Nuclear is the real threat to the fuel-poor, not wind energy

Wednesday, September 10, 2008

"Wind power could put another half million people into fuel poverty" – shock, horror! That was how BBC Radio 4 promoted last week's The Investigation into the future of wind power in the UK.

Who can blame them? It got me listening. But do their figures stack up? And what exactly was Sir David King, former government chief scientific advisor, up to when he uttered his dire warning? In case you missed it, here's that warning in full:

"If we overdo wind, we are going to put up the price of electricity and that will push more people into the fuel poverty trap. Numbers of half a million are not at all unrealistic ... this is an issue that does need to be revisited, and I say this as somebody who feels that we really have to reduce our greenhouse gas emissions very substantially. But in my view it is an expensive and not a clever route forward to go for 35 to 40% from wind turbines."

Shocking stuff indeed. But back to basics: where does the 35% figure come from? In 2007, EU leaders agreed that 20% of all energy used in the EU should come from renewable sources, and the UK's own national target is 15%. It's hard to get much renewable energy into heating, transport, industry and other big energy uses, so most of the target must be met from green electricity. According to the programme, this means that, by 2020, the UK will have to get 40% of its electricity from renewables generally, and 35% from wind, specifically.

The UK currently uses about 360bn units (kW/h) of electricity per year, and this is expected to rise to about 380bn units by 2020. So, if 35% comes from wind, that is 133bn units. Over a year, wind turbines typically produce 28% of their rated capacity, so a typical 1MW turbine generates about 2.45m units per year. It would, therefore, take about 55,000 1MW wind turbines to achieve our 35%. Given we already have 2,000MW of wind power, and it costs about £1m to install a 1MW turbine, we would be looking at an investment of £53bn.

The government also says it wants 33,000MW of the new wind capacity to go offshore, where costs are higher, while improvements to the grid will be required to accommodate the new power sources, and interconnectors to Europe will need to be beefed up to handle supply fluctuations. Let's say all this doubles the cost to £100bn. Radio 4 quoted E.ON as estimating the cost of this scale of wind power programme at £10bn per year until 2020 – so our figures roughly match up.

But according to the programme, this would add £400 per year to the average family electricity bill. This is scary, but is it true? Only if you make two completely false assumptions. First, that the entire cost is loaded onto domestic consumers, even though they only use 36% of the UK's electricity production. Second, that they pay the entire capital cost in their bills every year for 10 years. But this is not how large energy projects are financed. Just as most people buy their homes on a mortgage, which they pay off over 20 or more years, so power companies borrow the money, and pass on the cost of servicing their loans.

Financing the whole £100bn at 6%, this would create a capital cost of £6bn per year. Since domestic consumers use 36% of electricity supply, the domestic share would be £2.2bn per year. Divided among 25m households, this would cost us £88 per year per household. This figure does not include maintenance and running costs – but then these are small for wind turbines, since (unlike coal and gas power stations) they do not burn fuel.

But remember that the power companies are preparing to invest billions in new fossil generation capacity, anyway. For example, E.ON is seeking approval for a new 1,600MW coal fired plant at Kingsnorth in Kent, at a cost of £1bn, and similar projects are in the pipeline to replace old coal-fired plants and nuclear power stations approaching closure. With 53,000MW of new wind capacity, we won't need those investments in new coal-fired generation, and we will save money on the fuel that won't have to be burnt. Just how much will be saved depends on future fuel costs. But if fuel turns out to be expensive, wind will actually be the cheaper option.

So The Investigation's figure that wind power will add £400 to the average's family's annual electricity bill is plain wrong. In fact, with the savings on coal, we can probably achieve 35% wind penetration in our electricity supply by 2020 for under £50 per household per year, and in the high fuel cost scenario, it would add nothing at all. It will also yield security benefits by making the UK less dependent on politically sensitive Russian gas imports. And that's before even starting on the environmental cost of carbon dioxide emissions.

As for fuel poverty, the National Housing Federation has estimated that 5,700,000 households (about 13.7 million people) will be in fuel poverty by 2010 as typical household electricity and gas bills soar to £1,400 a year. So King's estimate of an extra 500,000 people in fuel poverty as a result of wind power investments barely registers against this background increase. Moreover, King provided no indication as to where his figure actually came from. Was it guesswork? Maybe he could let us know.

In any case, we know the cause of the fuel poverty surge: more expensive fossil fuels. So the precautionary approach is to make our energy costs less sensitive to future fuel price shocks, and diversify into renewables. To generate 35% of our electricity from wind would be an important step in this direction. The bulk of our electricity would still come from fossil fuels, mostly coal and gas, but the wind component (and additional contributions from other renewable energy technologies) would represent an important counterbalance.

There is one respect in which The Investigation got it absolutely right, which was in lambasting the UK's mechanism for delivering our renewable electricity targets, the Renewables Obligation (RO). As the Guardian revealed, and I wrote about last week, the RO is both ineffective and very expensive, and has received widespread criticism. As Dieter Helm, professor of energy policy at Oxford University, told Radio 4, the RO is "probably the most expensive way of developing wind power" and "it would be hard to think of a worse policy." Yet the inside word is that the government is absolutely determined to stick with it, for essentially ideological reasons.

This would be a serious mistake, with two undesirable consequences. First, whatever target is set within the RO, it is certain to be undershot. Second, it will create billions of pounds of extra cost for consumers above and beyond the actual cost of building and operating the plants themselves – part of which will be excess profit for wind power operators, and part of which will go as a "windfall tax" to the government itself. The RO should be scrapped and replaced with a feed-in tariff. Wind developers also face considerable cost and risk in getting their schemes through the planning process, which is reflected in consumer prices. Again, reform is badly needed. If King's doomladen prediction comes true, it will not be because of the price of wind, but rather thanks to the RO and the planning system – both of them manifestly unfit for purpose.

So what was King up to? Here's my guess. He is a known supporter of nuclear power, and is widely credited for having overturned the anti-nuclear conclusion of the 2002 energy review, and for the government's current pro-nuclear stance first promulgated in its 2006 Energy Review. Perhaps his real problem with bringing 35% wind into our electricity supply is that it leaves little space for new nuclear power – that much wind would more than close the anticipated energy gap caused by the impending closure of our 23 nuclear stations over coming decades: their total contribution is just 80bn units a year, compared to the 133bn units we would be getting from wind.

But for anyone worried about cost to both electricity consumers and taxpayers, nuclear power is the truly scary option. The cost of decommissioning our existing nuclear power stations has already escalated to £83bn and seems certain to keep on climbing towards £100bn – roughly the cost of our whole wind power programme. If King's concern really is for the Britain's fuel-poor households, he must abandon his nuclear dream, and look instead to a clean, green future for the UK's electricity.

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