Memorandum Submitted by the Department of Energy and Climate Change (WIND 01)
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Energy and Climate Change Committee The Economics of Wind Power written evidence REF: Page WIND 01 Department of Energy and Climate Change 5 WIND 02 Maureen Beaumont 9 WIND 03 D E Simmons CEng; MIMechE; CMIOSH; RMaPS 11 WIND 04 Galloway Landscape And Renewable Energy (GLARE) 12 WIND 05 Dr. Ian Woollen 15 WIND 06 Energy Technologies Institute (ETI) 16 WIND 07 Viscount Monckton of Brenchley 18 WIND 08 ABB 21 WIND 09 Roland Heap 24 WIND 10 David Campbell 29 WIND 11 The Renewable Energy Foundation 31 WIND 12 Brian Skittrall 34 WIND 13 Sir Donald Miller 37 WIND 14 Hengistbury Residents' Association (HENRA) 40 WIND 15 Environmentalists for Nuclear Energy ‐ UK 43 WIND 16 REG Windpower Ltd 46 WIND 17 Adrian J Snook 52 WIND 18 Montgomeryshire Local Council Forum; Welshpool Town Council 55 WIND 19 Ian W Murdoch 57 WIND 20 Mrs Brenda Herrick 60 WIND 21 Mr N W Woolmington 62 WIND 22 Professor Jack W Ponton FREng 63 WIND 23 Mrs Anne Rogers 65 WIND 24 Global Warming Policy Foundation (GWPF) 67 WIND 25 Derek Partington 70 WIND 26 Professor Michael Jefferson 76 WIND 27 Robert Beith CEng FIMechE, FIMarE, FEI and Michael Knowles CEng 78 WIND 28 Barry Smith FCCA 81 WIND 29 The Wildlife Trusts (TWT) 83 WIND 30 Wyck Gerson Lohman 87 WIND 31 Brett Kibble 90 WIND 32 W P Rees BSc. CEng MIET 92 WIND 33 Chartered Institution of Water and Environmental Management 95 WIND 34 Councillor Ann Cowan 98 WIND 35 Ian M Thompson 99 WIND 36 E.ON UK plc 102 WIND 37 Brian D Crosby 105 WIND 38 Peter Ashcroft 106 WIND 39 Campaign to Protect Rural England (CPRE) 109 WIND 40 Scottish Renewables 110 WIND 41 Greenpeace UK; World Wildlife Fund; Friends of the Earth 114 WIND 42 Wales and Borders Alliance 119 WIND 43 National Opposition to Windfarms 121 WIND 44 David Milborrow 124 WIND 45 SSE 126 WIND 46 Dr Howard Ferguson 129 WIND 47 Grantham Research Institute 132 WIND 48 George F Wood 135 WIND 49 Greenersky. Co.uk and Sustainable Sitlington 137 WIND 50 No NOW group 141 WIND 51 Roger Helmer 143 WIND 52 Montgomeryshire Against Pylons 145 WIND 53 Element Power 148 WIND 54 Jeremy Elgin 153 WIND 55 Brian Catt 155 WIND 56 National Grid 157 WIND 57 Centre for Energy Policy and Technology, Imperial College (ICEPT) 159 WIND 58 Abundance Generation 168 WIND 59 W R B Bowie 170 WIND 60 Kes Heffer 173 WIND 61 Alex Henney 175 WIND 62 Mary Armstrong 189 WIND 63 Rainbow Trails 191 WIND 64 GE Energy 193 WIND 65 Falck Renewables Wind Ltd 195 WIND 66 CATS ‐ Communities Against Turbines Scotland 197 WIND 67 Renewable UK 200 WIND 68 EDF 202 WIND 69 Prof. P Bullough 205 WIND 70 The Crown Estate 207 WIND 71 RWE 212 WIND 72 Theodor Oostindie 214 WIND 73 Carbon Trust & Partnership Renewables 216 WIND 74 Judith Stretton 219 WIND 75 AAWT 220 WIND 76 Mark Blackwell 222 WIND 77 RES 224 WIND 78 Banks Group 229 WIND 79 Energy UK 231 WIND 80 Ecotricity 234 WIND 81 Tata Steel 236 WIND 82 John Muir Trust 238 WIND 83 The Royal Academy of Engineering and Engineering the Future 240 WIND 84 Mainstream Renewable Power 245 WIND 85 Bruce McIntosh 247 WIND 86 Vestas 249 WIND 87 Richard Moore 251 Memorandum submitted by the Department of Energy and Climate Change (WIND 01) What do cost benefit analyses tell us about onshore and offshore wind compared with other measures to cut carbon? 1. Although DECC does not publish cost-effectiveness estimates for different technologies, annex B of its Carbon Plan1 sets out cost benefit analys is of policies to reduce carbon, including energy efficiency and support for renewables. What do the latest assessments tell us about the costs of generating electricity from wind power compared to other methods of generating electricity? 2. DECC published its assessment of the levelised cost of new non-renewable electricity generation technologies in August 20112 and the cost of renewable electricity technologies in October 2011 in Appendix D of the Arup report2. These cost estimates include direct costs such as: capital, operating, carbon, fuel and decommissioning costs. They do not take indirect costs into account, such as balancing costs and visual impact of renewable and non-renewable power stations. £2010/1 CCGT CCGT Coal Coal Coal Coal Nuclear 1 prices3 with ASC ASC IGCC IGCC NOAK4 CCS with with FOAK NOAK NOAK CCS FOAK CCS FOAK FOAK £/MWh £76.6 £104.8 £95.4 £108.3 £126.2 £134.8 £74.1 Onshore Onshore Dedicated Dedicated Offshore Cofiring Cofiring < 5MW > 5MW Biomass biomass wind Conventi Enhance >50MW 5‐50MW Round 2 onal d £/MWh £104.9 £90.2 £144.6 £127.6 £121.6 £96.7 £107.4 How do the costs of onshore wind compare to offshore wind? 3. Based on central estimates for projects starting in 2011, onshore wind sites (larger than 5MW) were estimated to generate electricity at a cost of £90.2/MWh. 1 http://www.decc.gov.uk/en/content/cms/tackling/carbon_plan/carbon_plan.aspx 2 http://www.decc.gov.uk/en/content/cms/about/ec_social_res/analytic_projs/gen_costs/gen_costs.aspx 3The table sets out the central levelised cost estimates for selected technologies for projects starting in 2011, assuming a 10% discount rate. When carrying out the analysis for Renewables Obligation policy, the discount rate is allowed to vary between technologies. 10% is used here to enable a consistent comparison across technologies. 4 Coal ASC stands for Advanced Super Critical Coal, IGCC Coal stands for Integrated gasification combined cycle coal. FOAK refers to ‘First of a Kind’ estimates, while NOAK refers to ‘Nth of a kind’ estimates. Page 5 The comparable cost for offshore wind plants is £121.6/MWh. On a per MWh basis, offshore wind is estimated to have higher capital and fixed operating costs and lower variable operating costs, than onshore wind. Onshore wind is expected to remain cheaper than offshore in the future. The industry-led Cost Reduction Task Force published is report on 13 June, which demonstrated the industry’s commitment to bring the costs of offshore wind down to £100/MWh by 2020, and set out recommended actions to deliver on th i s ai m. 4. The Table above sets out levelised costs, published in the ARUP report2, assuming a comparable 10% hurdle rate for each technology. To inform support levels offered under the Renewables Obligation (RO), levelised costs use technology specific hurdle rates (also available in ARUP). The level of support required to be economic is based on the difference between the cost of a technology, and the revenue it receives (from the sale of electricity and levy exemption certificates). This gap between cost and revenue is then divided by the ROC price to determine the ROC banding required for each technology, based on a range of costs. 5. The electricity price over time is estimated using a consultancy model of the electricity market, which models non-renewable investment decisions, short run despatch decisions, and how supply meets demand overall. Further detail on the approach was published with the Banding Review consultation in a report by Pöyry consulting5. What are the costs of building new transmission links to wind farms in remote areas and how are these accounted for in cost assessments of wind power? 6. The estimates above include transmission charges faced by wind developers, and, in the case of offshore wind, the cost of offshore grid connections, and are published in the RO Banding Review consultation document6. 7. Transmission Charges faced by generators are reflective of the both the costs of connecting wind farms and the costs of using the transmission network. Wind developers decide where to locate, considering both the high generation potential of certain locations and the associated transmission co sts. What are the costs associated with providing back up capacity for when the wind isn’t blowing, and how are these accounted for in cost assessments of wind power? 8. The full cost of intermittent generation on the electricity system, including system balancing costs, and the full cost of the generation mix (both renewable and non renewable) is estimated in the Renewables Obligation Banding Review Impact 5 http://www.decc.gov.uk/assets/decc/11/consultation/ro‐banding/4081‐poyry‐revised‐ro‐bands‐review.pdf Page 6 Assessment6, and are reflected in the cost-benefit assessment of the proposals. Balancing costs are also included in the estimate of the impact on bills. These costs are uncertain, and vary according to the level of intermittent generation on the system. Evidence suggests7,8 that the cost of balancing and back up generation could cost up to around £10/MWh of intermittent generation, under scenarios where intermittent generation rises to over 30% of electricity d emand. 9. These are not reflected in the levelised costs estimates above, as they cannot be attributed to a particular technology, and they depend on the proportion of intermittent generation in the electricit y mix. How much support does wind power receive compared with other forms of renewable energy? 10. The support available to wind power varies by technology and size. Onshore installations in the UK are eligible to receive 1 Renewable Obligation Certificate (ROC)9 for each MWh of electricity they produce. Onshore installations below 5 MW in England, Wales and Scotland are also eligible for a Feed in Tariff, but they are supported under the RO only in Northern Ireland at a higher rate. FIT support levels are published on the DECC website10.