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Far from being more expensive, as many argue, renewable electricity should be cheaper over the longer term than gas because of the increasing cost of carbon emissions, a new report finds. What does this mean for your energy bill?
An austerity drive has seen the Tories cut back subsidies for renewable energy, bringing complaints from some business energy suppliers that have focused on solar and wind generation as a sustainable way to provide power.
The Committee on Climate Change (CCC) is the latest to suggest that perceptions of renewables as expensive may be mistaken after a report from Good Energy claimed that renewables brought down the wholesale cost of electricity by £1.55 billion in 2014.
The CCC’s report offers a long term view of low-carbon electricity from wind and solar farms actually becoming the cheapest business electricity source, becoming cheaper than gas and effectively subsidy-free by 2020.
Transport and heat are expected to become ‘electrified’ as carbon fuel powered engines (petrol, diesel and gas) are replaced by electrical power.
Perhaps most significant are the claims that renewables are best way to plug the looming electricity shortage caused by a combination polluting coal and ageing nuclear plants shuttered plant closures, and an increase in demand (total annual generation is expected to be around 310TWh in 2020 and 380 TWh in 2030). Unless power generation is addressed, the lights could go out: new generation (up to 200 TWh per year) and capacity (at least 20 GW) will be needed in the 2020s.
In fact, the electricity surplus is already tight, with concerns about the National Grid’s ability to provide business electricity supplies through the winter.
The CCC report predicts that, up to 2020, there is potential for a further 10 GW of coal to close due to EU directives and unfavourable market conditions (the carbon price); a “significant amount” of new renewable electricity will come online, most of which is already under construction.
Despite the claim that renewables will offer the best priced business electricity, the report acknowledges the low-carbon technologies “are, and will continue to be, a more expensive way to generate electricity than burning gas and allowing the emissions to enter the atmosphere for free”.
The calculation that onshore wind and ground-mounted solar will be competitive with gas in the first-half of the 2020s is based on the assumption that “gas generation faces the full costs of its carbon emissions”.
This may seem a risky supposition but agreements to steadily ramp up the price of carbon emissions make it sensible. Still, decisions to abandon this framework – not impossible should there be doubts over business energy supply and/or economic turmoil – could undermine the CCC’s modelling, meaning the gas business remains competitive into 2020s.
Nevertheless, the CCC’s modelling is sophisticated, attempting to quantify the system costs of ‘intermittent renewables’ such as wind and solar by taking account of the costs of coping with swings in output and providing backup. These costs are found to be relatively low.
Assuming the CCC scenarios are correct, what will happen to your business electricity bill? The report only explicitly addresses consumer bills but parallels can be expected with commercial electricity suppliers.
Overall, investment in new low-carbon generation would avoid some of the increase in bills that could result if all new generation is provided by unabated gas (the so-called ‘merit order effect’).
New generation provided by gas-fired plants would set the wholesale market price for commercial electricity (even that from low carbon sources), which would then rise as carbon emissions become more costly.
By contrast, new generation provided by low-carbon generation would see wholesale business electricity prices rise less quickly.
But the short term could see some increases as new investment will be needed in the 2020s to replace generation from retiring coal and nuclear capacity and to meet possible increases in demand.
While average business electricity bills may go up, careful consideration of the options can mean renewable energy doesn’t have to be expensive. The no-obligation business electricity comparisons that our SME experts offer can include a variable amount of green energy.
Our dedicated page has lots more information about business electricity.
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