In September, while inaugurating the UK’s latest offshore wind farm – the 376MW Sheringham Shoal, off the coast of Norfolk, with the ability to power 220,000 homes – the secretary of state for energy and climate change, Ed Davey, said it would herald an era of escalating cost reductions.
“Every offshore turbine that gets built makes the next one easier and cheaper, because companies learn and because of the economies of scale,” Davey said. “I fully expect to see substantial cost reductions in the next few years, which will be good news for the UK’s outlook.”
Already, onshore wind farms can generate electricity at a rate comparable with traditional fossil fuel power stations, although offshore wind is more expensive as it requires hardier technology and more maintenance. Estimates of offshore wind costs have fluctuated wildly in recent years, as large-scale projects have gradually moved from being theoretical items on the balance sheet to sources of real power. But as the £1bn invested by mostly Norwegian investors in Sheringham Shoal illustrates, the costs are still high and only companies with strong backers can compete.
Solar energy is also coming down rapidly in cost. Greg Barker, climate change minister, forecast early this year that 4m homes could have solar power by 2020. Such optimism is viewed sceptically by many in the industry, given the recent dramatic fall-off in installations as feed-in tariffs have been cut. But the Solar Trade Association says the cost of panels are coming down, and as a result take-up is likely to increase. Households can still benefit by up to a £1,000 a year in energy bill reductions and feed-in tariff payments, generating a potential financial return of more than 7% on their investment.
The Department of Energy and Climate Change (Decc) and the Committee on Climate Change, the independent body that advises the UK government on climate change, agree that diversifying the UK’s energy supply by using more renewables will help to bring down energy bills and increase energy security, through cutting dependence on imported fossil fuels. But despite his championing of renewables, Davey remains a staunch supporter of gas in the UK’s energy mix – and this introduces a degree of uncertainty to the future of UK energy. Davey says he expects 20 new gas-fired power stations to be built in the next 18 years, amounting to more than 20GW of generating capacity – an increase of close to 50% on current gas generation.
The reason for such expansion becomes clear when viewed in light of a recent report from the energy watchdog Ofgem, which found the UK was in danger of blackouts within the next three years as coal and oil-fired power stations begin to close to meet EU targets. Gas is a quick answer. New gas-fired power stations can be constructed in as little as 18 months, whereas renewables can face delays owing to difficulties with grid connections, and new nuclear reactors are likely to take at least five years to build.
But this massive expansion of gas-fired electricity could have a serious impact on electricity prices. Dieter Helm, adviser to the chancellor George Osborne, urges a big expansion of the fuel, arguing it will become very cheap under the impact of shale gas in the US.
This assumption is questioned by the International Energy Agency, which has predicted that gas prices in Europe will continue to rise. That could mean heftier bills: increases in the price of gas were behind as much as 80% of recent energy price rises, according to Decc.
At present, the government is forecasting average household energy bills – power and heating combined – will reach about £1,285 in 2020. But even including the £280 added to bills as a result of green policies such as subsidies to renewable energy, this bill level will be 7% lower than the £1,379 estimate without such policies.
What this forecast cannot fully take account of, however, are the potential major rises in gas price. While prices for wind and solar have been steadily decreasing, the future price of gas is up for grabs. For UK consumers, gas could be a bigger leap into the unknown than opting for renewable energy.
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