Renewable Energy helps drive down wholesale energy costs

Renewable Energy helps drive down wholesale energy costs

New research from independent energy company Good Energy revealed last week that renewable energy has helped reduce the cost of wholesale energy in the UK. The research published last week and backed by energy experts at the University of Sheffield showed that the combined effect of wind and solar energy production reduced the wholesale cost of electricity by £1.55 billion in 2014.

The research therefore questions the government’s claim that cutting subsidies for renewable energy generation by wind and solar will help keep consumers bills as low as possible.

Government concerns regarding the cost of support mechanisms led to the recent raft of policy changes which in turn have vastly reduced and in some cases eradicated the subsidies.

However the research showed that although these subsidy schemes initially increase consumer’s bills this is only in the short term with in the long term renewables driving done the wholesale electricity cost, a phenomenon known as the Merit Order Effect.

The researchers using tried methodology quantified the Merit Order Effect of wind and solar for 2014 and found that wind and solar generators reduced the wholesale cost of electricity by £1.55 billion in 2014. Also in net terms the cost of supporting them via subsidies was “1.12billion in 2014, 58% less than the cost reflected in the Levy Control Framework. The value of the Merit Order Effect would also increase if there was further renewable energy development and finally if current savings are maintained, future planned renewable development may deliver net benefit to the consumer.

Juliet Davenport Good Energy Chief Executive said: “This analysis puts the bill payer at the centre of the debate around renewable energy subsidies. Let’s give them the full picture and not just half of it.

“What is not taken into account is the fact that renewable energy, such as wind and solar, has actually been bringing the cost of energy down for consumers.”

“The bill payer money invested into supporting renewables yields significant benefits, let’s be very clear about that.”

Also speaking about the research Dr Lisa Clark, from the Department of Physics and Astronomy at the University of Sheffield said “Decarbonising electricity generation is critical for the future sustainability of the planet. In the UK wind is a really important source of renewable electricity.”

“At the moment the costs of renewable subsidy schemes such as Feed-in Tariff and Renewable Obligation have cast doubt over future of renewables. But there are very few reports of the actual financial savings from renewable generation like wind and existing savings to consumers.”

“However, this report provides clear evidence that UK wind generation is typically saving UK consumers around £1.5 billion per year. This is more or less the same amount that the subsidies cost. At the University of Sheffield we have recently finished a similar study and we find very similar numbers.

“So not only is wind energy decarbonising our electricity generation, it isn’t costing any more than any other source of electricity to do so.”

Paul Barwell, Chief Executive of the Solar Trade Association said: “With the Government’s consultation on the Feed-in Tariff review closing this week, this report is very timely. This analysis shows that the net effect on bills of supporting new rooftop solar – under the STA’s £1 plan – is zero.

“The £100m we need added to consumer bills over three years will be completely offset by the savings from solar lowering the wholesale price. This is just the evidence that the Government needs.”

In recent years in the UK renewable developments have increased at an extremely fast rate culminating in the current total of 28.4GW of capacity, tripling in the previous five years. The most recent figures highlight the importance of renewables with 25% of the country’s electricity generated by wind, solar and other renewable sources in the second quarter of 2015.

From the report: “Solar, more so than any technology, has epitomised this dramatic growth. Spurred by rapidly decreasing costs (a doubling of solar capacity leads to prices falling by around 20%3), solar capacity in the UK has increased from just 96MW in 2010 to over 8,200MW today.

“Wind, whilst not quite matching this increase in capacity, has also seen significant growth. The UK now boasts more offshore wind capacity than the rest of Europe combined.

“Emissions from the generation of electricity currently account for around a third of the UK’s annual greenhouse gas emissions. Renewable technologies will play a key part in helping the UK achieve its ambitious carbon reduction targets – at least 80% in 2050 from 1990 levels. Decarbonising electricity provides one of the quickest paths to emission reduction.

“Other major contributors to emissions, particularly transport and heat, are harder to tackle and methods to do so are themselves heavily reliant on greener electricity.

“Alongside decreasing costs and the need to meet emissions reduction targets, renewable deployment has been supported by various subsidy schemes paid for through consumer bills. The Feed-in Tariff and Renewables Obligation are two such schemes, and make up the majority of the support. Both pay a fixed amount per unit of renewable generation, irrespective of wholesale electricity prices or other market metrics.”

Another effect of the scrapping of the support mechanisms is further economic pressures on farmers, already subject to extremely low wholesale prices for traditional farm products. The warning from Scottish Renewables, the National Farmers Union Scotland and wind turbine manufacturer Gaia-Wind has come ahead of the consultation on changes to the Feed-in Tariff.

Johnnie Andringa Gaia-Wind CEO said “For the vast majority of our turbine owners a sensible and supportive Feed-in Tariff is a crucial part of the economics of ‘distributed energy’ – the generation of power mostly for on-site use.

“Farm-scale wind – a sector with a substantial, if shrinking, base of British manufacturers – is becoming a core element of the rural economy as farmers seek to diversify from dwindling traditional income streams.

“The changes to the FiT, however, mean we could now see more company failures and job losses as a direct consequence of government policy.”

Stephanie Clark, Policy Manager at Scottish Renewables, said “Reductions in support for small-scale renewables provided through the Feed-in Tariff will hit rural businesses particularly hard, coming as they would on top of well-publicised low prices, particularly in the dairy industry.

“The UK Government’s consultation on changes to the FiT ends on Friday, and we are asking that rates be kept at a viable level in order to safeguard the jobs and environmental and economic benefits that the sector provides.”

Gemma Thomson, NFU Scotland’s Legal and Technical Policy Manager, told how the proposed FiT changes would “severely limit” the number of on-farm renewable schemes in future.

“These proposals will end many on-farm renewable plans, and severely limit the number of new projects that will come forward in the future.

“NFU Scotland’s President Allan Bowie has written to DECC to voice the Union’s concerns directly.

“The knock-on effect for farm businesses will be that a previously viable way of dividing risk and reducing exposure to price volatility will no longer be an option.”

In previous blogs I have discussed our need to secure our energy future in a way that is both clean and cost effective. The figures mentioned above show that renewable energy is now capable of delivering a clean cost effective and secure energy future for the entire population.

However the new government policy is endangering our clean energy future with fewer new developments likely, lower investment, and a reduction in new and even more cost effective technologies.

It is disappointing to think how far we have come in a relatively short space of time only to see the majority of good work undone by the policy changes. The outcome of the Feed-in Tariff consultation will be very interesting as it is likely to be a final opportunity for the government to redeem themselves and pave the way for a secure energy future.

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