UK Reviews Energy Costs. Renewables Set to Become New Conventionals

The UK Department for Business, Energy & Industrial Strategy (BEIS) has published an independent review of energy costs, looking into reducing costs in the electricity supply chain.

The review has been conducted by Professor Dieter Helm CBE, after he was asked in August to consider the whole electricity supply chain of generation, transmission, distribution and supply. It follows the plan to upgrade the UK’s network to a smarter energy system, set out by the UK government and Ofgem in July, and the publication of draft legislation on an energy price cap.

One of the things Professor Helm pointed to in his review is that many of the excessive costs are locked in for a decade or more by the contractual and other legal commitments governments have made, including Renewables Obligation Certificates (ROCs), feed-in tariffs (FiTs), and low-carbon contracts for difference (CfDs). These were granted to early-stage wind and solar, larger-scale nuclear, biomass, and offshore wind. Professor Helm advises finding ways to minimise the burden these formal contracts impose, and to make them transparent and separated out from the market where costs should be coming down.

According to the review, in terms of cost reductions which follow from large-scale deployment, offshore wind and carbon capture and storage (CCS) in the North Sea are most likely the only ones that have unique dimensions relevant to the UK. Furthermore, the review states that there is a powerful case for direct research and development (R&D) policies, as well as for policies to focus on the capital costs of the project developments.

Dieter Helm highlighted that the case for future “mass deployment” of new renewable energy technologies is hard to make, and that this deployment has now happened for offshore wind, “probably the only credible case.”

The review reads that it is only the carbon price that is needed to ensure a level playing field as the costs of renewable energy continue to fall and “renewables become the new conventionals.”

The new renewables technologies transform and undermine the assumptions of the 20th-century electricity industry for a further reason: they are zero marginal cost, with the exception of biomass.
 
Zero marginal costs have already begun transforming the electricity industry. They undermine a core feature of the 20th-century industry: the overwhelming dominance of the wholesale market, in turn driven by the price of coal and gas. In a purely zero marginal cost world, there is only capacity. The energy itself is free.”

Responding to the publication of the review of energy costs, RenewableUK’s Chief Executive Hugh McNeal said: “Professor Helm’s report supports the view that renewables are set to become the backbone of the UK’s modern power system and that a flexible grid will ensure costs for consumers are kept as low as possible. He specifically says wind energy can make a contribution to security of supply and describes renewables as the ‘new conventionals’.”

“The cost of renewable energy has fallen further and faster than anyone predicted – and Professor Helm predicts that this trend will continue. Offshore wind costs have dropped by 50% since 2015, making it cheaper than nuclear and gas. When it comes to keeping bills down, low-cost onshore wind is a crucial technology for consumers and must be allowed to compete on a level playing field”.

Following the report’s release, the government will soon be seeking the views of industry, businesses, academics and consumer groups on Professor Helm’s review. “I am grateful to Professor Helm for his forensic examination. We will now carefully consider his findings,” UK Business and Energy Secretary Greg Clark said.