Europe: Study forces regulator to do a u-turn on renewables

Consumers face cost rise if renewables target not met.

Failing to meet the UK's renewable energy targets could mean that consumers face a 60% rise in electricity prices over the next ten years, warns UK energy regulator Ofgem. Meeting the targets - including for renewables to supply 30% of the country's electricity - will result in a more modest 14% increase in household electricity bills by 2020, it says.

To succeed, up to £200 billion must be invested in power plants and other infrastructure over the next decade. This will ensure that the UK meets its climate change targets and will also help maintain secure energy supplies, the regulator says. It points to the increasing dependence on gas imports and related growing exposure to a volatile gas market as the UK's key challenges facing the country, along with many of its fossil fuel power stations nearing the end of their life.

Ofgem's report flags up four energy scenarios to assess risks over the next ten years. These are all the more remarkable given that, in the past, the regulator consistently warned of the negative cost impact of increased renewables and meeting the climate change targets. More recently, its remit has been extended to put more emphasis on looking out for the interests of future, as well as current, customers.

The four scenarios (which do not include a "no renewables" one) are based around two key drivers - the speed of global economic recovery and the rate of global environmental action.

Green stimulus

Ofgem's green stimulus scenario, which has the highest dependency on wind generation and is where the 2020 renewables target is achieved but economic recovery is slow, comes in most favourably, it says. Under the stimulus scenario, electricity prices would only increase by 14% by 2020. This compares to 23% under the green transition scenario - where economic recovery is rapid and the 2020 renewables target met; and 60% under the dash for energy scenario, under which the UK gets only 15% of its energy from renewables by 2020.

Ofgem also conducted a stress test to find out what would happen in the unlikely event of a period of no wind across the UK coinciding with peak demand. The green stimulus scenario is most affected because of its dependency on wind generation. The greatest risk of an electricity supply shortfall occurs between 2024 and 2025, but Ofgem says this could be offset by demand-side management which, by that time, will be enabled by smart-grid and smart-meter technology.

The British Wind Energy Association (BWEA) welcomes the report. "Putting our faith into fossil fuels could irreparably damage the environment and still not save us any money," says BWEA chief executive Maria McCaffery. "We need to upgrade our outdated electricity network and have a more diverse generation portfolio. Renewables will be a fraction of the additional short-term total cost, but they will bring huge environmental benefits and returns on initial investment for decades to come." By end 2020, investment in renewables could create 60,000 UK jobs, she adds.

Renewables best choice for consumer electricity prices
Scenario Environmental Economic Electricity
action recovery price
increase (%)
Green transition
Significant investment
(£200 billion)
in green measures.
2020 targets met:
30% electricity, 10% heat Rapid Rapid 23

Green stimulus
Energy demand falls globally,
fuel prices are low.
£190 billion investment.
2020 targets met:
30% electricity, 10% heat Rapid Slow 14

Dash for energy
Gas supply is tight, fuel
prices are high, and planning
delays push back investment
in storage. £110
billion investment.
Renewables targets not met:
15% electricity, 4% heat Slow Rapid 60 (by 2016,
then falls
back to 25%)

Slow growth
Low commodity and carbon prices
reduce incentives for renewables.
£95 billion investment.
Renewables targets not met:
15% electricity, 4% heat Slow Slow 22
Source: Ofgem.