossil energy." You really need to look at the availability of gas especially with shale gas soon to come online. Prices have fallen through the floor. As someone who has worked in the oilfield for 25 years please show me the falling production levels that do not involve armed conflict etc. France has shown that nuclear is not only safe but cheap, especially with modern reactors! You would also appear to be naive when it comes to the coal stocks under the UK but then again, that does not matter to you as long as people in the UK are forced for no good reason into medieval poverty! Why get used to it when there ARE alternatives?

February 28th, 2011
12:02 AM
WastingtonDC: Net metering schemes automatically limit homeowners, and business alternative power generators, solar, et al, to replacing only the amount of power they paid for in the prior year, at full retail price. So basically, no investment in competitive alternative or renewable electrical generation can earn cash profits, to pay for the system, maintenance, and improvements, beyond simply reducing one's electric bill. Worse, all net metering states apparently allow the monopoly utilities to simply take any excess electricity generated, above one's prior year retail purchases, for nothing in some states, and for 1/5th the retail price, in the rest of them, each year. Even worse, lobbyists are working overtime to insure that all Renewable Fuel Credits for generation of electricity will be owned by the monopoly utility wrongfully taking any power in excess of your prior years use, instead of the independent generator, at no cost to the utility, of course. Forcing monopolist owned grids to purchase, and sell, alternative and renewable electrical energy, at Time Of Use rates, without limiting the amount of power I can generate, and sell to the system, also at Time of Generation Rates, would end production of petroleum powered vehicles within a generation, and cut our OPEC and other terror financier oil suppliers off at the knees. The NAFTA free trade grid would be powered by millions of independent businesses created by ending the electrical energy monopoly that keeps the grid fragile. During Peak Electric Rate hours, farmer’s hybrid tractors would be idling on alternative fuels, CNG et al, pouring power into the grid. At off peak hours, spare battery pods, or hybrid vehicles primary batteries would be charging, to minimize our transport energy costs. Of course, independent distributed generator operators would not send bucketfuls of cash to lobbyists, to restrain American’s trade in electricity. They would just buy surplus generators, and install water wheels, windmills, etc, to compete heavily for the renewable energy subsidies that congress thought it had reserved exclusively for their big money contributors. Eighty million Americans are members of families dependent on truck based vehicles for their living, their lifestyle, and their business profits. Tiny BEV or Plug In only hybrids, like the solar power collection scams, are part and parcel of the regulator's sucker plays that have enslaved electricity consumers to monopolists from Edison, until yesterday. Few working Americans will ever take a loan larger than their home cost, to buy a mini-hybrid that requires them to buy their transportation energy from the same old monopoly utility, and ride inside a flyweight vehicle within arm's reach of a high energy battery system's extremely dangerous chemistry, and a fuel tank filled with fumes, air, and fuel, every time they use the vehicle. On the other hand, every working American family will buy a Plug In and Out Hybrid alternative fuel capable profit center, the hour congress stops the lobbyist's hamstringing competition in power generation, and forces Time of Use Rates, for independent alternative and renewable fuels distributed generators of electricity. Allowed to charge my vehicle batteries from the grid, at off peak electric rates, and to compete for and earn cash profits, and government alternative fuel generation credits for selling electricity to my utility at peak electric use rates, I can afford to invest sums equal to or larger than the combined costs for the $120K BEV or Plug In only Hybrid costs, and the equally silly solar installations designed for installation on my home or business, at higher prices. With the restraint of trade in electricity ended, I can afford to put $200K or more into a million mile capable Detroit truck based Plug In and Out hybrid, and Drive America to Energy Independence. Plug In an Out hybrids can be exempted from all taxes, fees, and title, license and weight fees, by state, local or other jurisdictions, along with their parts, labor, and indeed all expenses of owning and operating an alternative fuel capable hybrid generator, that happens to be usable on the highway, when not charging the grid for profit. I will install Power Exchange Stations on my farm, at my business, and will frequent those businesses providing PES at enough parking spaces to insure my overnight charging to the grid will pay for my truck stop dinner and earn my business some profits besides. We can continue enriching the monopoly utilities so they can avoid transporting wind or other electricity to places where it is needed, or we can start millions of new businesses, recapture Detroit’s wholesale ownership of the world working truck markets, and end American Energy Dependence, in a single generation. Choose wisely, OPEC is not going to stop financing terrorists, and taxing oil consumers world wide.

Bill S
January 23rd, 2011
9:01 PM
The point always made when discussing renewable energy economics seems to be that they don't supply energy at the low costs we've become accustomed to using finite fossil energy. Welcome to the real world of energy, the availability in real time and cost of which was the limiting factor of civilization for eons. Look at the production declines in oil fields globally compared with new discovery and production, and get ready for a very limited civilization for the rest of the eons humanity faces. Intermittent sources are all there are when using natural, real-time energy.

January 13th, 2011
8:01 AM
It seems everything that needs to be said has been in this well written essay and comments. I'd like to mention an excellent resource for studies and news of the "green" energy sector: http://www.masterresource.org/ Kent Hawkins has been particularly energetic in uncovering the downsides of WE. http://www.masterresource.org/?s=Kent+Hawkins

John Moss
January 11th, 2011
1:01 PM
There are too many anomolies in the whole AGW theory, with periods of measured increases in CO2 matching colder temperatures and increased glaciation, and vice verca, for it to hold water. The temperature was, probably 2-3 degrees warmer in the mediaeval warm period and 2-3 degrees colder in the little ice age. Humans adapted, that's why we are still here. We need to tackle polution, use of pesticides and water conservation so we can continue to feed an ageing and growin world population. Cutting "carbon" emmissions is the least of our worries

December 25th, 2010
9:12 AM
Interesting article with one flaw. The apparent assumption by John Constable that 390 PPM of CO2 in the atmosphere is a problem and of that figure only 3% is assigned to human activity. Atmospheric CO2 tracks behind global temperatures, because warming oceans release CO2,but cooling oceans absorb CO2. The Pacific Decadal Oscillation http://en.wikipedia.org/wiki/Pacific_decadal_oscillation is entering a cooling phase and the Atlantic Multidecadal Oscillation http://en.wikipedia.org/wiki/Atlantic_multidecadal_oscillation will soon follow. CO2, whatever Obama thinks, is most certainly NOT a pollutant. Plantlife benefits from elevated levels of CO2. CAGW is a lost cause and the worldwide political implications of trying to impose taxes will promote civil unrest and fell governments. I suspect the author is aware of that outcome.

December 24th, 2010
11:12 AM
And, of course, it's not as if it's all that important to stop CO2 "pollution" or 'greenhouse gas emissions". One thing is certain, there are billions to be made from junk science and prophets of doom. We non-Brits may just start a fund to supply blankets. Not the electric-kind but "green" ones made out of renewable straw.

December 24th, 2010
9:12 AM
I really fear for the UK. I can only see a very bleak future in the coming few years. I am really pleased to live somewhere electricity generation is 85% nuclear. It is utterly futile to think that mankind can affect climate to any worthwhile extent. The numbers are very simple and are backed up by acceptance from a renowned UK government advisor, the US Department of Energy and many other reputable scientific minds. Why cant we get to the nub of the problem ? with NUMBERS NOT ADJECTIVES and there is a good chance that the numbers below are in the right ballpark. On average world temperature is ~+15 deg C. This is sustained by the atmospheric Greenhouse Effect ~33 deg C. Without the Greenhouse Effect the planet would be un-inhabitable at ~-18 deg C. Running the rough and ready numbers by translating the agents causing the Greenhouse Effect into degrees centigrade: • Water Vapour accounts for as much as 95% of the Greenhouse Effect = ~ 31.35 deg C • Other Greenhouse Gases (GHGs) account for 5% = ~1.65 deg C • CO2 is 75% of the remaining effect when accounting for the enhanced effects of Methane, Nitrous Oxide and other GHGs = ~1.24 deg C • Most CO2 in the atmosphere is natural, more than ~93% • Man-made CO2 is less than 7% of total atmospheric CO2 = ~0.087 deg C for the carbon economies of the whole world • UK’s contribution to World CO2 emissions is ~1.8% = 1.6 thousandths deg C Maximum efforts in the UK can only achieve an insignificant and immeasurable part of that. http://www.youtube.com/watch?v=Wy0_SNSM8kg And whatever is said, outside Europe the rest of the world is not joining in. The non-joiners already amount to 62% of the world CO2 emissions and 48% of the world population. But the UK is the only Government that has enshrined action on CO2 into legislation. (http://www.energytribune.com//articles.cfm/5961/The-Utter-Futility-of-Re...) The probability is that any current global warming is not man-made and in any case such warming could be not be influenced by any remedial action taken by mankind however drastic. So if the numbers above are even close to the right ballpark, the prospect should be greeted with Unmitigated Joy: • all concern over CO2 as a man-made pollutant can be discounted. • it is not necessary to damage the world’s economy to no purpose. • if warming were happening, it would lead to a more benign and healthy climate for all mankind. • any extra CO2 is already increasing the fertility and reducing water needs of all plant life and thus enhancing world food production. • a warmer climate, within natural variation, as has occurred over the last century, would provide a future of greater prosperity for human development and much more food for the growing world population. This has been well proven in the Roman and Medieval pasts and would now especially benefit the third world. This is not to say that the world should not be seeking more efficient ways of generating its energy, conserving its energy use and stopping damaging its environments. It remains absolutely clear that our planet is vastly damaged by many human activities such as: • environmental pollution. • over fishing. • forest clearance. • farming for bio-fuels. • and all other habitat destruction. And there is a real need to wean the world off the continued use of fossil fuels simply on the grounds of: • security of supply • increasing scarcity • rising costs • their use as the feedstock for industry rather than simply burning them. The French long-term energy strategy with its massive commitment to nuclear power is impressive, (85% of electricity generation). Even if one is concerned about CO2, Nuclear Energy pays off, French electricity prices and CO2 emissions / head are the lowest in the developed world. However in the light of the state of the current solar cycle, it seems that there is a real prospect of damaging cooling occurring in the near future for several decades as anticipated by Piers Corbyn and many others. And as UK power stations face closure according to Green Euro policies, the lights may well go out in the winter 2015 if not sooner. This is all because CO2 based Catastrophic Man-made Global Warming has become a state sponsored religion. And now after “Splattergate” thanks to the 10:10 organisation everyone worldwide now knows exactly how they think. http://www.youtube.com/watch?v=5-Mw5_EBk0g Splattergate was classic NOBLE CAUSE CORRUPTION. It is probably the most egregious piece of publicity ever produced in the Man-made Global Warming cause. So any misrepresentation is valid in the Cause and any opposition however cogent or well qualified is routinely denigrated, publically ridiculed and as we now see literally terminated. And so to carry on: If the capital cost of Nuclear power is ~£1.4 billion / gigawatt (according to Prof David MacKay) and the newly commissioned array off Thanet cost £0.78 billion and is rated at 0.300 gigawatt but even using a generous load factor of 35% is only capable of producing on average 0.105 gigawatt , it appears that in capital cost terms alone offshore wind costs ~£7.5 billion / gigawatt or more than 5 times the cost of the equivalent nuclear production. This of course ignores all the additional costs of the essential parallel backup generating capacity as well as the costs of continuing feed-in tariffs, estimated at about a further £1.2 billion over the 20 year life of the project. Paying just for starters more than 5 times as much for an unreliable energy source must make utter economic nonsense. Supporting renewable energy, especially wind farms, is something that this cash strapped government should re-examine very carefully. And just to add to the nonsense, Carbon Capture and Storage can only increase electricity costs and deprive the planet of a source of increased plant fertility. It is one of many suggestions, which might reduce CO2 emissions. All are expensive and all are pretty well pointless. So major government savings and greatly increased national prosperity could be achieved by terminating all CO2 related Government green activities and repealing the Climate Change Bill. Otherwise the UK is “standing into grave danger”. Future Energy Security (destroyed by both the last Government and sadly continued by the current Coalition) is the foremost responsibility of a government to its citizens, probably more important than even than its Military Security.

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