How much will wind cost Scottish consumers?
Two articles appeared in the Scottish versions of the Sunday Times and the Daily Express over the weekend arguing that expansion of wind energy will add £400 to Scottish consumer energy bills by 2020. The figure originates from anti-wind group the Renewable Energy Foundation (REF) and appears to differ markedly from government estimates. We look at why.
The Scottish Sunday Times article is headlined ‘Windfall; A loss of wind farm subsidies would blow a hole in Alex Salmond’s financial calculations’. It quotes REF director John Constable saying:
“…the aim of producing the equivalent of 100% of Scotland’s electricity from renewables by 2020 threatens to saddle the average household, of two adults and two children, with an annual “wind tax” of £400.”
Monday’s Daily Express uses the same research to report: “Wind farms will add £410 to your power bill”.
In contrast, the Department of Energy and Climate Change (DECC) estimates subsidies for renewables paid out through the Renewables Obligation (RO) and the government’s electricity market reform (EMR) programme will add a net total of £69 to consumer electricity bills across the UK.
DECC’s figure applies to the whole of the UK, not just to Scotland. It also doesn’t take into account the cost of upgrading the grid. But it’s still a far cry from REF’s estimate. So what accounts for the difference? We’ve taken a look at some of the assumptions behind REF’s calculation.
Assumption 1: Scotland bears the cost of its own renewables
The first point to note is that REF assumes Scottish consumers will be solely responsible for subsidising Scottish wind generation in 2020. This would be a change from the current situation. The UK-wide subsidy mechanism known as the Renewables Obligation (RO) currently supports renewable energy generation. Every household in the UK pays for the RO through a subsidy on its energy bills.
Scotland has a lot of renewable power. In 2011 the amount of electricity it generated from renewables was equivalent to more than one third of the amount of electricity it consumed – so that means Scottish renewables receives more money in subsidies. As REF puts it, while Scotland has a tenth of the population of England and Wales, it gets a quarter of the subsidy.
In the light of energy minister John Hayes’s announcement last week that “enough is enough” on new onshore wind, coupled with the coming referendum on Scottish devolution, the Express and the Sunday Times argue the UK parliament may stop subsidising Scottish windpower – leaving Scottish consumers to foot the bill.
Some energy companies and commentators have already raised concerns about the effect of breaking up the UK on renewable subsidies for Scotland. And earlier this year, DECC minister Ed Davey told a Scottish parliamentary committee:
“If the English, Welsh and Northern Irish said, ‘We are not paying the subsidies for Scottish renewables and Scottish consumers have to pay for that’, then there is no doubt that there will be [energy bill] increases in Scotland.”
Other experts point out, however, that the rest of the UK needs Scottish renewables in order to meet its 2020 renewable energy target mandated under EU rules. As Holyrood Energy Minister, Fergus Ewing puts it:
“Why on earth would the National Grid have agreed with Ofgem to enable a four-fold increase in our capacity to export electricity south of the Border unless it were necessary? They don’t do it for fun, they do it because the consumers need our electricity.”
This seems like a fair point. A spokesperson from the Scottish government tells us:
“Regardless of changes that are being made to the UK renewables market structure and incentives anyway, given Scotland’s vast renewable resources under independence it will be in the rest of UK’s overwhelming interests to ensure support arrangements to secure Scottish renewable energy.”
Assumption 2: Wind subsidy levels
REF assumes that in 2020, Scottish onshore wind will attract a subsidy equivalent to 0.9 Renewables Obligation Certificates (ROCs) per megawatt hour of electricity. Under this hypothetical scenario, then, the UK government would have abandoned support for onshore wind by 2020, but the Scottish government would continue to support the technology at today’s levels.
The UK government recently decided to cut onshore wind subsidies by 10 per cent – in technical terms reducing them from one ROC per megawatt hour (MWh) to 0.9 ROCs per MWh. But there is no guarantee they will stay at that level in the long term. Deputy Prime Minister Nick Clegg, for example, has said the subsidy may be reduced further in the future as the sector develops.
Blogger and energy expert Chris Goodall made the case to us that it would be illogical for the Scottish government to continue to subsidise domestic wind generation at today’s level in 2020. He argues that the aim of the current subsidies is to support “marginal” onshore windfarms in England and that large wind farms in the west of Scotland “wouldn’t require anything like that level of support” in order to be profitable.
Assumption 3: The cost of integrating wind to the grid
REF estimates that total subsidies for Scottish onshore wind will amount to £1 billion by 2020. In an email to us, it adds:
“On top of this there are specific wind integration costs (extra grid and grid strengthening, capacity payments for standby backup plant, constraint payments to wind farms when the grid cannot integrate all the wind power generated). These have been estimated by Colin Gibson, formerly power Networks Director at National Grid…The integration costs add another £60 per MWh bringing the total costs of Scottish wind power to £2.2 bn per annum.”
So addition of Gibson’s number means that the estimate is about double what it would have been if REF had just considered the cost of subsidies.
Gibson’s work has been used before to make the case against wind power – for example in a report by freemarket think tank Civitas, and also in anti-wind media coverage.
Gibson’s work has attracted criticism, however. Chris Goodall has taken a look at the numbers, arguing:
“…many, many other analysts and engineers have also estimated the extra costs of adding large volumes of wind power to the electricity system. In this note I suggest that these alternative sources support a view that Mr Gibson’s estimates are wrong by about a factor of four”.
LSE academic Dr. Rob Gross from LSE has said that Gibson’s work is “clearly completely out of step with the opinion of National Grid now”.
An accurate estimate?
REF’s estimate for the costs of wind to Scottish consumers is within the bounds of possibility. But REF is making assumptions – some of which are on the more extreme end of the scale, putting the cost to Scottish households up significantly. The estimate only works if all of the assumptions are proved correct, so the number really needs to be put into context in order to be understood properly – something that didn’t happen in the Sunday Times or Express coverage.