British Efforts for Renewable Energy Proving Too Costly
May 12, 2009
The recently introduced British government budget proposed incentives designed to bolster investment in huge offshore wind farms and ensure that the country hits its target for raising the share of electricity produced from renewable sources to 35% to 40% by 2020.
The big question is will these incentives work in today's low oil and gas environment? According to a new study by the UK Energy Research Center (ERC), none of the scenarios for how Britain can slash its carbon emissions by 80% by 2050 finds renewable fuel uptakes fast enough to meet the 2020 targets.
Britain, like many other industrialized countries, faces the challenge of both renewing its older electricity plants and meeting future power demand while at the same time trying to reduce carbon emissions.
About 40% of the UK's power stations were built before 1975 and are desperately in need of replacement. But the combined impact of the credit crunch, falling oil and coal prices and the weaker British currency are threatening to hold up wind projects just at the point when the government has raised its commitment to green electricity.
Adam Bruce, chairman of the British Wind Energy Association, is convinced that a European super grid that could eventually eliminate fossil fuel powered electricity plants, is only a matter of time. He said, "We are only limited by our own ambition. The capacity is there. There is the potential for wind alone to supply 50% or more of our energy needs." This dream of renewable energy captures the imagination, but for Britain, which generates just 1% of its electricity from renewable sources at the present time -- the least amount among European Union nations after Malta and Luxembourg -- the gap between ambition and reality seems particularly wide.
The problem is that wind power, arguably the most economically attractive form of renewable energy in the UK, remains hugely expensive when compared with natural gas and coal. A recently approved natural gas-fired power plant in Pembroke, England is estimated to cost £1 billion ($1.5 billion) and will be the largest in the UK, producing 2,000 megawatts. Estimates are that it would cost six times as much to build a wind farm of similar capacity.
Jim Skea, research director for the ERC, said, "Renewables can make a significant contribution, but if you look at the scale of what is required, I think that is very, very challenging and 2020 is almost tomorrow when you look at what needs to be achieved."
Mr. Skea believes that Britain urgently needs to set a much higher carbon price to push the pace of adoption of low carbon technologies and to boost investment in energy research. Energy research, surprisingly, has collapsed in recent years, having fallen from roughly £700 million ($1.06 billion) a year in the 1970s and 1980s to just £100 million ($151 million) in recent times.
The ERC is recommending that the carbon price be raised to £200 ($302) per ton from the current £13 ($19.60) charged now. Mr. Skea said this increase would equate to an increase in the price of gasoline to about £5 per liter, or $28.40 per gallon based on 3.875 liters per gallon if levied in the United States. Mr. Skea stated with regards to the ERC's research of the issue, "In almost every scenario we looked at, oil is driven out of the system. It would be cheaper for people to shift to biofuels or electric vehicles."
The goal of cutting emissions by 80% was achievable according to the ERC, but only with big changes in funding and in people's lifestyles, including a shift toward teleworking and phasing out of gasoline-powered vehicles. The ERC claims that the cost of meeting these goals would be £17 billion ($25.6 billion) a year, or £670 ($1,010) for every one of the 25 million UK households, which would be achieved through higher utility bills, extra transportation costs and higher prices for goods and services. As Mr. Skea put it, "Meeting them [the carbon emission targets] will require efforts well beyond the bounds of historical experience." At the present time, the UK spends about £100 billion ($151 billion) a year on energy, including domestic power, transportation and industrial use.
The challenge for Britain is to figure out how to increase its green electricity in order to meet its ambitious carbon emissions target while not bankrupting the citizens. There is a strong notion that Britain has the engineering capability to build 30 gigawatts of wind power within the 2020 deadline. The more relevant question, however, may be the seldom-asked one of whether the public wants the British power industry to undertake this challenge when the costs are fully understood.
At the present time, British power companies selling electricity generated from nuclear, coal or natural gas bid their capacity into the grid, but they must now buy a certain amount of wind power -- the renewable option. Such a massive increase in wind power is creating headaches for National Grid (NG-LSE) as it seeks to ensure that all the offshore wind turbines have equal access to the system as the power stations sitting close to the economic centers in southeastern England. Because wind is an intermittent supply source, the investment in expanding the grid is hugely inefficient. Wind turbines with roughly 20% operating efficiency will still require power backup from coal and gas power plants.
A proposed solution for this problem is to develop a clever system that can prioritize wind. When it blows hard, the proposed 30 GW of wind-generated power would become the base load for the system. Every electron produced by wind turbines would be used with nuclear, coal, and oil picking up the slack.
This would be the best use of the resource and it would cut out the maximum amount of carbon emissions, but it would turn the power market on its head. Instead of a system that rewards the most efficient and cheapest source of power, we would have a command to buy the most expensive and unreliable. By government fiat, the electricity that powered your home appliances would be the most dear energy feedstocks while the cheapest would be held off the market.
As the authors of these various studies and proposals for using more expensive electricity sources admit, the systems can be made to work and work efficiently. However, Britain would not just be building wind turbines, it would be shifting away from a market economy for electric power and to a planned economy. Once any country goes down that path it is virtually impossible to reverse course.
Source: Parks, Paton, Hoepfl & Brown Energy Investment Banking, L.P.
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