United Kingdom

United Kingdom

Wind Economics: UK consumers miss out on big savings

UK/UNITED STATES: No new onshore wind projects have been given contracts in the UK since a change of government in 2015. The few still being built were awarded contracts beforehand.

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Now, an independent think tank — the Energy and Climate Intelligence Unit — is arguing that construction of new onshore wind farms could save electricity consumers as much as £1.5 billion (€1.7 billion/$2 billion) over five years.

Onshore wind is now the cheapest form of electricity generation and can deliver savings even when taking into account the costs associated with managing variability.

The report notes that a Spanish auction in May 2017 delivered onshore wind at €43/MWh ($51/MWh) and suggests that around 1GW in the UK could be delivered by the 15-year contracts for difference (CfD) currently used at £49.40/MWh ($65/MWh) or less.

Cost comparison

This is lower than the current estimate for new gas-fired generation of £66/MWh ($87/MWh). Assuming an average load factor of 0.31 for onshore wind in the UK, 1GW would deliver 2.7TWh of energy.

The report estimates the costs of delivering 2.7TWh by other means, including the Hinkley Point C nuclear power station, a recently-contracted biomass project, offshore wind, combined-cycle gas turbines (CCGT) and small modular reactors (SMR).

The costs of generation from Hinkley Point, biomass and offshore wind can be determined from the contract prices, while CCGT costs can be estimated with reasonable accuracy, and the costs of small modular reactors come from estimates from the prospective contractor.

The Energy and Climate Intelligence Unit report compares the annual generation costs from these sources. They range from £166 million in the case of onshore wind and £198 million for offshore wind, to £271 million for Hinkley Point and £308 million in the case of the biomass plant.

The estimates for wind include an allowance for an "integration cost" of £10/MWh ($13/MWh). This covers the costs of the measures needed to cope with variability.

As the report points out, this comparison is not strictly valid, since the renewables have 15-year contracts, but Hinkley Point has a 35-year contract, and the small modular reactors would probably have contracts of similar length. The analysis therefore underestimates the savings that could be made from onshore wind. If gas prices turn out to be higher than expected, savings would be even greater.

The ECIU argues that the blanket ban on new onshore wind should end and that fixed-price contracts should be awarded to onshore projects — but only for those judged to need no net subsidy.

It suggests the current regime of CfDs awarded after auction for projects such as biomass, offshore wind and nuclear, likely to include an element of subsidy, should continue in parallel.

US solar PV costs continue steady fall

Photovoltaics continue to be a close competitor to onshore wind. In the latest report from the Lawrence Berkeley National Laboratory, the average generation cost for the 83 projects, totalling 5,407MW, commissioned in 2016, is put at $66/MWh.

This is practically identical to the figure put forward by the ECIU as a feasible target for onshore wind in the UK.

PV costs continue to fall steadily, with the median installed cost in the US falling by 22% between 2015 and 2016. Last year, 8.1GW of utility-scale solar (defined as ground-mounted and larger than 5MW) were installed, slightly less than wind (8.2GW). The average size of the projects for which the Laboratory has data was 62MW. Commercial and residential PV accounted for 3.2GW, and more than 170,000 systems were installed in 2016.

AT A GLANCE — THIS MONTH'S REPORT CONCLUSIONS

Blown Away: what is the UK losing by banning the cheapest form of electricity generation? Energy and Climate Intelligence Unit (UK), October 2017 Argues that the UK ban on onshore wind should be lifted and quantifies the savings that might accrue if this should happen.

Utility scale solar 2016, Bolinger, M, et al, Lawrence Berkeley National Laboratory, September 2017 An empirical analysis of project cost, performance, and pricing trends in the US shows PV prices are continuing to fall steadily.

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