By Paul Homewood
h/t Doug Brodie
The boss of Centrica, Chris O’Shea, has weighed in on the debate about whether renewables will bring down electricity costs.
He has posted this on LinkedIn:
There’s a bit of confusion on whether renewables will bring down energy prices from where they are today. People talk about the UK electricity price being set by international gas prices and therefore point to renewables giving us price reductions.
However, the truth is a bit more nuanced. Wholesale electricity prices in the UK may well be set by international gas prices, but the wholesale price does NOT set the price that the majority of consumers pay in the UK.
Why is that? It’s because of the contract for difference (CFD) that renewable energy producers get. There’s a great video attached which explains how the CFD works. Essentially, no matter the wholesale price, renewable producers with a CFD get the “CFD strike price”.
So I thought it may be useful to look at the comparison of current wholesale energy market prices (set by international gas prices) and the (CFD) prices that consumers actually pay:
Current wholesale prices:
-Last 24 hours £68.61
-Last 7 days £77.09
-Last year £82.11
.
Most recent CFD strike prices in 2012 prices:
-Solar £50.07
-Onshore wind £50.90
-Fixed offshore wind £54.23-£58.87
-Floating offshore wind £139.93
-Tidal stream £172.00
.
Now you may look at those strike prices and think they look attractive-and they do. But unfortunately, these are prices expressed as they would have been in 2012. And as they’re index linked (or inflation proof), they need to be restated to today’s prices. Restating them to 2024 prices (when the last CFDs were granted) gives you the following:
.
Most recent CFD strike prices in 2024 prices:
-Solar £69.87
-Onshore wind £71.03
-Fixed offshore wind £75.68-£82.16
-Floating offshore wind £195.28
-Tidal stream £240.03
.
So you can see that the build out of renewables will NOT materially reduce UK electricity prices from current levels. They may give price stability, and avoid future price spikes based on the international gas market, but they will definitely not reduce the price. So the next time you hear someone say the build out of renewables will reduce UK electricity prices, ask them to explain how. Because we need to get the facts out there so we can make the right decisions-we need to stop having a polarised debate populated with unsubstantiated, but convenient, sound bites.
I fully support the move to a cleaner energy system. I am simply very frustrated that people peddle misinformation at best, and disinformation at worst. For example, I was talking to someone in a major UK energy retailer recently and asked why they kept telling people that more renewables would reduce energy prices when I didn’t think it would based on my analysis. What they said was quite surprising-they told me they were always careful to say that more renewables would reduce the WHOLESALE energy price, not the RETAIL energy price. Whilst that statement is factually accurate, I think it could mislead consumers.
As the CEO of a major UK energy retailer, I am far more interested in what consumers pay. We should all be.
https://www.linkedin.com/posts/chrisoshea_what-is-the-cfd-on-vimeo-activity-7327285840705957888–R9H/
The Telegraph have covered the story here. But shamefully they have grossly misled readers with this fake chart:
It is based on old BEIS levelised cost analysis. Offshore wind ludicrously is said to cost £40/MWh – the latest strike price is £85/MWh. Similarly onshore wind and solar are also massively understated.
Meanwhile CCGT includes a “carbon cost” of about £80/MWh. Carbon of course does not cost anything – this figure merely represents the government carbon tax imposed to make fossil fuels uncompetitive.
I’ve covered this before, but it’s worth looking again at how these carbon costs are estimated. This is what the BEIS report stated:
https://www.gov.uk/government/publications/electricity-generation-costs-2023
So it starts with the ETS prices, the Emissions Trading Scheme. Then it morphs into a “carbon appraisal price”, with the BEIS link taking us to this document:
They then add this little nugget:
In short, the carbon value is set to match the cost of carbon reduction needed to meet decarbonisation targets. The higher that cost, the higher the carbon value.
As the BEIS admitted at the time, the Paris Agreement and the switch to Net Zero have increased pushed carbon values higher.
So when the Telegraph claims that the cost of gas power will increase to £140/MWh, they are lying – what they really mean is that the cost of decarbonisation will be much greater than previously thought.