United Kingdom

United Kingdom

Fact not fiction

The renewables industry -- and wind in particular -- received nearly everything it asked for in the UK government's energy policy document released last month (page 29), but it was nuclear that stole the headlines. "Keeping the door open for investment in new nuclear capacity would seem to be a low risk option from an economic point of view," is the bald claim of a so-called cost benefit analysis of nuclear authored from within the government's Department of Trade and Industry (DTI). It is among the staggering volumes of paperwork that accompany the Energy White Paper, about 700 pages in all.

The analysis contends that building 6 GW of nuclear by 2025, the year by which the bulk of Britain's ageing nuclear stock reaches the end of its design life, would not be more expensive than bridging the gap with gas-fired generation, assuming a "central gas price scenario." The presumption is that the economic return from nuclear's carbon savings would offset its "cost penalty relative to gas." But in coming to that conclusion the analysis plumps for a central estimate for nuclear generation cost of around EUR 56/MWh, basing that on a cost of capital that is the same as it is for wind -- 10% real. The nuclear repayment period is put at 40 years, an unlikely real world scenario. In reality, financial markets might be prepared to accept a 12% return from nuclear investment, but are unlikely to be pushed beyond 20 years. That would drive generation cost up to around EUR 70/MWh, a good EUR 25/MWh more than current wholesale market prices.

While all means fair and foul are employed to make nuclear look cheaper than it is, no attempt is made to accurately account for the true cost of wind generation. According to the government's energy review, producing electricity from the wind costs at least 50% more than producing it from nuclear fuel. That is nonsense. Aside from the unfair financing assumptions employed, the White Paper's discussion of wind energy economics makes much of the recent increases in steel, copper and other relevant commodity prices, but gives them only a cursory mention when dealing with nuclear. Since there is an awful lot of steel in a nuclear power station, failing to account for steel price rises is a glaring omission.

What the energy review lacks is a comparison of generation costs on a level playing field, so that like is compared with like. The stated cost of wind conveniently supports the price being paid for it under Britain's Renewables Obligation, a piece of legislation notorious for its ability to add costs to wind generation and its inability to bend to the will of market economics. Onshore wind power is awarded one Renewables Obligation Certificate (ROC) for each megawatt hour of electricity generated to supplement it sales price, with each ROC currently worth about EUR 70/MWh. Add ROC income to that from sale of electricity at wholesale market prices and onshore wind is getting more than EUR 100/MWh. Not all of that reaches renewables generators, but it is the highest price being paid for wind on any of its major markets.

The government, to preserve the fiction that the Renewables Obligation (RO) is not expensive, needs to show that wind's generating costs justify the RO's level of support. Seen in that light, perhaps it should be no surprise that the generating costs for large wind plant are put at a whopping EUR 76-122/MWh. In fact, given the falling cost of wind plant finance in all of wind's major markets not burdened by the RO, the cost of wind generation is far lower. It ranges from EUR 42/MWh on a good windy site to a high of EUR 85/MWh for a site in challenging terrain based on the costs of 40 completed wind plant in 2006 (Windpower Monthly, January 2007). Indeed, in 11 major wind markets, the price paid is less than EUR 90/MWh. The price remains higher in Britain because of the short term nature of the RO market. Investors (quite rightly) demand a higher-than-usual rate of return to cover the risk that earnings under the RO could plummet.

The truth must out

None of those facts are made clear in the White Paper and its volumes of supporting documentation. That is a damning indictment of those in the DTI responsible for advising government on its policy options. Instead, the concept of a Nuclear Obligation is floated, with the suggestion that a NOC might cost the British public only half a ROC. Given the imperative to reduce carbon emissions, does that matter? Yes, very much so.

The danger is that 6 GW of nuclear power limits wind's contribution to about 15% of electricity supplies before the two come into economic conflict. As technologies with high capital costs, both have "must-run" status. A power system with large volumes of wind and nuclear is unworkable, unless the government intends to pay one or the other not to produce power whenever demand is low, as this magazine has been at pains to point out (Windpower Monthly, June 2006).

Thanks to the efforts of Greenpeace, a new public consultation on nuclear and its economics has been foisted on government. Until that is complete, the door on nuclear is neither open nor closed. Opportunity knocks for the wind industry. What it must get into the public debate is the fact that wind can do everything nuclear can do, but faster, cheaper, and without risk of any kind. If the industry allows a nuclear program to be launched, the full potential of wind power may never be realised.

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