climate change energy

The cost of not investing in renewable energy

There’s a lot of noise about the cost of renewable energy. Vast quantities of ink are spilled over the expense of wind turbines. This year has seen Conservative backbench MPs unite to try and change government policy against wind power, and the launch of the first national anti-wind campaign.

At face value, yes, renewable energy is expensive. It represents an up-front cost at a time when budgets are constrained. This is not a reason not to abandon it. Like any investment, that up-front capital is repaid. And right now, renewable energy is a very good investment. The sector has increased in value by 11% in the last three years, against an economy that has grown by 1.4% in the same time.

It’s the relative price of renewable energy that is most important. Right now, energy from clean sources is more expensive than fossil fuel energy. However, the cost of most forms of renewable energy has been dropping, some of them quite dramatically. Clean Edge reports that the cost of solar PV has fallen by 50% in the last five years. At the same time, the cost of fossil fuels has been rising as global demand increases. Both trends are likely to continue. Wind power is already at grid parity in some parts of the world and as global gas prices rise, it will become increasingly competitive. Renewable energy will eclipse fossil fuel energy in due course, and those countries that are investing now will be better placed to manage the transition.

That’s the key thing that needs to be communicated here: renewable energy is expensive now, but it means lower bills in future. If it leaves us dependent on ever more expensive gas, it is ultimately more expensive not to invest.

There are other benefits too. The Renewable Energy Association calculates that by 2020 renewables will have displaced £60 billion of spending on fossil fuels. We’re increasingly a net importer of natural gas, so that is money spent elsewhere and leaving the economy. With the right support now, we can ensure that most of that £60 billion can be spent in the UK, creating jobs and balancing out our massive trade deficit.

What kind of support are we talking about? Winding down the subsidies that support fossil fuels might be a good start, with the money saved used as start-up funding for domestic renewable energy companies. For all the tabloid whining about green taxes, we spend more considerably more subsidising fossil fuels than we do supporting clean energy. In 2010 Britain spent £3.63 billion on subsidies to fossil fuels, and £1.4 billion on renewable energy subsidies, according to OECD figures. Most of those fossil fuel subsidies are in the form of reduced VAT rates on household bills. There would be an outcry if those were removed, but they could be changed rather than scrapped. The reduced rate could be variable and linked to the percentage of clean energy in the fuel mix of the tariff. That way, consumers would have an incentive to switch to greener tariffs, and energy companies were encouraged to invest more in renewable energy.

What else can we do? We need to hold our nerve on the feed-in tariff and renewable heat incentives, encouraging the sector to grow but without creating a bubble. A government procurement strategy would support smaller scale renewables and spread jobs around the country, retrofitting every school, hospital or council building. The government’s proposed energy bill is a perfect opportunity to get us on the right path.

Most importantly perhaps, the conversation needs to change.  ‘Green taxes’ are not the reason why our fuel bills are so high, and renewable energy is not uneconomic when understood in the context of energy trends. Politicians need to commit, and stop sending mixed signals to those businesses wanting to expand. The renewable energy revolution is happening, and the more we drag our feet about it the higher our fuel bills will be in ten years time.

20 comments

  1. Good morning, Jeremy – we haven’t corresponded for a long time. I hope you & your family are well.

    There’s much in this article I could criticise but I’ll confine this to one issue. You claim “Renewable energy will eclipse fossil fuel energy in due course”. I suppose that, just possibly, that might happen in the distant future. But I don’t see how it could possibly do so within a foreseeable timeframe – the sort of timeframe within which economic plans can be established. Currently, apart from hydro in Scotland, the only “renewable” making any contribution to Britain’s energy needs is wind power. Look out of the window: today is a reasonably breezy day. Then go to this site: http://www.gridwatch.templar.co.uk/ (UK Grid Status). You’ll see that, despite that breeze, wind is contributing only 0.3% (124MW) of our energy demand (38.84GW) – i.e. essentially zero.

    How can we possibly get from here to there?

    1. Morning, we’re all well thank you.

      I’m talking about the cost of renewable energy here – the cost of renewable energy will eclipse the cost of fossil fuel energy. We’ve got a long way to go before we have a fully renewable energy grid, if ever, but wind power has already reached grid parity in some parts of the world. That’s no so far away at all.

      1. “a long way”? Given today’s record, I would suggest an impossibly long way. BTW wind’s contribution is now at 97MW – 0.2%. And that’s despite all the investment – and environmental damage – to date. How can the continuation of this programme make sense? Low cost energy (even if that’s true) that doesn’t remotely meet our needs is pointless.

        Anyway the global energy cost picture is changing radically. See this recent report from Reuters: http://www.reuters.com/article/2012/05/17/us-energy-summit-gas-idUSBRE84F0Z620120517

        An extract:

        “A boom in North American shale gas production in the past five years has resulted in sharp falls in domestic power and gas prices there and could turn North America from a gas importer into a large exporter, and a similar development is seen as under way in the oil sector.”

        1. It’s pretty much impossible to replace our current system with renewable energy. A fully renewable energy system would be smaller, and would have to be accompanied by very large efficiency measures. That’s fine, we can do that. It’s politically difficult, but so are rising gas prices.

          As for American gas, sure, it’s reduced prices in the short term. Whether it can be sustained is another question, let alone exported. Shale gas is a market that is showing distinctly bubble-like behaviour.

          And that article is highly optimistic by the way – the US a net oil exporter? That’s laughable. The US consumes a quarter of the world’s oil production. Even Saudi Arabia at its peak would only meet half of the US’ oil needs.

          1. “Laughable”? Hmm … see this: http://www.bloomberg.com/news/2012-02-29/u-s-was-net-oil-product-exporter-in-2011.html The world’s energy picture is changing radically; I suggest you get up to speed.

            But my focus here is on renewable energy. As I’ve said, there are periods when “renewables” cannot contribute to our needs. For example, in early February when temperatures dived locally to minus 15C, for several days wind power made almost no contribution to the UK’s energy mix (most of the time coal was contributing over 50%). No matter how small our system or how large our efficiency measures, a system that cannot meet our needs is pointless.

            BTW, today’s contribution has surged to a massive 180MW – 0.4%.

  2. No Robin, I don’t need to get up to speed. You need to read the headline more carefully – the US is a net “oil-product” exporter. Not oil itself.

    The US has lots of refinery capacity and can therefore export refinery products, including gasoline. It still has to import the crude oil to make those products, and will continue to do so for the foreseeable future. All that much vaunted shale oil is so far providing around 5% of the country’s daily oil consumption – far from a radical transformation, and hopes of being a net oil exporter remain, yes, laughable.

    As for renewable energy, nobody’s suggesting we shift entirely to renewable energy. Of course there will be a fossil fuel element, and nuclear too. That doesn’t make renewable energy unimportant or futile.

    My point is really quite simple: the more dependent we are on gas, the more vulnerable we are to big price increases as global gas demand increases and domestic reserves decline.

    1. By get up to speed I’m referring to the important changes that are occurring in the world’s energy picture. See, for example, this overview: http://wpost.com/opinions/daniel-yergin-for-the-future-of-oil-look-to-the-americas-not-the-middle-east/2011/10/18/gIQAxdDw7L_story.html

      “nobody’s suggesting we shift entirely to renewable energy” Nobody? Er … “The Campaign against Climate Change believes that net global emissions of greenhouse gases must be reduced to zero as fast as possible …” You also might wish to check the “ZeroCarbonBritain” proposals.

      And my point is also quite simple: the more dependent we are on “renewables”, the more we are vulnerable to damaging power outages.

      1. You’re not telling me anything I don’t already know. Besides, Yergin’s article says US shale oil could reach 3 million barrels a day, Canadian tar sands could reach 3 million a day, and Brazil could reach 5 million a day. That’s all very optimistic and typical of Yergin, but still not enough to meet the US oil consumption of 18.5 million barrels a day. So let’s not get carried away.

        The long term future of energy is entirely renewable, but that’s very long term. (It has to be, because all other fuels are finite, including energy grade uranium.) We need a broad energy mix for the transition, which will be long. Like me, Zero Carbon Britain sees a role for nuclear and for fossil fuels with CCS for some time yet.

        You’re also fixating on wind (how many times a day do you check those live stats exactly?). Renewable electricity overall is at 6.8%. Writing it off as you do makes you sound like someone in 1900 going, ‘these automobiles, they’ll never come to anything’.

        1. I’m interested in wind because, apart from hydro, it’s by far the biggest contributor to UK renewables. At present, wind is contributing 0.7% and hydro 0.5%. That’s a total of 1.2%.

          So where does your 6.8% come from?

          1. You’ll find at least half your 6.8% is comprised of sewage gas, landfill gas and various biofuels; these incidentally are ineligible for the “Renewables Obligation”. But, re wind, what matters is, not the overall contribution (albeit tiny), but what is being provided at any given time. And if there are times when – as now – a resource makes no contribution to the UK’s energy requirement, increasing dependency on that resource means damaging power outages. That’s especially true of wind that has consistently failed during very cold periods when energy is particularly needed. Therefore, investment in that resource is at best unwise. And that’s especially so when – as I pointed out yesterday – such investment is causing environmental harm by the industrialisation of our precious countryside (turbine installations and increased transmission infrastructure) and the damage done, for example in China, by the extraction and processing of the so-called rare earth minerals required for turbine manufacture.

            BTW wind is currently contributing 44MW – 0.1%. In other words, it’s contributed effectively nothing to our energy requirement for 24 hours. “A very good investment”? I don’t think so.

  3. Further to this, I see wind is now contributing 1% to our energy demand.

    Jeremy: if, on a mildly breezy day like today, wind (our only significant “renewable”) can contribute little more than zero to that demand, it seems to me that further investment in wind is, yes, futile. That would seem to be true anyway. But it’s confirmed by the environmental damage caused by the industrialisation of our countryside and the dreadful damage done, especially in China, by the extraction and processing of the so-called rare earth minerals required for turbine manufacture.

  4. Yes, renewable energy is a very good investment, solar, biomass and landfill gas included. But if you’d rather obsess over whether or not the wind is blowing today, that’s your prerogative.

    1. I’m interested in wind power because it’s a major target for the UK’s renewable investment and is expected to be the largest component of our 15% by 2020 renewable energy target. It’s extremely important. Yet, as I’ve shown, increased dependency on wind power risks (as well as environmental damage) dangerous power outages. Doesn’t that concern you?

      PS: re changes in the world’s energy picture, these may interest you:

      http://www.ft.com/cms/s/0/3aa19200-a4eb-11e1-b421-00144feabdc0.html#axzz1vgce0WjQ

      http://www.businessweek.com/news/2012-05-23/european-fracking-bans-open-market-for-u-dot-s-dot-gas-exports

      1. Wind power has to be balanced with other energy sources and the people who run the grid know that, so no, I’m not remotely concerned. I am concerned that my energy bills are tied so closely to the price of gas, which is endlessly going up regardless of US fracking.

        1. We’re told that, in a few years, the UK must close its older coal and nuclear power plants. It’s too late now to bring new nuclear capacity on line in time and there are no plans to build new coal plants; and anyway CCS cannot be made to work economically. At the same time, the UK is obliged to ensure that renewables comprise 15% of its energy needs – so that’s not a gap that can be filled by gas. And most of those renewables will come from wind power. So, during a period (such as now) when wind contributes nothing, there will be no “other energy sources” in the Grid to provide your balance.

          Your complacency is remarkable Jeremy. I hope it’s not widely shared.

          1. I’m talking about investment in renewable energy, and that includes R+D too. Have you seen the rate of innovation in renewable energy over the last few years? The fall in the price of solar panels is remarkable. You don’t like wind turbines, I get that. But renewable energy is the next technological revolution. If Britain doesn’t want to be part of it, you can bet China will.

            I’m not remotely complacent. That’s why I’m writing about this – so that we don’t miss the boat.

  5. This has got nothing to do with whether or not I like wind turbines. It’s simply that, as can be seen over the past two days, they don’t work when there’s little wind. So our planned reliance on them is potentially very dangerous – especially for some of the most vulnerable people in society. Yet you’re “not remotely concerned”. Hmm … sounds very like complacency to me.

    Yes, the Chinese may be interested in renewable R&D – especially if they think there’s an export market in the West. But they continue to make quite sure the bulk of their energy comes from fossil fuels, mainly coal: http://3000quads.com/2012/04/19/china-and-coal/

    1. You don’t seem to hear what I’m saying at all, so I’ll finish after this comment.

      1) The little live stats widget that you’re so fond of is no way to judge the effectiveness of the UK wind industry.

      2) We’ve had wind turbines long enough to know the economics of them and what we can expect from them. We know that they generally operate at about 30% efficiency, and that they are still economic at that level. Coal and nuclear operate at about 50% efficiency, and the average across the grid is 48%.

      3) The people who run the national grid are not idiots. It’s their job to manage the load, and to incorporate variable energy sources such as wind, tide and solar. It’s what we have a grid for in the first place.

      4) The point of this post, which you haven’t bothered to engage in, is that the cost of renewable energy is falling, while the cost of fossil fuels is rising. If you don’t want wind power, you’re voting for gas imports. Which is a more dangerous vulnerability?

      5) I’ve written more about the economics and efficiency of wind power here: http://makewealthhistory.org/2012/02/28/why-you-should-support-wind-power/

      1. And my point Jeremy, one you seem determined to ignore, is this: whatever its “efficiency”, whatever its “economics”, there are times when wind power – from all installations, onshore and offshore – contributes nothing to the UK’s energy needs, a problem exacerbated by its unpredictability. That’s not true of gas, of coal or of nuclear power.

        Therefore you’re right: when wind fails, the clever people who run the Grid are well able to cope by using these reliable resources to compensate for wind’s failure (especially coal, although modern gas plants can be turned on quite quickly). For example, when in February there were several days without wind contribution, they were able to ramp up coal’s contribution to over 50%.

        That’s fine today. The problem is that, quite soon, we will have to phase out much of that reliable coal and nuclear capacity. And, as that is happening, we are obliged to increase the renewable share of our energy capacity to 15%. Most of that will be wind power – tidal and photovoltaic systems contribute nothing of consequence today and are not expected to do so for a long time, if ever. Therefore, when these changes have happened and wind fails – as it certainly will – there will be little if any excess capacity to compensate. That means we risk power outages. And power outages are dangerous.

        Perhaps you’re right and, as your post argues, eventually fossil fuel costs will exceed renewable costs. But knowing that will be no consolation to those whose lives are blighted by failure of energy supply.

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