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Future consumers would not thank us for looking for an energy policy in the bargain basement

Nothing generates column inches these days like discussion about the costs of our future energy mix.  And rightly so.  Our ageing fleet of power stations, our increasing reliance on imported fossil fuels and the need for us to reduce carbon emissions all add up to one thing: we need investment.

Here at DECC we’ve developed an open-source, peer-reviewed online tool, the 2050 Calculator, to help us understand the uncertainties, to expose the trade offs and to make sure our policies today are not regretted decades hence.  The Calculator now includes costs and takes a whole-economy approach to assessing the varying plausible scenarios for keeping the lights on and meeting our statutory target of cutting emissions by 80% by 2050.

No one scenario is assured but, by way of illustration, our most cost-effective scenario (the so-called Markal pathway) foresees a future that is marginally cheaper than doing nothing.  Crucially, Markal would result in a balanced electricity generation mix in 2050 with 33GW of nuclear, 45GW of renewables and 29GW of fossil fuels with CCS.

Contrast this to AF Consult’s new report ‘Powerful targets: Exploring the relative cost of meeting decarbonisation and renewables targets in the British power sector’, reported in the Sunday Times this weekend.  This claims renewables are a costly addition to our future energy mix.

But the report’s conclusions are undermined by its assumptions, which skirt over four crucially important factors:

First, electricity demand is set to increase.  All of our main scenarios for 2050 tell us that we need to plan to meet an increase in demand of between a third and two thirds, as transport and heating shift onto the electricity grid.  AF Consult massively underestimates this and as a consequence risk us not having enough electricity to power the country and failing to meet our carbon targets.

Second, diversity of energy technology is crucial.  As no one can yet say for sure what the relative costs will be decades hence, the Government’s approach is not to be captured by any technology lobby.  Each has its place in a technology race between renewables, nuclear, and clean fossil fuels in which the lowest cost technology wins the largest market share and keeps bills down for consumers.  AF Consult appear to be trying to second-guess the unknowable, and as a result put all of our eggs into just two energy technologies.  The build rate using just CCS and nuclear would be unrealistic, risky and costly.

Third, the costs of renewables are already being driven down.  Our renewables target is an industrial policy aimed at accelerating reductions in the costs of renewable generation.  Onshore wind has already come down in price, hence why we have proposed to cut the subsidy it gets by 10%, and the offshore wind industry is working towards reducing costs to £100/MWh by 2020.  Add to that the wider economic benefits of investment and jobs in advanced green industries that will have a global market.‪

Lastly, and perhaps most importantly, gas prices are uncertain and volatile.  In contrast to renewables, the signs are that gas prices will be higher in future.  Even with shale gas there is no certainty that supplies or prices would filter through to the UK.  The IEA for instance foresees gas prices rising to 2030 as demand pressures outweigh supply boosts.  Today’s consumers are already bearing the brunt of gas price volatility.  The Arab Spring and Fukushima last year contributed to driving up gas prices which pushed up the average dual fuel bill by £175, eclipsing the £20 a year current cost of subsidising renewables.  While gas will still play a role in the future, home grown renewables will help insulate our economy and consumers from depending excessively on gas imports and the volatility that accompanies that.

Consumers would not be well served by an energy strategy based on short-sighted analysis that pins all its hopes on just two energy technologies and then crosses its fingers that gas prices come good.  If it were, we’d not keep the lights on and meet our carbon targets, and the consumer would certainly be worse off.  All credible analysis agrees that renewable energy has a central role to play in the low carbon technology race under way.

The consumer is at the heart of the decisions we’re making today to design tomorrow’s energy system, but the bargain basement is not the place to look for a responsible long term energy strategy.



17 Responses to “Future consumers would not thank us for looking for an energy policy in the bargain basement”

  1. Paul Steverson says:

    So the Germans, (sic RWE and Eon) have decided not to invest in Nuclear generation here after all. Well that is a surprise.

    That just leaves Edf.

    What chance of getting 45 Gw of new Nuclear generation by 2050 as required to meet the 80% reductions in CO2 emissions by 2050 . I would wager almost NIL.

    Unless the government takes the long term view that it took in 1956 when it opened the Magnox stations (try forgetting for a moment the intended production of plutonium for military purposes) and invests in Nuclear on our behalf in order to keep the lights, on we will never make all these grand targets.

    Forget the Open source spreadsheets, this is a classic case of fiddling while Rome burns. Very interesting but not exactly solving the problem.

    The Gov’t needs to accept that selling the ownership of Westinghouse was a short sighted mistake, and needs to address the issue of getting a new home grown nuclear designs of its own off the ground with some degree of urgency. There is plenty of information out there which would make the 3rd, or 4th generation of Nuclear reactors with in-built passive safety systems incorporated possible, perhaps using fast Thorium reactors as Actinide burners to help resolve the accumulated Plutonium, Curium and Americium stock pile problems, and in addition not generating such large amounts of long lived wastes in future. 100 year lifespans for the reactors should be the targets, with ease of de-commissioning considered from the start.

    Fusion is of course always the great hope of the future, but that is what it is, a hope of the future. Fission has been proved to work (albeit with some issues). We should actually get on with it.

    Alternatively accept that electricity will be very expensive and get on with building the Severn Barrage and other expensive solar PV panels and offshore wind plus a lot of pumped storage.Removing the subsides will stifle this option before it is really started.

    Come on – lets have some real leadership. With investment in this type of infrastructure the gov’t can generate jobs during a recession and in reality it should accept that it would always have had to underwrite private sector involvement in Nuclear just as it has had to underwrite private sector involvement in banking or defence.

    It needs a decision shortly and don’t delay it by much otherwise the lights will go out.

    There is just one other thought I would like to add, with the road distribution network critical to the operation of the economy, and the price of Oil just going up, and the panic buying of petrol and Diesel with just the faint possibility of a tankers drivers strike happening now, maybe the gov’t should give some consideration to electrifying the road network with all this newly available Nuclear electricity. It would make our society a lot more robust against ‘Black swan’ events.

    Yes, lets avoid anarchy, and invest for the future.

    • The IAEA has some off the shelf nuclear designs which are homegrown and they have variants for potential nuclear facilities for different parts of Britain. They also have similar designs for other countries and all can be implemented for very low construction costs with high efficiency and low operating costs. All the designs conform to the laws for nuclear facilities in each country or appropriate province.

  2. solar panels says:

    Great article! Keep me posted with your progress!

  3. Steve Gledhill says:

    I think we have our collective heads in the sand. Simple Maths demonstrates that we (the world) are not taking seriously the size and imminence of the energy deficit we are facing. Read, mark, learn and inwardly digest what the level headed Tom Murphy has to say in his “Do the Math” blog here …
    And then act accordingly.

  4. I have admit my views to figure out how the UK will look like in in 2050 and be green! at Thanks.
    [Prabhat Misra, Assistant Director- Savings, District- Etawah, U.P., India]

  5. Helen Morris says:

    I agree we need to start enhancing nature’s renewable energy sources. I think people just have a laid back approach of well it won’t affect me so why bother.

  6. Dan says:

    With all societal changes the change needs to reach down to the people. The grandiose has a role to play but the returns on products like heat pumps associated small scale PV gives people, through meters insight to their use and incentive to generate and save. Thus you change people rather than just the technology.

  7. Arthur Akinyemi says:

    Since industralisation, human has been competing with nature with its Energy useage, we all know how this is changing our climate. Its about time we start enhancing nature`s energy. “Renewables”.

  8. alan says:

    Do you have any response to the lecture given Richard Lindzen on Wednesday 22nd Feb 2012?

    Can you comment of the IEA forecast of production rates for fossil fuels which is pure fantasy. The prediction for CO2 levels is based on a mythical rise in fossil fuel usage.

    Have you not studied British History and the key role CHEAP energy played in the UKs prosperity. And that expensive energy will reduce economic output. Funny you should mention the Arab Spring. That all started because of the RISE in energy costs and Egypt.

    Did you not notice the banking crash a few short years ago. Remember what started it. Yes expensive energy (oil). The high energy costs effectively removed a large chunk from the money supply. The shortfall caused a cascade failure in the banking system. The crash was caused by high energy costs, the result was a failure in the banking system.

    Why do you ignore cutting edge research into (hot) nuclear fusion. ITER is never going to work. DPF/Polywell (pB11) designs are accelerating past ITER with a tiny fraction of the budget. Even Iran (yes Iran) is running a fusion R&D program that is years ahead of the UK/EU.

    Why is it almost every oil producing nation is fast tracking nuclear power? when in most cases they have more sun than they know what todo with? Saudi, Kuwait, Qatar (and others) have all started civilian nuclear programs. (Clue – its not about reducing CO2 emissions)

    You make a major assumption that future transport will be electrical based. Transport could just as easily be Hydrogen based. And the most efficient method to generate H2 is the high temperature sulphur/iodine reaction (using a nuclear reactor). But what if battery/h2 technology cannot improve enough for mainstream use? Then its a radical switch to rail.

    The DECC has made sweeping assumptions about advances in technology. Its identical to betting on a horse to win a race before the horse has even been born.

    How is the military going to operate in 2050? How is the Navy going to power its ships? The air-force? The army? Every time the army sets up an FOB are they going to install a wind turbine to power the base and recharge the jeeps, bradleys, tanks overnight? Military equipment is inefficient by design (weight for armour). A Challenger tank getting 80MPG is never going to happen.

    Based on the DECC vision of the future the MoD cannot operate. Which brings up another problem, container shipping.

    Your not going to power a container ship using wind turbines and batteries. The ONLY non carbon tech for container shipping is nuclear. Fission reactors in a civilian ship is unacceptable, a Polywell/DPF fusion reactor is the only plausible technology. An ITER/NEF fusion reactor is bigger than a container ship. If container ships cannot be powered in 2050, then we might as well give up and become Amish.

    The problem is not CO2. The problem is expensive energy, or rather supply vs demand.

    The current DECC polices will cause significant harm to the UK economy.

    The solution is easy.
    1. Build gas turbines to cover any electrical shortfall.
    2. While doing (1) start building nukes.
    3. While doing (1+2) major R&D investment in Thorium/Fusion/Transport

  9. Richard Hall says:

    Ravi, I don’t disagree with much of your article, but you veer into propaganda yourself at the end when you say:

    “The consumer is at the heart of the decisions we’re making today to design tomorrow’s energy system”

    If this is the case, then why is Consumer Focus not allowed to have a seat on the EMR Contact Group? The balance of representation is extremely heavily skewed towards industry.

    More broadly, what testing are you doing on consumer acceptance of your policy proposals? Any at all? How do you know consumers support your views when you aren’t asking them what they think?

    • Nick Skates says:

      Affordability is one of the key objectives of DECC’s EMR programme. To ensure EMR policies are developed with the consumer in mind, and to ensure consumer groups have a voice in the development of that policy, consumer groups have been invited to put forward nominations for membership of EMR Expert Groups. I understand that names have already been put forward to the team, including yours, who will be considering these alongside others. The EMR Contact Group brings together a wide range of interests but is not designed to replace other forms of engagement, such as one-to-one meetings. The EMR team and the rest will continue to listen and work closely with consumer groups, including Consumer Focus, as we drive our agenda forward.

  10. John Saunders says:

    Very interesting article…just the one point on the comment made by George Clifton. If the EST you mention stands for Energy Saving Trust then it is unlikely VO would be mentioned as traditionally the organisation has been solely domestic focused and there doesn’t tend to be the equipment (I’m thinking lifts, motors etc) where VO would work within peoples homes.

  11. [...] blog first appeared on the Department of Energy and Climate Change website Article source: [...]

  12. Tony Day says:

    Ravis’ analysis is based on the following assumptions:
    1 Increasing electrification of UK energy supplies.
    2 The price of gas will increase.
    3 The cost of offshore wind decreasing to £100/MWh.
    4 UK policy since the 2003 Energy White Paper has been to support base load nuclear, intermittent renewables and fossil fuels with CCS. Ravi’s blog reflects that policy mix, but fails to mention that prior to the 2003 White Paper, there was a now-forgotten debate within DTI on the economics of waste, biomass and coal co-gasification versus coal combustion.

    Each of these assumptions is open to challenge individually. Underlying the above assumptions is the hidden unstated assumption that the transfer of energy flow from the gas grid to the electricity grid is the only method of reducing carbon emissions. This assumption is fatally flawed both technically and economically.

    The peak Winter energy flow rate through the gas grid is around 4 times greater than through the electricity grid. Gas can deliver this very high energy flow rate because it is a storable primary energy resource whereas electricity is an instantaneous secondary energy vector. The true extent, economic and political costs of largely replacing UK’s gas grid by a greatly enlarged electricity grid has yet to emerge into the public domain. NPV costs of around £5 to £6 trillion are currently in the domain of expert debate. This is a huge sum of money.
    Please see reports by Atomic Energy Authority and Energy Networks Association.

    Methane is:

    1 Widely is distributed throughout the Universe.
    2 Is the simplest compound of Carbon and Hydrogen, and possesses the highest proportion of Hydrogen relative to Carbon of any hydrocarbon.
    3 Is a clean, stable and safe energy vector.
    4 Is an economical, reliable, internationally traded energy commodity.

    DECC’s Scientific Advisory Group reports that “gas is not a sustainable long-term low-carbon energy resource”. This statement is untrue. Methane is not necessarily a fossil fuel, it depends on what it is made from, and how.

    The production of Synthetic Natural gas (SNG) is inherently Carbon Capture Ready as nearly pure Carbon Dioxide is produces as a by-product. Effectively the capture cost of carbon is zero.

    In SNG production a mass and energy interchange occurs between Carbon and Hydrogen. Hydrogen, obtained from steam, is added into the gas flow and Carbon is removed. A significant proportion of the potential thermochemical energy in the Carbon which is removed is transferred to the added Hydrogen, which is now contained in the SNG output. This internal energy transfer makes for an efficient process. Net feul to SNG energy efficiency in excess of 75% was demonstrated by British Gas over 25 years ago. Simultaneously, approximately 50% of the total Carbon mass flow is separated and produced ready fro CCS at no additional cost. If a 50% biogenic Carbon fuel is converted to SNG, and the ‘free’ Carbon Dioxide is used for CCS, then zero net fossil Carbon energy is produced. I refer to this as “decarbonised SNG”

    Co-gasifying an indigenous mixed waste, biomass and coal fuel stream to produce decarbonised SNG and decarbonised electricity together with CCS produces the following costs and emissions:

    1 Decarbonised SNG @ 45 p/therm.
    2 Decarbonised electricity @ £45/MWh.
    3 CO2 @ £17.5/tonne.
    4 Emissions of 65 gCO2/kWh.

    This is very substantially lower cost than the projected future cost of offshore wind, and will produce gas and electricity which is ‘dispatchable’ on demand.

    The technology to deliver the above outstanding emissions and economic performance, and retain the existing UK gas and electricity grids is British owned, and used to be owned by the tax payer prior to its being privatised in 1986.

    Tony Day

  13. Please consider the combination of hydrogen-derived, geothermal and photovoltaic renewable energy sources as offering the most effective (and cheapest) way forward into the future (on-site hydrogen and photovoltaic electrical production all but obviates transmission losses and costs). See Stan Ovshinsky’s work over the last 40 years on hydrogen/photovoltaic energy and Icelands geothermal efforts to become ‘fossil fuel independent’. . The KPBS 30-minute video,”Hydrogen Hopes” should become compulsory viewing in the debate !! There are many counter arguments, but this form of energy is non-polluting and unlimited in supply. Furthermore, it will be seen to satisfy just about any ‘economic justification’ argument over a reasonable period of time – maybe 4 – 5 decades

  14. Chas Booth says:

    You assume that electricity demand will increase, and yet Germany has very similar climate change targets to us; is also planning to electrify significant portions of its heat and transport demand; has recently announced a withdrawal from nuclear power and yet is predicting a 25% reduction in electricity demand by 2050 due (partly) to the billions of Euros they’re investing in energy efficiency and other demand reduction schemes which are creating thousands of green jobs.

    All of which begs the obvious question: why have the Germans got it so badly wrong on the economy yet again?

  15. The best way to conserve energy is to find ways to ensure you do not even use it. Govt departments are achieving this through Voltage Optimisation, and yet those of us offering this technology to the domestic market are hampered by a lack of information at typical reference points (EST for example), a failure to take VO into account in SAP and SBEM and a punitive 20% VAT rate which stifles payback calculations against a 5% rate on the electricity itself.

    All in all this new technology is struggling to get a proper hearing even though the Civil Service has recognised that it saves money at a corporate level.

    Given the targets we have such a significant technology should not be disregarded

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