The Guardian has reported that BEIS intends to commission a report into the costs of energy. Although not yet confirmed by BEIS, it would be a surprise, and the House of Lords has done something similar in recent times.
There’s a critical problem at the heart of funding for renewables. Put simply, we currently assess them in isolation, looking only at unit costs over the lifetime of a generator (a turbine, a solar panel, a power plant). Yet this ignores their impact on the system.
There are a few different ‘system costs’. The most obvious is connecting the new sources. This can be expensive – transmission lines aren’t cheap at the best of times, but when we’re talking about a wind farm in the middle of the sea, it’s very pricey indeed. Other significant costs include providing back-up for when the sun doesn’t shine or wind blow. Or reinforcing the grid for the sheer physical demands of withstanding high-voltage fluctuations. Or procuring capacity on the Capacity Market because we’re not 100% sure of deliverability with some renewables.
These costs are real. They add to distribution and transmission costs, which is a large part of what Centrica blamed for its 12.5% price rise for British Gas customers.
One fundamental way to address the challenge is to be honest about the prices of renewables. This isn’t about saying ‘this technology costs the system more, so avoid it’. Instead, it’s about recognising the value of some low-carbon technologies, such as biomass, which offer the flexibility we need to back up more intermittent technologies. If we want more cost-effective renewables, whole system costs is part of the answer.
We’re not offering a simple costing system – others have done so (although BEIS refused to publish the numbers on theirs). Instead, we suggest recognition of some technologies as providers of valuable flexibility on the system.
CarbonBrief has done a very good introduction to the issues here.