IEEJ : October 2013 All Right Reserved

Renewable Energy in the United Kingdom2002 to 2013Performance, Costs, Warnings
Dr John Constable
Director
October 2013	IEEJ : October 2013 All Right Reserved• Energy policy think tank	• UK registered charity (since 2004)	

• No political affiliation	

• Supported by private donations andresearch contracts	

• Publishes databases of all subsidised UK
renewable installations	www.ref.org.uk	

IEEJ : October 2013 All Right Reserved

2002 Renewable Electricity Target for 2010	• 10% of electricity to be renewable	

• Instrument: Renewables Obligation (RO)	

• Subsidy =£50 / MWh	

• In addition to wholesale price (£25 / MWh)	

• Subsidy level set by least economic technologies / sites	• Major over-support for lower cost technologies / sites	• Rising wholesale price (£50 / MWh) createdhyperprofits and overheated the renewables sector	• Poor site choice; Bad PR; Rent seeking…	

IEEJ : October 2013 All Right Reserved

2010 Target Was Missed	

• 6.5% of UK electricity consumption was renewable in 2010	

• Total subsidy cost: £5 billion (2002–2010)	

• Annual cost: £1.1billion (in 2010)	Source: DECC, Ofgem data, REF estimates. Chart by REF.	

IEEJ : October 2013 All Right Reserved

RO Output (Apr. 2002–Mar. 2012): 149.3 TWhs 
50% of all RO MWhs were from Biomass	

Source: REF Calculations from Ofgem Data	IEEJ : October 2013 All Right Reserved

European Union Renewables Directive (2009)	

• 20% of EU 27 Final Energy Consumption (FEC) in 2020
to be from renewable sources	• UK burden share: 15% of FEC	• Largest increase of any major state	

• > 25% of EU-wide costs fall on the UK	• UK FEC = 150 mtoe x 0.15 = 22.5 mtoe = 260 TWh	

• Electricity target 120 TWh (30% of UK electricity)	

• 140 TWh from transport fuel (10%) and heat (12%)	

IEEJ : October 2013 All Right ReservedElectricity Policy Instruments	

1. Renewables Obligation (RO).	

• Closes to new registrants in 2017	

2. Feed-in Tariff (FiTs)	

• For generators up to 5 MW	

3. Feed-in Tariffs with Contracts for Difference(FiTs CfDs)	

• Replaces RO from 2017	

4. Carbon Price Floor. 	

• Tax on carbon fuels for electricity. Increases
wholesale price (in effect an extra subsidy forrenewables)	

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Can the 2020 Electricity Target be Met?	

Source: DECC, Ofgem data, REF estimates. Chart by REF.	

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Onshore Wind Capacity Build(Cumulative MW)	Source: DECC, Ofgem data. Chart by REF.	

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Offshore Wind Capacity Build(Cumulative MW)	Source: DECC, Ofgem data. Chart by REF.	

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Solar PV Capacity Build(Cumulative MW)	Source: DECC, Ofgem data. Chart by REF.	

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Capacity & Performance in 2012	

Source: REF Calculations from Ofgem / DECC / Elexon Data. 	

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RO, Unsubsidised, and FiT (2012)	

Source: REF Calculations from Ofgem / DECC / Elexon Data	IEEJ : October 2013 All Right Reserved

Total RO Costs to 2013: £11.6 billion
Annual Cost in 2012: £2 billion	

Real 2012 / 13 prices	RO years run from April to March. Source: DECC. Chart by REF.	

IEEJ : October 2013 All Right Reserved

Total FiT Costs 2010–2013: £660m
Annual Cost in 2012: £500m	

Real 2012/13 prices. Source: DECC. Chart by REF. 	

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RO + FiT Costs
Cumulative: 2002–2013: £12.2bn
Annual in 2012/13: £2.5bn and rising….

Source: DECC. Chart by REF. (Real 2012 / 13 prices.)	

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RO and FiT Costs Compared	

• FiT accounted for 5.4% of subsidised renewableelectricity in 2012	• 1.9 TWh / 35.3 TWh	• FiT accounted for 20% of renewables subsidy cost	• £500m / £2.5bn	

• Average subsidy costs:	

FiT: £260 per MWh	

RO: £58 per MWh	

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Can the Consumer Afford the Targets?
Three Areas of Doubt	

1. Cumulative subsidy cost of EU 2020 renewables target
is extremely high	•≈£130bn (2002–2030)	

2. System costs of renewables (wind and solar) are very
likely to be greater than government admits	

•Wind integration cost: £60 / MWh (Source: Gibson 2011)	

3. Economic life of key plant (wind power) appears to bemuch shorter than expected	

••Levelised costs are higher than anticipated	

Capital refreshment cycle is short, so cost of maintaining
target levels of renewable energy is higher than predicted	

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Renewable Electricity Subsidies	• Subsidy cost: £8bn per year in 2020	

• Cumulative subsidy Cost 2002–2030: ca £130bn	

Source: REF, Energy Policy & Consumer Hardship (London 2011)	

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UK Govt. Relaxed about Policy Impacts	• “[…] taken together, the Government’s policies meanthat household bills will be on average 11%, or £166,
lower in 2020”	

• Optimistically assumes that energy efficiency will offset
policy cost through conservation	

• “For most businesses, direct energy costs are a
relatively small proportion of total costs. […] around
2.5% of total costs for UK manufacturing as a whole.”	

– Ignores embedded energy costs in labour and capital	

Source: DECC, Estimated Impacts (2013)	

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Policy Impacts on Electricity Price in 2020
DECC Models	• Domestic Households	

– Low fossil price scenario: + £54/MWh (+ 44%)	

– High fossil price scenario: + £45/MWh (+ 26%)	

• Medium Sized Businesses	

– Low fossil price scenario: + £48/MWh (+74%)	

– High fossil price scenario: + £37/MWh (+33%)	

• Even in DECC’s High Fossil Price scenario prices riseby ca. 30% due to climate and other policies	IEEJ : October 2013 All Right Reserved

2. Integration Costs (+ Subsidy)	

• Total cost in 2020: £13bn per year in 2020	

• Total Cost 2002–2030: ca. £175bn	

Source:	  REF,	  Energy	  Policy	  &	  Consumer	  Hardship	  (London	  2011)	  IEEJ : October 2013 All Right Reserved

2. Integration Problems:
Constraint Payments to Wind Power	• Total 2010 to present day:
£41.6m	• £22.7m in 2013 alone	• Average price to reduce
generation: £145/MWh	• Three times lost income	• But constraining wind off
the system may be cheaper
than building morenetwork	• Colin Gibson, Former
National Grid Power
Networks Director	The	  UK	  HV	  Network	  Source:	  Na8onal	  Grid	  IEEJ : October 2013 All Right Reserved

3. Economic Lifetime of Wind Turbines	• Gordon Hughes, The
Performance of Wind Farms
in the United Kingdom andDenmark (REF: London,2012).	

• The normalised loadfactor for UK onshore
wind farms declines froma peak of about 24% atage 1 year to 15% at age
10 years and 11% at age
15 years.	

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Load Factor Decline and Discounted
Cumulative Output	

Source:	  Hughes,	  The	  Performance	  of	  Wind	  Farms	  in	  the	  UK	  and	  Denmark	  (2012)	  IEEJ : October 2013 All Right Reserved

Conclusion: Acute & Cumulative Costs	

• Policy costs are:	

– Acute and Chronic: £14bn a year up 2040	

– Cumulatively vast: £175bn up to 2030	

• Higher energy costs will be embedded in capitalstocks and in cost of supporting labour	• All “Non-energy” business input costs will rise	• UK now embarking on infrastructure renewal	

• Higher costs will be embedded in major capitalstocks, increasing cost of use for decades to come	IEEJ : October 2013 All Right Reserved

But Acute Costs are Now a Political Issue…	

• Ed Miliband, Labour
party leader, haspromised to freeze
electricity prices for
two years after the2015 election	

• Conventional andrenewables
investment now
uncertain	

• Reports suggest £4.5bn of cost (ca. 50% due torenewables) that cannot be passed through to consumers 	

Contact : report@tky.ieej.or.jp