Renewable Energy in the United Kingdom
2002 to 2013
Performance, Costs, Warnings
Dr John Constable
Director
October 2013

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…

2010 Target Was Missed• 6.5% of UK electricity consumption was renewablein 2010• Total subsidy cost: £5 billion (2002–2010)• Annual cost: £1.1billion (in 2010)

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

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

Source: REF Calculations from Ofgem Data

European Union Renewables Directive (2009)• 20% of EU 27 Final Energy Consumption (FEC) in 2020 tobe 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%)

Can the 2020 Electricity Target be Met?

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

Onshore Wind Capacity Build(Cumulative MW)

Source: DECC, Ofgem data. Chart by REF.

Offshore Wind Capacity Build(Cumulative MW)

Source: DECC, Ofgem data. Chart by REF.

Solar PV Capacity Build(Cumulative MW)

Source: DECC, Ofgem data. Chart by REF.

Capacity & Performance in 2012

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

RO, Unsubsidised, and FiT (2012)

Source: REF Calculations from Ofgem / DECC / Elexon Data

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.

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

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

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.)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Renewable Electricity Subsidies• Subsidy cost: £8bn per year in 2020
• Cumulative subsidy Cost 2002–2030: ca£130bnSource: REF, Energy Policy & Consumer Hardship (London 2011)

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

Integration Costs (+ Subsidy)• Total cost in 2020: £13bn per year in2020• Total Cost 2002–2030: ca. £175bn

Source: REF, Energy Policy & Consumer Hardship (London 2011)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 becheaper than building
more network• Colin Gibson, Former
National Grid Power
Networks Director
The UK HV Network
Source: National Grid

Economic Lifetime of Wind Turbines• Gordon Hughes, The
Performance of Wind
Farms in the United
Kingdom and Denmark(REF: London, 2012).
• The normalised load factor
for UK onshore wind farms
declines from a peak of
about 24% at age 1 year to
15% at age 10 years and11% at age 15 years.
• Significant negative
implications for levelised
cost and capitalrefreshment cycle

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

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 toconsumers