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United Kingdom

United Kingdom

When less means more

In an analysis of cost trends in electricity, a UK government-commissioned energy review is saying that onshore wind prices are likely to be undercutting gas by 2020 -- a conclusion supported by the US Department of Energy (DOE) in a separate study. Yet the same review appears to be suggesting that an expanded use of renewables may cost electricity consumers an extra 6-12%. However, as wind energy costs continue to fall, gas price rises have depleted the price advantage of combined cycle gas turbines and nuclear has yet to make any breakthroughs on the way towards lower prices. That means that clean, safe and cheap electricity is well within grasp. Not that this message has penetrated the office of British Prime Minister Tony Blair or the DOE.

Documents leaking from the office of the self declared master of "joined up thinking," British Prime Minister Tony Blair, last month revealed a shockingly scatter brained approach to future energy policy. In a serious analysis of cost trends in electricity, a government-commissioned energy review is saying that onshore wind prices are likely to be undercutting gas by 2020 -- a conclusion supported by the US Department of Energy (DOE) in a separate study and by this magazine's own analysis. Yet the very same review appears to be suggesting that an expanded use of renewables may cost electricity consumers an extra 6-12%. So lower generation costs means higher bills -- at least to Blair's Performance and Innovation Unit. Very innovative.

Let sanity prevail, however. Our annual analysis of electricity generation costs (page 30) contains plenty of New Year cheer, for consumers that is. Wind energy costs continue to fall, gas price rises have depleted the price advantage of combined cycle gas turbines and nuclear has yet to make any breakthroughs on the way towards lower prices. That means that clean, safe and cheap electricity is well within grasp. No longer will consumers be faced with an either/or choice.

Not that they should be facing that choice. Electricity markets still largely ignore the external costs of conventional generation, even to the extent of hiving off massive nuclear de-commissioning debts to give it a competitive chance. The external costs of fossil fuels are even further removed from market prices. A timely report from the EU, however, has just put the external costs debate on a far sounder footing (page 32). The costs of not using the renewables are likely to be much higher than the alleged extra costs of exploiting them.

Not that this bright message has penetrated the levels of "joined up thinking." The DOE still expects nuclear to be "key to reducing carbon dioxide emissions" while the British government is steadily upping its estimations of the costs of its Renewables Obligation legislation. This, it is said, will soon add 4.4% to consumers bills -- about three times the initial estimate and not due to any change in the price of renewables, but due to the method of implementing the obligation. If that extra cost goes up to the energy review's reported 6-12% level, renewables are being deemed to cost about 40% more than the thermal power sources. Garbage.

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