Renewable Energy Foundation

The think-tank Civitas has today published a short paper, "Are Green Times Just Around the Corner?", by REF's director, John Constable.

The paper asks whether a low carbon economy can sustain contemporary standards of living, and argues that it can only do so if the costs of renewables fall to make them competitive with current fossil fuels. The paper further suggests that subsidies to renewables are actually counterproductive, and discourage invention and innovation.

Various estimates of the costs of current renewables subsidies are offered, with the suggestion that the total annual cost of renewable electricity policies alone will be about £16 billion, about 1% of current GDP. That amounts to approximately £600 per household, assuming 26 million households, with about 1/3 of the impact falling directly on domestic bills, and 2/3s affecting industrial and commercial consumers and then hitting households through the increased cost of goods and services.

The story has been widely covered in the press, with articles in the Sun, the Daily Mail, and the Daily Telegraph. Other online services are also reporting the story, for example politics.co.uk, and, with some innaccuracies (now, 20.05.13, corrected), BusinessGreen.

The Department of Energy & Climate Change (DECC) has responded to this paper, by saying that they "don't recognise the numbers", though they do not reveal the scale of the discrepancy between their cost estimates and those put forward in the Civitas paper.

DECC offers several other points of criticism, namely that the majority of the increase in domestic energy costs is because of rising gas prices; that the costs of renewables will fall in the future; that the effect of increased energy efficiency in domestic houses will protect consumers from the price impacts of the policies; and that green growth creates jobs in the renewables industry.

With regard to the gas impact on contemporary price increases, this is true but irrelevant to Dr Constable's paper, which discusses the future impact of renewables subsidy costs. As Dr Constable has argued elsewhere the renewables policy is a gamble on the future price gas, and will only look sensible if gas prices rise stratospherically (see Patrick Heren and John Constable, "An Alternative To Our Reckless Energy Gamble", Standpoint (May 2013)). But this is uncertain. Prices may rise, but then again they may fall, and at present the latter scenario looks fairly likely. But no one has any idea where gas prices will go in the next decade, and government shouldn't be betting consumer funds on such an uncertain matter.

With regard to falling renewables costs, this claim is simply implausible. Apparent declines in solar costs are largely the result of competition from Chinese manufacturers that have been subsidised by the Chinese government in order to gain market share, and, ironically, have low fossil fuel energy costs. Wind power costs have shown no sign of significant reductions, otherwise government would have been able to make bigger cuts in the subsidies than the trivial 10% reduction announced last year for onshore wind. In any case, as the Civitas paper notes, a large part of the cost of uncontrollable generators such as wind is in the grid and system management costs that they impose, and there is no sign that these costs are coming down or that they are likely to.

However, DECC claims that energy efficiency policies will protect consumers. No one believes this claim, which rests almost entirely on the extremely dubious assumption that electricity price impacts, which government estimates to be + 33% in 2020, will be offset by more efficient set-top boxes, fridges, dishwashers, kettles, and other appliances. It is not clear whether consumers will be able to afford to replace such goods in the current economic climate, and even if they do so, it is far from certain that they will deliver the savings required.

Finally, DECC argues that increasing numbers of jobs in the green energy sector will bring prosperity. However, it is precisely this assumption that the paper tackles head on. No one doubts that subsidised green energy will employ very large numbers of people. But this simply tells us that renewables are a low productivity sector; high employment indicates that the energy is expensive to produce, and that wages will be low. As Dr Constable writes in the paper:

The fact is that renewable energy is still far from competitive with fossil fuels, and nowhere near as economically productive. Consequently, shifting to current renewables for the bulk of our energy would result in a reversal of the long-run economic trend since the industrial revolution. More people would be working for lower wages in the energy sector, energy costs would rise, the economy would stagnate, and there would be a significant decline in the standard of living. The population would begin to step back towards the condition of ‘laborious poverty’ noted by Jevons as characteristic of the pre-coal era.

It should be recalled that three quarters of the working population was employed on the land in low paid jobs before coal delivered extraordinary growth and wealth through the industrial revolution. The pre-coal, agricultural world had a green economy, but it is not of a kind to which any sensible person should wish to return. DECC's standard line, that there will be very large numbers of green jobs, is self-indicting. If it is true, then there is no desirable green economy just around the corner. Yes, there will be many low paid jobs in a low productivity green energy sector, but the resulting high energy costs will have destroyed jobs throughout the rest of the economy. Only cheap, green energy, will result in a prosperous low carbon economy, and there is no realistic prospect of cheap green energy without radical invention and innovation. However, subsidies to existing technologies discourage such experimentation. Why would an investor put capital at risk when they can make very good rates of return by building with existing equipment.

In conclusion, the Civitas paper presents a reasoned and realistic appraisal of current policy costs and attempts to avoid wishful thinking. DECC, on the other hand, seems unwilling to consider anything other than optimistic, best case, scenarios, which is, surely, unforgivable when the hazards of policy error are so significant.

The May issue of the magazine Standpoint carries a new article by John Constable, REF's director, in collaboration with Patrick Heren, "An Alternative To Our Reckless Energy Gamble"

The piece argues that the costs of the current low carbon energy policy are dangerously extreme, and that consequently there is a high risk that consumers will become disenchanted with the climate agenda. Instead, the authors suggest that government should use gas generation as a means to reduce emissions in the short term, while generating wealth to fund a new innovation based energy policy.

REF has today (26 April 2013) written to Mr Fergus Ewing, MSP, Minister for Energy, Enterprise and Tourism in the Scottish Government.

The immediate cause is the following Question and Answer exchange between Mr Ewing and Mr Murdo Fraser, MSP concerning the study by Professor Hughes of wind turbine performance degradation and economic lifetime:

Murdo Fraser (Mid Scotland and Fife) (Scottish Conservative and Unionist Party): To ask the 

Scottish Government, further to the answer to question S4W-13239 by Fergus Ewing on 19 March
2013, what evidence it has to support the assertion that (a) the research carried out was
fundamentally flawed and (b) modern turbines are more efficient.
(S4W-13869)

Fergus Ewing: In our view, the fundamental flaw in the report is its contention that a 15 year old
wind turbine can be described as “mature”. A turbine that has been operating for 15 years must clearly
have been developed and installed at a time when the technology was still very much immature.
There is a wealth of information on the subject of wind turbine efficiency, available not only from the
industry itself but also from credible independent commentators such as Bloomberg New Energy
Finance (NEF). Analysis by Bloomberg NEF provides evidence that global capacity factors for onshore
wind turbines have increased by 13 percentage points from a value of 21% in 1984 to 34% in 2011.
Efficiency improvements such as better wind to power conversion especially at low wind speeds,
better fluid dynamic modelling to inform device placement and more reliable machines have all
contributed to the increased output from modern and thus genuinely mature devices.
(Source: http://www.scottish.parliament.uk/S4_ChamberDesk/WA20130419.pdf)

This is, in our view, a very weak response, as explained in our letter to Mr Ewing:

Mr Fergus Ewing, MSP, 
Minister for Energy, Enterprise and Tourism
By email:  This e-mail address is being protected from spambots. You need JavaScript enabled to view it  & 
This e-mail address is being protected from spambots. You need JavaScript enabled to view it  
26 April 2013 

Dear Mr Ewing: 

Scottish Government Answer to a Parliamentary Question from Mr Murdo Fraser MSP 

I have just seen your most recent response to a question (S4W‐13869) tabled by Mr Fraser relating to the study by Professor Hughes on the degradation of the load factors of wind turbines over time (published by Renewable Energy Foundation in December 2012). 

You will not be surprised to hear that we take a close interest in what is said about work that we have released, and we are always happy to receive comments and constructive criticism.  I  was  aware  that,  in  responding  to  an  earlier  inquiry  from  Mr  Fraser  (S4W‐13239), the Scottish Government had previously referred to Professor Hughes' study as “flawed”, so I was hoping that the Answer to Mr Fraser's follow­‐up question might clarify this assertion.

However,  the  response  drafted  by  your  civil  servants  does  not  appear  to  advance  our understanding of the issue. It misrepresents what Professor Hughes said and relies upon global averages that are neither consistent nor relevant to the experience of wind power in the UK. To be specific:

(a)  Professor  Hughes  studied  the  performance  of  all  wind  farms  operating  from 2002 to 2012, not just fifteen year old turbines. The bulk of his sample consisted of wind turbines installed after 2004. A significant degradation in performance can be observed even for turbines installed within the last five years.

(b) The study by Bloomberg NEF which you cite does not take account of any of the factors – location, wind availability, average age, operating regimes, etc – that must be considered in any careful analysis of the performance of wind turbines. We are simply perplexed that your staff should consider the Bloomberg study relevant to the issues raised by Professor Hughes.

In  summary,  your  answer  does  not,  in  fact,  produce  any  specific  contrary  evidence. Consequently, we conclude that, at present, it is reasonable to evaluate policy on the basis that Professor Hughes' findings provide the best description of what has happened in the past and is still happening.

Current subsidies to wind power are in effect a very large gamble funded by electricity customers.  Professor  Hughes'  work  provides  strong  empirically  grounded  analysis suggesting  that  the  bet  will  not  pay  off.  It  appears  from  your  answer  that  the  Scottish Government is relying on the unsupported and implicit assumption that historical evidence, as produced by Professor Hughes, can be ignored because things will certainly be radically different in the future.

That is clearly a dangerous assumption, and we suggest that the Scottish Government would do  better  to  engage  with  the  data,  employing  the  same  analytical  rigour  that  Professor Hughes has brought to the subject.

We would be very pleased to discuss matters with you or your officials. I have no doubt that Professor Hughes would be happy to be involved as well. This is, after all, a matter of public interest.

Yours sincerely,  

John Constable

Director

Attachments:

REF Letter to Fergus Ewing MSP

On the 4th of February, REF wrote to the Secretary of State for Energy & Climate Change, The Rt Hon Ed Davey, MP, defending our calculation of the future costs of the offshore wind program, which DECC had called "pure speculation". We also criticised the Department's assumption that costs would come down in the future, and suggested that if anyone was speculating it was DECC. We received a response yesterday, with additional underlining in Mr Davey's own hand.

In his response, the Secretary of State shows that he trusts the wind industry when they promise to cut costs in the future. That seems to us an extremely hazardous position to take. Bluntly, a subsidy-seeking industrial sector might say anything to get their foot in the door, and their undertakings should be treated with caution, particularly when the consumer burdens entailed are so vast.
Read more...

Attachments:

DECC Letter to REF on Off-shore Wind Costs

If we have learned anything over the last ten years of arbitrary targets and policy mandated income support to renewables, it is that the sector has failed to reduce its costs significantly, and, far from learning to stand on its own feet, is content to be a long-term subsidy dependent. This won't be acceptable to the consumer in the medium let alone the longer term, and it fails to provide an economically compelling low carbon example to the developing world.

Clearly, something has to change, and will change. If renewables are to have a role in that new dispensation they will have to improve dramatically. But how? What are the major problems that have to be solved before they are fundamentally economic and can make their way in the world without special and unsustainable commercial favours?

The following talk was given at a meeting of the All Party Parliamentary Group on Rebalancing the Economy, at the House of Commons at 10.00 on the 13th of February 2013. The session topic was The Cost of Energy. Other speakers were Tamaryn Napp (Imperial College London), Professor Alan Riley (City University Law School), and Jeremy Nicholson (Director, Energy Intensive Users Group).

On the 3rd of February the Sunday Telegraph published an article about the costs of Round 3 offshore wind, and used cost estimates generated by REF: "Foreign Firms' '£100bn wind farm subsidies'" 

The Department of Energy & Climate Change was quoted as saying that our figures were "based on pure speculation". This is untrue, and we have written to the Rt Hon Ed Davey, Secretary of State at the department to point this out. Here is our letter.

The Public Accounts Committee has today published its report on the costs of grid connections for offshore wind: Public Accounts Committee - Twentieth Report Department of Energy and Climate Change: Offshore electricity transmission-a new model for infrastructure.

The central finding of the report is that:

"The terms of the transmission licences awarded so far appear heavily skewed towards attracting investors rather than securing a good deal for consumers." (Summary)

George Monbiot has just published (31.12.12) a retrospective column describing 2012 as as a landmark year in which the world's politicians turned their backs on environmental policies ("2012: the year we did our best to abandon the natural world"):

The discussion ranges broadly, but for present purposes we will focus on climate change and energy policy where he observes that:

The climate meeting in Doha at the end of the year produced a [...] combination of inanity and contradiction. Governments have now begun to concede, without evincing any great concern, that they will miss their target of no more than 2C of global warming this century. Instead we're on track for between four and six degrees. To prevent climate breakdown, coal burning should be in steep decline. Far from it: the International Energy Agency reports that global use of the most carbon-dense fossil fuel is climbing by about 200m tonnes a year. This helps to explain why global emissions are rising so fast.

In a speech to a Scotsman conference today in Edinburgh, Energy Policy in an Independent Scotland, The Rt Hon Ed Davey, Secretary of State for Energy and Climate Change, has issued a clear warning that in the event of Scottish independence the costs of the current subsidy programs to renewables would be be met by Scottish consumers, without cross-subsidy from England Wales.