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United Kingdom

External costs and the real truth

Direct comparisons between the costs of renewable generation and those of the thermal sources are misleading. They ignore two vital issues. First, the extra value contributed by small and medium size onshore wind farms of having them located within electricity distribution networks -- the "embedded" or "distributed" generation benefits compared with miles of transmission. Second, the "external costs" of the fossil fuel sources are omitted from the comparison.

The European Commission has just updated earlier estimates of the external, or social, costs of electricity generation -- the costs to society of coping with the impact of pollution, protection of supply routes, and so on. In its report, ExternE: Externalities of Energy, the EC concludes: "The cost of producing electricity from coal or oil would double and from gas would increase by 30% if the external costs such as damage to the environment and to health were taken into account." The extra costs are quoted on a country-by-country basis. For coal they range from $0.02 to £0.15/kWh, for gas from $0.01 to $0.04/kWh, for nuclear from $0.002 to 0.006/kWh and for wind from $0.0005 to $0.0025/kWh (figure).

If the mid-range of these external costs is added to the mid-range prices for power generation, the real price of coal soars to around 0.09/kWh and even gas looks unhealthy at around 0.05/kWh. In comparison with wind prices from the last round of the UK's Non Fossil Fuel Obligation (around $0.04/kWh), and the more pessimistic wind price from the United States Department of Energy ($0.06/kWh), the positive economic benefits of renewable energy become abundantly clear. Even using the DOE's wind price -- which is higher than wind power prices today in the US -- it still ends up cheaper than nuclear and coal. In comparison with NFFO prices, wind is cheapest of all, by a margin of nearly $0.01/kWh over gas.

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