Nobody seems to have noticed, in amongst all the hoopla about shale gas and whatnot, that the UK government has just announced the proposed ‘strike prices’ to be paid for electricity generated by large-scale renewables from next year until 2019.
These numbers are especially important because one of the most thorny aspects of the energy debate is around how much the different options might cost. The fallback argument for anti-nuclear campaigners, for instance, is that nuclear power is far, far too expensive to deliver the low-carbon power we need on any kind of realistic scale. And certainly the dramatic cost overruns seen at Flamanville and Olkiluoto do give serious cause for concern about the potential cost escalations of new nuclear, in Europe at least.
However, many have made similar claims against solar power on the basis of cost – George Monbiot and others have critiqued the feed-in-tariffs currently paid on solar PV on the basis that the money could be better spent elsewhere. I hope yesterday’s numbers can bring some useful balance into the debate, because they represent the electricity prices the UK government is actually prepared to guarantee in order to incentivise renewables investment, rather than being yet another set of self-justificatory estimates from someone with an ideological or financial axe to grind.
Without further ado, here they are (from Investing in Britain’s Future, p.30):
Just to be clear what we’re talking about, ‘strike prices’ are guaranteed prices for 15 years for each renewable technology. Under the proposed Contracts for Difference system currently passing through Parliament as part of the Energy Bill, if the wholesale price of electricity is higher than the strike price in future, the generator will pay the difference back to the taxpayer; if it is lower they receive a subsidy to top it up. Either way this fixes the price for a decade and a half, allowing investments to be made on the basis of a known revenue stream for wind, solar, biomass or whatever. It’s pretty much the same as a feed-in-tariff in reality.
Here’s the important point about the new figures: nuclear is likely to be highly competitive with all the renewables, and may still be the cheapest option. Current negotiations around the ‘strike price’ to be paid for nuclear-generated electricity from Hinkley Point C are understood to be converging on a price in the £90-100 range – my guess is that the final deal will see the UK Government paying just under £95 per megawatt-hour for nuclear electricity under the new system (I’d put money on this – but not much!). This means that nuclear will cost about the same as onshore wind, and may even be slightly cheaper, as onshore wind has a strike price of £100 until 2017, after which it falls to £95.
We should know within a little as a month or two what the strike price will actually be for the nuclear electricity proposed to be generated at Hinkley C. EDF has already spent £1 billion preparing the site and conducting other preparatory work: I now think it is highly unlikely the whole thing will fall through, as yesterday’s announcement on loan guarantees for new nuclear development also suggests. (Important aside: The strike price for nuclear will be for a decade or more longer than the 15 years for renewables, reflecting the 60-plus lifetime of the proposed reactors as opposed to the 25 or so years average lifetimes of wind turbines and solar panels.)
Yesterday’s news also makes it very likely that nuclear will be cheaper than solar PV in the UK at least until the end of this decade. Nuclear also has higher value to the grid as carbon-free baseload power, as compared to intermittent renewables – yes, I know this is another huge debate, but no one can deny that solar will make a minimal contribution during the cold winter evenings when the UK sees its electricity demand typically reach an annual peak. However, the price difference is not huge: nuclear advocates cannot claim that solar is triple or quadruple the price of nuclear on the basis of these UK numbers; it is only about 30% more expensive, and is getting cheaper all the time. By 2019 it will by only 15% more costly, and after that – who knows?
Both onshore wind and solar PV are limited in terms of scale: you can appreciate how much from these one-page backgrounders produced for the DECC 2050 calculator (here’s the onshore wind one, and here’s the solar one). This means that the only very large-scale challenger to nuclear is offshore wind, which can conceivably be deployed at the scale of hundreds of gigawatts in the very conducive environment of the UK’s continental shelf. Offshore wind is considerably more expensive than nuclear, however, at around £150 per megawatt-hour. On this basis new nuclear cannot be ruled out in terms of the UK’s low-carbon energy supply on the basis of cost – and this I think is an important piece of context that is largely missing from the current debate.
Note also that subsidies for wave and tidal are very high indeed – at least three times the cost of onshore wind and nuclear. This reflects the slow development of these sectors, and their obvious need for heavy state funding support for the forseeable future. The pot of money isn’t limitless though: under the ‘Levy Control Framework’ it is capped at between £3.3 billion in 2014/15 rising to £7.6 billion in 2020/21.
Pretty much all these billions of pounds of state support will be for renewables: new nuclear isn’t expected to start generating until 2020 at the absolute earliest. So the good news for renewables enthusiasts is that the UK will see major investments in new wind, solar and other renewable capacity over the next decade, before any new nuclear comes online.
That is something I think we can all celebrate. The UK faces a major low-carbon energy supply crunch, as does the rest of the world, and renewables have an absolutely crucial part to play. Let’s get building.