Debunking energy myths: renewable electricity is not cheap

In the final post in my energy myths series, I will look at one of the biggest, and arguably most dangerous myths of all – the notion that electricity generated from renewable sources is cheap.

Myth #4: Renewable energy is cheap

Electricity generated from the wind and sun is “free”, having near-zero marginal costs of generation so of course many consumers have been led to believe that cheap renewable energy will lead to lower bills. There have been optimistic reports recently speaking about how the cost of renewable energy is close to or lower than that of fossil fuels.

“…there are no input costs for wind and solar energy. So for example, while one needs to buy coal for a coal-fired power plant to generate electricity (and coal mining itself has massive environmental costs), solar and wind energy don’t have input costs like that – sunlight and wind are free,”
– Greenpeace

The drops in construction costs for wind and solar have also been a cause for great optimism:

“If the stuff you’re building to generate electricity costs less, the end effect of that is having to pay less for the electricity that comes from it,”
– Jonathan Marshall, energy analyst at the Energy and Climate Intelligence Unit

This is rather disingenuous – cheaper renewable electricity will lower bills when compared with expensive renewable energy, but this ignores the huge costs imposed on the system by the fact that renewable energy is intermittent. This means large amounts of back-up capacity and/or storage is needed, and since back-up capacity is likely to have low utilisation rates, it will require high prices and subsidies in support.

The intermittency of renewables also makes it harder to maintain the frequency of the electricity system, requiring more expenditure on balancing and frequency response services. The location of much of this renewable generation – offshore or embedded in distribution networks, unlike traditional forms of generation – also requires new network infrastructure which is expensive to construct.

Dissecting the myth of cheap renewable energy

De-bunking this myth properly requires numerical analysis that would deter most people, however, I will try with the aid of some recent work by Roger Andrews at Energy Matters. , where he dissects the findings of a recent report by the National Infrastructure Commission (“NIC”). The report, issued in July, helps to perpetuate the myth of cheap renewable energy:

“Today, consumers pay an average of £1,850 per year for the energy they use, including electricity, transport fuel, and fuel and equipment for heating and hot water. The Commission’s analysis shows that the same services could be delivered at the same cost (in today’s prices) in 2050 by a low carbon energy system.”

In reaching its conclusions, the NIC claims its analysis (carried out by Aurora Energy Research – Power sector modelling: System cost impact of renewables, Report for the National Infrastructure Commission) shows that “the estimated average cost of the electricity system as a whole between 2030 and 2050 is broadly comparable between investing heavily in nuclear power stations or investing heavily in renewables (there is very little prospect of new nuclear, beyond Hinkley Point C, coming on system before 2030).”  

This statement is problematic because:

• A renewables-based system would result in major swings in output, with periods of significant surpluses as well as periods of insufficient generation (see below);
• Assuming these swings can be managed with storage and interconnectors is unrealistic – the volumes of storage needed would be enormous and require a large amount of space, and a reliance on interconnectors would fail if the interconnected markets experienced the same conditions, which is often the case;
• Finally, there are actually very good prospects for other new nuclear coming on system before 2030 – the Wylfa Newydd project uses an established, proven technology and could even open before Hinkley Point providing the final investment decision isn’t delayed.

How would a high-renewables system be achieved?

Aurora’s analysis suggests that if the heat sector is electrified, the amount of electricity required would increase from around 350 TWh/year in 2020 to 600 TWh in 2050.

Andrews analysed Aurora’s predictions using actual grid data to explore its conclusions about the levels of flexibility that would be required under its scenarios. As data for the UK market is incomplete (Gridwatch gives demand and wind readings at c5 minute intervals, but does not segregate onshore and offshore wind or provide information for solar,) he used grid data from Denmark which is climatically similar to UK, and has about the same level of winter-summer demand variability, using 2016 as a “typical year”.

Matching Denmark’s 2016 data to Aurora’s 2050 projections for the UK, required the application of scaling factors: 18.0 for demand, 33.4 for onshore wind, 15.5 for offshore wind and 117.0 for solar. According to Aurora installed 2050 intermittent renewable capacity in the UK would amount to 26 GW of onshore wind (requiring an overall 32% capacity factor), 68 GW of offshore wind (52% capacity factor) and 99 GW of solar (12% capacity factor).

These data give only a broad indication of what Aurora’s wind + solar energy mix might deliver to the UK grid in 2050, but variations in generation are extreme, ranging from zero to well in excess of 100 GW over short periods in both summer and winter. The chart below shows the surpluses and deficits relative to Aurora’s 2050 projected UK load.

These are at best indicative, but illustrate that significant swings in surpluses/deficits in excess of 100 GW could be common. (By comparison, current peak winter demand is currently around 52-53 GW.)

High levels of flexibility would be needed to stabilise a high-renewables system…

Aurora’s solution to this variability would be the installation of flexible capacity, as shown in the chart below:

The following points should be noted:

• The chart is scaled in GW, not GWh, while indicates that Aurora only sees a need for peak-load matching energy storage and no need for any seasonal, “windless week” or “wet month” storage, which does not seem reasonable since seasonal demand variability is significant, and winter higher pressure weather systems where there is little wind are not uncommon.
• Elsewhere in Aurora’s report it assumes batteries with between 1 and 5 hours’ storage capacity will be used, which would provide a maximum of 100 GWh assuming 20 GW installed capacity (the 80% scenario). This would only support the grid for about 12 hours on sunless and windless days.
• The 31 GW of “gas recip” plus 1 GW of OCGT will not fill the generation deficits shown above. Even if there is some contribution from the 40 GW of biomas there will still be times when deficits cannot be met.
• There is no guarantee that the 14 GW of demand side response or 11 GW of vehicle to grid services will materialise. Consumers may not find it convenient or economically worthwhile to participate at these levels.
• The 18 GW of interconnector capacity is unlikely to deliver much additional capacity. If interconnected markets on the Continent also deploy high levels of renewables, there is likely to be little or no surplus energy since the weather correlation between these countries is relatively high – if there is low wind or sun in the UK, there is probably also low wind/sun elsewhere in Northern Europe so it will be difficult to secure imports.
• Aurora’s report is silent on the use of surplus electricity, which could be significant. The same drivers that would limit imports would also constrain exports, so this energy needs to be either consumed domestically or curtailed (presumably paying compensation to curtailed generators).

…but reliability would still be an issue

Finally, Aurora admits in its report that in its 90% renewables scenario there could be issues with system reliability:

“Very high renewable systems may be more vulnerable to extreme winter system stress events.”

However, the loss of load could be significantly more severe than shown since Aurora assumes c 200 GWh of stored energy will be available (which may not be the case at the time of the stress event), that 18 GW of import capacity will be available, and that there will be 20 GW of sunshine, which would be unusual in the winter.

It is depressing that reports such as this with such weaknesses are used by policymakers both in decision-making and to build support for policy. Instead of being run on cheap renweable energy, the world described by Aurora would be both expensive and unreliable, so while there may be a large amount of renewable energy on the grid, the electricity system would not function as intended, reliability would be under threat, and there could be significant electricity surpluses that need to be curtailed at additional cost.

The experiences in Germany and South Australia do not bode well

Germany has been seen as a leader in green energy – in 2017, 38% of all energy consumed in the country was from renewable sources, however not only is it is having great difficulty in integrating all of this renewable energy, it is also using significant amounts of brown coal, one of the dirtiest forms of generation, meaning the overall impact on carbon dioxide emissions – the reason behind the renewables push – has been negligible (in fact overall emissions in Germany are rising, apparently due to the impact of transport).

“If Germany operated in autarchy and tried to handle the volatility of wind-solar production without using stores while replacing all nuclear and fossil fuel in power production, on average 61%, and at the margin 94%, of wind-solar production would have to be wasted, given the current level of other renewables,”
– Hans-Werner Sinn, CESifo and Ludwig-Maximilian University of Munich, Buffering volatility: A study on the limits of Germany’s energy revolution

The problems caused by Germany’s Energiewende include:

• High levels of surplus which must be managed either through export, increased demand or curtailment – the country sends between €300-400 million each year to compensate renewable generators for turning down their output;
• Infrastructure constraints and the lack of north-south capacity are causing high volumes of electricity transit via neighbouring countries, leading to outages as equipment cannot cope (and push-back from those neighbouring countries). According to newspaper Handelsbaltt, German grid operator TenneT said it spent close to €1 billion on emergency grid stabilisation measures in 2017, a significant increase from €660 million in 2016;
• Wholesale electricity prices are turning negative with increasing frequency, and last Christmas even households were paid to consume electricity as industrial demand fell over the holiday period;
• German domestic electricity prices are among the highest in Europe as the costs of the system are high, and continue to grow. In Germany, taxes, levies and surcharges account for more than 50% of prices, versus the European average of 33%;
• Conventional plant, including gas, is becoming uneconomic, but is not always permitted to close, adding to the economic difficulties of the main utilities.

The environmentally-conscious German public was sold a dream with the Energiewende: high levels of renewable power would slash harmful greenhouse emissions. The reality is that despite installing masses of renewable capacity, and even meeting all of its demand with renewables for brief periods, the country’s carbon dioxide emissions continue to rise and domestic electricity prices have doubled since 2000.

South Australia is another leader in renewable energy with ambitious (but unrealistic) targets for a renewables + storage based system, and is also struggling with renewables integration, system stability and high prices. Problems there include:

• A state-wide blackout in Setember 2016 causing damage costing hundreds of millions of dollars, as well as other smaller blackouts. Increasing levels of intervention are requred by the system operator to maintain system stabiity;
• Collapse in investment in new generation capacity leading to fears of capacity shortages;
• Significant price spikes in the wholesale electricity market, including the activation of emergency measures by the system operator;
• Wholesale prices are also highly volatile: the spot price approached the market price cap when it reached A$14,166.50 /MWh on 18 January 2018, but less than two weeks later (30 January 2018) the price went down to -A$291.71 /MWh;
• Electricity bills in South Australia are the highest in the country and have almost doubled since 2009.

The people of Germany and South Australia are paying a very high price for a failed renewables experiment – instead of continuing to peddle the myth of cheap renewable energy, policymakers need to get real about what high levels of renewable generation mean in practice.