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Energy and Climate Change Select Committee
Written submission on the Economics of Wind Power Executive Summary i.
ii.
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Scottish Renewables recently reported that there are more than 11,000 people working in renewable energy in Scotland, showing onshore wind as by far the largest employer with 2235 people employed and many more working indirectly on grid upgrades and across multiple sectors. Despite being an emerging sector, almost 1000 1 2 people are currently working in offshore wind in Scotland with the potential to create up to 28,000 jobs by 2020 . Renewable electricity generated in Scotland in 2011 rose 45 per cent on 2010 to 13,750GWh, a record for Scotland. Assuming gross consumption in 2011 was similar to 2010 figures, around 35 per cent of Scotland’s electricity needs came from renewables in 2011; a considerable increase on the Scottish Government’s target of 31 per cent. Wind generation also had a record year in 2011 with wind farms in Scotland producing 7,049GWh of 3 electricity , contributing the equivalent of around 18 per cent of our electricity needs. Scottish Renewables estimates that renewable electricity produced in 2011, the majority of which was wind power, 4 had the potential to displace the equivalent of over eight million tonnes of carbon dioxide from fossil fuel 5 generating stations, around 15 per cent of Scotland’s total emissions. The Stern Review, which investigated the economics of climate change in the UK, stated that the overall costs and risks of climate change will be equivalent to losing at least five per cent of annual global GDP, ‘now and 6 forever’ . Therefore, when considering the economics of wind power, it would be remiss to overlook the cost 7 implications of wind’s ability to displace carbon dioxide emissions and the corresponding climate change effects.
Committee Questions How much support does wind power receive compared with other forms of renewable energy? Is it possible to estimate how much consumers pay towards supporting wind power in the UK? What do cost benefit analyses tell us about onshore and offshore wind compared with other measures to cut carbon? 1. In 2010/11 £1.3bn was invested in Renewables Obligation Certificates (ROCs), the main financial support mechanism for the renewables sector, and of that the majority went to wind energy as this is responsible for the largest share of renewable electricity generated. This compares to an annual government expenditure of £2bn in 8 nuclear decommissioning . 9
Table 1
Number of ROCs received in Scotland by technology and number proposed by DECC (due to commence in April 2013) Technology
Current ROC
Proposed ROC
Onshore Wind
1
0.9
Offshore Wind
2
1.8
Wave
5
5
Tidal
3
5
Hydro
1
0.5
Dedicated Biomass
1.5
1.4
10
Table 2
Contribution of RO support payments to an average household annual electricity bill
2011
2012
2013
2014
2015
2016
Continuing with current bands
£20
£26
£34
£41
£48
£52
Changing to proposed bands
£20
£26
£33
£40
£47
£50
*At the time of writing this submission the government has yet to indicate to industry what ROC band levels are likely to be from April 2013.
Page 1 | Written submission on the Economics of Wind Power
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2. Wind energy compares favourably with other low carbon technologies in terms of cost and grid flexibility , as 13 well as economic development and employment opportunities , while other measures to cut carbon emissions such as carbon capture and storage (CCS) has yet to be proven in the UK. What do the latest assessments tell us about the costs of generating electricity from wind power compared to other methods of generating electricity? How do the costs of onshore wind compare to offshore wind? 3. According to research by Mott Macdonald, published last year, some forms of renewables are already cheaper at generating electricity than other low carbon alternatives: Large scale onshore wind output at £83 per megawatt hour (MWh) Nuclear at £96 to £98/MWh Carbon Capture and Storage at £105 to £140/MWh 14 Offshore wind £169/MWh 4. The Crown Estate has concluded that reaching £100 per MWh for offshore wind is achievable within the next seven years and the Offshore Wind Cost Reduction Task Force recently set out key actions for industry and 15 government to take in order to achieve this . 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? 5. Building the grid: It is the duty of the independent regulator, Ofgem, to determine whether investment in building electricity transmission links represents good value for money for the electricity consumer. Ofgem has estimated that work in Scotland to upgrade the high voltage network, partly to assist renewable energy generators like 16 onshore wind farms, will add 35 pence per year to consumer bills in 2013 – 2021 . 6. Connecting to the grid: The cost of connecting a wind farm to the transmission network forms part of the developer’s capital and operating expenditure of a project. The use of the transmission system is then calculated as an annual operating expenditure for the wind farm. If these costs prove prohibitively high and render the project uneconomic, then development of the project would not go ahead. It is the developer who must take the view as to whether a project sited remotely would be economic given the cost to connect to the electricity network. 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? 7. Wind power forms a crucial and growing part of the UK’s energy mix and works in conjunction with other technologies, all of which have different characteristics. The Government has stated that, “in delivering more low carbon generation and maintaining security of supply, average household bills after the implementation of market 17 reform are expected to be, on average, lower than what they would have been” and wind power can play a major part in this while simultaneously helping to combat climate change. Studies have also shown that there are future cost savings in scenarios where there are more renewable energy sources in the energy mix compared to a 1819 continued reliance on fossil fuels . 8. In addition, UK Government statistics show that payments for the balancing and constraint of wind farms totalled 20 £24.8 million in 2011, compared to overall constraint payments to all energy generators totalling £708m . What lessons can be learned from other countries? 9. There is an ongoing programme of investment in the wind energy sector worldwide: A report by the Pew Charitable Trust showed that there was almost $80 billion (£51.2 billion) invested in wind 21 energy worldwide in 2011, with over 239 Gigawatts (GW) of installed wind energy capacity across the world. The USA has 47GW of installed wind energy and installed 6.7GW of wind energy in 2011 alone - which is 22 more than the sum total of installed wind capacity in the UK. 23 China installed nearly 20GW of wind capacity in 2011, up from 17GW in 2010 . Some 25 per cent of Denmark’s electricity is now provided by wind, with the country aiming to meet 50 per 24 cent by 2020 . Wind met 18 per cent of the Republic of Ireland’s electricity demand in 2011, one of the highest penetrations 25 in the world . What methods could be used to make onshore wind more acceptable to communities that host them? 10. In addition to the clear economic and environmental benefits brought by wind power to the general public, wind projects also create benefits to communities across Scotland, and are already regarded as acceptable by most people. A recent YouGov poll found that a majority of Scots surveyed – 71 per cent – are supportive of the 26 continued development of onshore wind and a recent ComRes poll for The Independent newspaper suggested that 68 per cent of the UK public believe that new wind farms are "an acceptable price to pay" for greener energy 27 in the future . Page 2 | Written submission on the Economics of Wind Power
11. Wind farm developers work closely with communities throughout the development period, and often over the lifetime of a project, to bring additional benefits to host communities. Based on knowledge of current arrangements between communities, developers and other third parties, including local authorities, the Scottish Community Foundation estimates that the £1.2 million it currently administers for operational developments around Scotland represents around 20 per cent of the total value of community benefit funds currently being paid in Scotland. This would suggest that Scottish communities benefit from approximately £6 million per annum which can be spent where they feel it is needed most. 12. Scottish Renewables supports the Scottish Government in its intention to make publicly available a community 28 benefit register to show where these payments are being made and to show how communities are utilising them for the benefit of local people. 1
http://www.scottishrenewables.com/static/uploads/publications/final_sr_jobs_report_21032012_-web.pdf http://www.scottishrenewables.com/static/uploads/publications/100804_ipa_final_public_report_as_issued_to_steering_group_2010_08.pdf 3 http://www.scotland.gov.uk/News/Releases/2012/03/geenenergytargets29032012 4 Based on wind farms displacing carbon dioxide at a rate of 589g/kWh, calculated using DECC generation statistics for Scotland in 2010 and figure for carbon emissions displaced for the same year, as quoted as evidence by the Secretary of State for Energy and Climate Change (2012) http://www.publications.parliament.uk/pa/cm201212/cmhansrd/cm120112/text/120112w0002.htm#12011297000139 5 Scottish Greenhouse Gas Emissions 2009, Scottish Government (2011) - http://www.scotland.gov.uk/News/Releases/2011/09/06123057 6 HM Treasury (2006) The Stern Review on the Economics of Climate Change – accessed at http://webarchive.nationalarchives.gov.uk/+/http:/www.hm-treasury.gov.uk/sternreview_index.htm 7 http://www.publications.parliament.uk/pa/cm201212/cmhansrd/cm120112/text/120112w0002.htm#12011297001443 8 http://www.nda.gov.uk/documents/upload/NDA-Business-Plan-2011-2014.pdf 9 http://www.scotland.gov.uk/Publications/2011/10/27123530/2 10 http://www.decc.gov.uk/en/content/cms/news/pn11_85/pn11_85.aspx 11 http://hmccc.s3.amazonaws.com/Renewables%20Review/MML%20final%20report%20for%20CCC%209%20may%202011.pdf 12 Evidence given to Scottish Parliament Economy, Energy and Tourism Committee by Duncan Burt, Customer Services Manager, National Grid, 23/05/12 http://www.scottish.parliament.uk/parliamentarybusiness/28862.aspx?r=7047&i=64151&c=1315222 13 Page 6, Executive Summary, Powering Scotland, http://reformscotland.com/public/publications/Powering_Scotland_.pdf 14 http://hmccc.s3.amazonaws.com/Renewables%20Review/MML%20final%20report%20for%20CCC%209%20may%202011.pdf 15 http://www.decc.gov.uk/en/content/cms/news/pn12_074/pn12_074.aspx 16 http://www.spenergynetworks.co.uk/serving_our_customers/pdf/RIIO_T1_fast_track_press_release_20_Jan.pdf 17 P.20 http://www.official-documents.gov.uk/document/cm83/8362/8362.pdf 18 http://www.ofgem.gov.uk/Markets/WhlMkts/monitoring-energy-security/Discovery/Documents1/Discovery_Scenarios_ConDoc_FINAL.pdf 19 http://www.decc.gov.uk/assets/decc/11/tackling-climate-change/international-climate-change/5276-fossil-fuel-price-shocks-and-a-low-carboneconomy-.pdf 20 http://www.publications.parliament.uk/pa/cm201212/cmhansrd/cm120117/text/120117w0003.htm#12011767000070 21 http://www.newenergyfinance.com/WhitePapers/download/68 2
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Ibid.
http://fs-unep-centre.org/sites/default/files/publications/globaltrendsreport2012_0.pdf www.ens.dk/en-us/info/news/news_archives/2012/sider/20120328newdanishenergyagreement.aspx 25 http://www.rechargenews.com/energy/wind/article310836.ece?WT.mc_id=rechargenews_rss 26 http://www.scottishrenewables.com/news/poll-suggests-majority-scots-support-wind-power/ 27 http://www.independent.co.uk/environment/green-living/build-more-turbines-poll-shows-public-wants-wind-farms-7814798.html 28 http://www.communityenergyscotland.org.uk/register 24
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