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The true cost of going green: who will foot the bill for renewable energy?

Renewable energy, whether it be wind, solar, biofuels, or tidal, is seen as a key technology to curb climate change, but all this comes at a high cost. E&T looks at the true price of green energy.

Electricity generated from renewable power sources is, without doubt, a powerful weapon for the world in the fight to save the planet and achieve energy independence. However, renewables will have to overcome many challenges, including economic competitiveness, development factors, supply concerns and public policy issues.

Renewable power is perceived as clean and virtually 'free' by the public. In fact, the reality is quite different. Though the raw fuel in the form of wind, water or solar are free, the costs involved of transforming the energy into usable electricity and delivering it to the customer are not. In fact, from the consumer's point of view, current well-established technologies such as coal, oil, gas, hydro and nuclear are much more competitive.

The current global new investment in renewables was estimated in 2008 at $155bn, but this only represents 10 per cent of the total global energy infrastructure investment according to New Energy Finance. So it is not surprising that environmental writer Bjorn Lomborg observes: "clearly business sees big opportunities in renewables."

The EU has set Britain a target of 15 per cent of total energy consumption from renewables by 2020. In Britain, there are three main uses for energy: heating, transport and electricity generation. In 2007, heating accounted for 42 per cent of final energy consumption, transport for 39 per cent and electricity for 19 per cent (of which renewables provided 5.5 per cent).

Governments are portraying renewables as the solution to energy security and insurance against price fluctuations. In fact, there are other solutions that governments are ignoring that are more cost-effective, argues energy financier Oliver Letwin MP, these include energy efficiency, domestic coal mining and construction of sufficient energy storage facilities to protect Europe from disruption of supplies.

Development costs

In terms of development costs, it is more cost-effective for an investor to build and operate a conventional power station than a wind farm. For example, Scottish Power has recently opened at Whitelee, near Glasgow a £300m onshore wind farm that could produce up to 600MW of power sufficient to supply, in theory, 180,000 homes.

"Existing UK energy policy will require an incredible 600 Whitelees to be built by 2050 - that would cover an area of land the size of Wales," says Dave Morris, director of Scottish Ramblers. "Such a plant is likely to operate 20 per cent of the time."

Compare Whitelee with the new £800m combined cycle gas turbine station, due to be built near Pembroke. Such a plant is planned to produce 2000MW of power, 90 per cent of the time, supplying three million homes and, no doubt, some of this power will act as backup to the Whitelee scheme when the wind fails to blow.

The Department of Energy and Climate Change (DECC) has produced a breakdown of the costs that an investor would face to develop a typical wind farm. Around 64 per cent of the cost is spent on the turbines, 8 per cent for the electrical infrastructure, 6 per cent for the connection to the National Grid with the remainder eaten up by related financial, legal and development costs.

The Renewable Energy Foundation (REF) estimates that a 35MW wind farm could earn an income from electricity sales and subsides of £7.5m. For operating costs, the UK's DECC estimates £8 to £25 per KW per year. In addition, current business rates for onshore wind farms amount to £5,000 per megawatt, while offshore are zero-rated, reports the DECC. On top of this there are insurance costs which are likely to increase as, throughout Europe, there is increasing evidence that the technology is not as robust as manufacturers originally hoped.

Throughout Europe many offshore wind installations have had to be replaced within the first 18 months of operation, chiefly due to the tough operational environment. However, even equipment at onshore locations, such as gearboxes, have had to be replaced in large numbers according to the German Insurance Association in a report on the technical defects of wind turbines.

Generating costs comparisons

Well-known climate change critic Nigel Lawson has remarked that: "Despite the dramatic changes in prices, conventional power remains the cheapest source of energy." It is not surprising then that the worlds' governments have had to provide massive incentives to attract investors' interest in renewables.

In the UK, the Royal Academy of Engineers estimated offshore wind power electricity prices to be around 7.2 pence per kilowatt hour (kWh) and onshore at 5.4 pence per kWh compared with conventional power technology of between 2 and 3 pence per kWh.

In the US, energy consultants Black & Vetch estimate that a modern coal plant without carbon capture technology produced electricity at 7.8 cents per kWh, a high efficiency natural gas plant at 10.6 cents a kWh and a new nuclear reactor at 10.8 cents per kWh.

Massachusetts Institute of Technology (MIT) suggests that to add carbon capture technology to coal power stations would add an additional 3 cents to generating costs, bringing it up to 10.8 cents. However, a wind power station in a favourable location could produce electricity at 9.9 cents per kWh, but if the cost of backup power from conventional power stations, for when the wind failed to blow, is factored in then the cost of electricity generated increased to 12 cents.

On this basis, wind power would still be more expensive than coal power.

Operational issues

For National Grid planners, increasing amounts of renewable power are proving a headache for those responsible for matching supply with demand. Electricity is difficult and expensive to store for the purposes of time switching for delivery at a later time.

Several costly and complex solutions are being considered to overcome this dilema. There is the well proven technology of hydro-pump storage schemes, as at Dinorwig in Wales, and also being considered are industrial-scale batteries. Unfortunately, such technology is not cost-effective at present.

In addition, the National Grid is increasing reserves of standby capacity from conventional power stations to act as a backup to renewable power failures, since DECC estimates wind farms only operate between 10 and 20 per cent of the time. "In operational terms, 25GW of installed wind generation capacity could be counted on for the same contribution to peak demand as 5GW of conventional capacity; and it would take 36GW of wind plant to match 6GW of conventional plant," says Dr John Constable of REF.

The National Grid estimates such additional backup reserves will eventually cost the consumer up to £1bn per annum. According to Lawson, the trouble is such standby stations tend to be the cheapest and therefore the greatest emitters.

Additional solutions being examined are improvements to domestic grids and international grids so when there is no wind to power wind farms the UK can import renewable energy from elsewhere. Denmark, for example, is well integrated with its neighbours, so when the wind fails to blow at home, it can depend on imported electricity from hydropower stations in Norway.

Getting access to the grid for renewable power is proving a costly and time-consuming business. In Germany alone, it will cost over €1bn to link up all wind farms to the grid, reports Stephan Kohler, the head of Germany's energy agency.

In Britain, the costs are likely to be higher as many of the best wind farm sites are distant from the grid. Such proposals are also facing delays due to the general antidevelopment culture that exists among many planning authorities in the UK.

Norway as a power

The question on some energy planner's minds is whether Norway could become Europe's battery. There is a good case for this, argues Norwegian Energy Minister Aaslung Haga who stated: "Norway already has over half the EU's developed hydropower and it plans to significantly improve its renewable production capacity by 2020-2025."

However, the prospect of more wind farms, power lines, dams and pump storage schemes littering the Norwegian landscape, is being greeted with some dismay, reports local paper Dagbladet. It would enable Norway to store and time-shift the delivery of electricity to when it is needed for customers and thus overcome the twin problems of intermittent supply and time switching.

Norway's scheme could only be fully realised if the EU implemented its proposals for a Europe-wide super grid. A super grid would aid Europe in maximising the advantages that are claimed for renewable energy technology, while also improving supply stability.

The first step of the super grid scheme would connect all the offshore wind farms and countries bordering the North Sea. If such a North Sea link is built, it could mean Britain having to rely on a smaller portion of its electricity from conventional power sources as the UK could depend on Norwegian renewables sources for backup reserves, when ours are not available. 

The final bill

Alistair Buchanan, CEO of Ofgem, has said: "One of the features of the renewables strategy is that of a £1,000 bill currently for the average household, £80 is environmental connected."

The House of Lords Committee for Economic Affairs suggests: "That the extra cost of electricity generation and transmission in Britain in 2020 with 34 per cent renewables is likely to be £6.8bn a year, an extra 38 per cent. Most of this would be met by the consumer; about £80 a year (at current prices) for the average household."

Given the intermittency, time switching (i.e. power storage), environmental and economic problems concerned with renewable technology, it would be advisable for governments to greatly encourage funding for the training and education of engineering operatives to work in this sector. In addition, funding must also be focused
on developing cost-effective large-scale energy storage technology.

However, governments must not ignore the benefits that hydro and hydro pump storage schemes can bring to smoothing out electrical supplies. In addition, the planning and management processes have to be reformed so as to reduce costs of implementation and to maximise economic benefits. Policy makers must bear in mind supply reliability at affordable prices is equally important.

This means ensuring that investment in traditional technologies such as clean coal and nuclear power are not disadvantaged.

It is clear that if the dream of renewables is truly to be realised that the problems of intermittency, time switching, economic competitiveness, development factors, supply concerns and public policy issues have to be resolved.

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