UK’s Accelerated Clean Power Push Risks Raising Energy Bills

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(Bloomberg) — The U.K. government risks passing on higher energy costs to consumers as it pursues a challenging — and updated — target to decarbonize the nation’s energy supply by 2030.

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After bringing forward the deadline for introducing a clean energy system – defined as a system that relies on gas for less than 5% of supply – to 2030 from 2035, ministers may charge consumers higher prices, according to energy analysts at Cornwall Insight and Carbon Tracker. and Aurora Energy Research Ltd. This is due to the high cost of raw materials and borrowing, which makes building new wind farms expensive. Approving a wave of projects in a rush to achieve the goal can also eliminate competition that drives down costs.

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“Assuming the cost of renewables continues to fall as manufacturing and installation costs decline, installing more capacity in the short term could lock in higher costs, compared to installing the same capacity later when costs fall,” lead designer for Cornwall, Tom Edwards, said. He added that the more ambitious target threatens to reduce competition for new renewable energy projects, increasing the price burden on consumers.

A careful balance is needed to keep costs under control, and there is a risk associated with accelerating the UK’s clean energy drive on the assumption that renewable energy is cheaper.

Prime Minister Keir Starmer and Energy Minister Ed Miliband pledged during this year’s election campaign that their plan to cut greenhouse gases would cut consumers’ annual energy bills by up to £300 ($381) a year. Starmer’s spokesman, Tom Wells, said last week that ministers “stand by independent models based on pre-election prices which said the savings could be up to £300 on a clean energy basis by 2030”.

Striving to reach net-zero emissions in the energy sector by 2030 would cost £11.4bn more over the next 11 years than meeting the 2035 deadline, according to an Aurora Energy Research analysis earlier this year. The government’s fiscal adviser, the Office for Budget Responsibility, has increased its forecast for UK spending on environmental charges to 2029 by £8.8 billion in total.

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The government set out plans last week to reform planning and grid connection rules in a bid to stimulate £240bn of investment it says is needed by 2030 to transform the energy system and meet the goal of decarbonisation. The plan envisions up to 50 gigawatts of offshore wind capacity by 2030, more than three times today’s level.

Most new wind farms are supported by government-backed contracts that set prices for 15 years. Offshore wind construction costs have risen in recent years due to rising financing costs and raw material costs as well as weather delays that have plagued projects. This means that the UK will have to secure new projects at a particularly expensive time.

To reach the targets quickly, “we will need to choose some of the least economical and most expensive projects,” said Lorenzo Sanni, an energy analyst at energy research firm Carbon Tracker.

Energy prices are calculated based on the most expensive megawatts required to meet demand. When gas is needed, it will push the price much higher than on days when the weather is windy or sunny. Under one scenario envisioned by the UK’s National Energy System Operator, gas would determine the price of energy about half the time, exposing consumers to international commodity markets.

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Cornwall’s Edwards said gas plants “will contribute significantly to the overall cost of energy because they will set prices during periods of scarcity.”

Building a significant amount of wind power in Scotland doesn’t solve everything. So far this year, the UK has spent more than £1bn in congestion costs to switch stations off when it’s too windy due to network constraints, and to switch on others. As more renewable energy sources emerge, and storage solutions fail to keep pace, wasted energy is expected to quadruple under both scenarios outlined by NESO.

To help cut down on wasted energy, the UK aims to accelerate grid expansion to better transport green electricity from the windiest, and often remote, areas to population centers in England. NESO has identified 68 projects that could be delivered by 2030, and said delaying even one of these could add an extra £500 million a year in restriction payments.

The grid operator’s report found that the UK could decarbonise energy by the end of the decade without increasing costs overall. But this scenario is based on potentially unrealistic assumptions, including natural gas prices remaining at historically high levels and a quadrupling of the UK carbon price.

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“If the price of carbon doesn’t go that high and the price of gas isn’t that high, the idea that a clean energy system will cost the same is not true,” said Tara Singh, managing director of public policy at the company. Pearson and a former lobbyist for Shell Plc.

The government can still evade the delivery of cheaper domestic energy by shifting some components of energy and gas to general taxes. Currently, wholesale costs contribute just over 40% of a consumer’s total bills, with the remainder including network costs, policy fees and operating costs.

No matter what Labor does, any hope of a return to the prices consumers paid before the energy crisis is slim: Pranav Menon, associate researcher at energy research firm Aurora, said he expected prices to remain “consistently higher” than the levels they enjoyed a year ago. 2014. to 2019.

Beyond the burden on consumers, rising energy prices are jeopardizing the speed of the energy transition, with electric vehicles, heat pumps and other parts of the economy set to do battle with electrification as costs rise.

“High electricity prices are currently the biggest barrier to the electrification of heating, transportation, and Clean Energy 2030 threatens to make this even worse.” Sunny said. “The most important action is for the government to stop this silo approach and realize that the real mission is the ‘clean economy’, not clean energy.”

-With assistance from William Mattis.

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