October 15, 2010
U.K.

Analysis: Windy UK energy policy costly, risky

By Daniel Fineren, Reuters, www.reuters.com 14 October 2010

Britain’s plan to plant thousands of wind turbines at sea may cost cash-strapped consumers dear, reinforce the UK’s risky reliance on gas and hinder deep cuts in carbon emissions.

Shamed by its failure to build many relatively competitive onshore wind farms, Britain is poised to pour tens of billions of pounds into the North Sea in a bid to reduce emissions of climate-warming carbon.

But offshore wind is one of the most expensive ways to make electricity, even if the multi-billion pound additional cost of building backup gas plants for calm days is ignored.

The strategy may only prolong Britain’s unhealthy reliance on gas when there is little wind, ensuring the power sector continues to emit carbon unless still unproven carbon capture and storage (CCS) technology can trap it.

“Over commitment to subsidized wind power runs a high risk of cementing gas dependency at those times when our need for electricity is greatest, thus increasing the UK’s exposure to gas rather than alleviating it,” John Constable, policy director at the Renewable Energy Foundation, said.

Keen to make up for Britain’s poor renewable energy performance to date, largely because of public opposition to onshore wind, the government is offering big incentives to install turbines ever further out at sea at increasing cost.

The government expects offshore wind to make up most of the renewable electricity capacity needed to reach Britain’s legally-binding target of getting 15 percent of its energy from renewables by 2020 and some 33 GW of offshore licenses have been offered to prospective developers.

Building that many turbines would cost about 99 billion pounds ($158.6 billion), at the UK Energy Research Centre’s (UKERC) current estimated capital costs of about 3 billion pounds/GW, for about 15 GW of effective capacity. Grid work is expected to cost another 15 billion.

Even at an inflated cost to match Finland’s infamously over-budget nuclear project – the Olkiluoto EPR – Britain could build 24-27 GW of effective EPR capacity for the same money.

Such a large nuclear contribution could make coal plants redundant and mean less reliance on gas-fired plants which will need ever more imported fuel as Britain’s own gas output declines and need CCS fitted if Britain is to meet its 2050 emissions cut goal.

“All the evidence says nuclear is the cheapest form of low carbon power generation,” David Kennedy, chief executive of the UK’s Climate Change Committee (CCC), told the Reuters Global Climate and Alternative Summit in London on October 11.

“If you are concerned about economics, then nuclear has a very important role to play,” he said, adding that nuclear plants could play an important part in Britain’s low carbon future but that it was hard to see many built before 2020.

SOARING COSTS

Britain’s windy power plan was envisaged at a time when offshore costs were expected to fall as technology develops, with huge customer-funded subsidies encouraging developers as long as the technology remains uncompetitive.

“Offshore wind is currently not competitive with conventional thermal or nuclear baseload generation,” the International Energy Agency said in its latest cost analysis.

But costs have soared since because of a lack of competition between turbine makers, shortages, and a weak pound that makes the mainly imported equipment even more expensive for Britain.

“Costs in the last five years or so have been heading in the wrong direction – going up when they were expected to go down,” Robert Gross, head of policy at the UKERC said.

A report for the UK government by engineering consultancy Mott Macdonald also concluded offshore wind farms are likely to cost nearly double nuclear.

Faced with escalating electricity costs which could threaten the competitiveness of British industry, Britain’s leading business group the CBI has repeatedly called for less wind, more nuclear and more clean coal plants.

COMPETITION FOR CAPITAL

The tens of billions in investments utilities must make over the next decade to meet EU renewable energy targets puts a huge capital burden on the sector which is also under pressure from politicians to keep customer bills down.

Most big European utilities expected to build most of the wind farms see nuclear as an important part of a diverse energy mix but they are still likely to spend most of their capital on wind farms as long as the government guarantees big subsidies, some analysts say.

“If you want to move to a low carbon economy nuclear does look like the best value way of doing it… But the heavier competition for capital resources within the utilities I think is an enduring theme,” Stephen Vaughan, joint global head of utilities at UK-based investment bank Rothschild told the World Nuclear Association conference in London in September.

“We now have capital rationing and nukes don’t score well when it comes to comparison with some of these other technologies. Some of them have very short lead times, some of them are lower risk and some of them have got very bulked up returns by subsidy.”

URL to article:  https://www.wind-watch.org/news/2010/10/15/analysis-windy-uk-energy-policy-costly-risky/