Is the cap on subsidy for renewables compatible with the target of 30% renewable electricity in 2020?

The government has announced today (22/11/12) a £7.6bn cap on the subsidy payments under the Renewables Obligation (RO) and Feed-in Tariffs (FiT) in 2020. At the same time, it has reiterated its commitment to providing 30% of all electricity generation from renewables in the same year. Are these two aims both achievable? Probably yes – using an assumption about the mix of generating technologies, each benefiting from different RO rates, £7.6bn of support will get the UK close to 30% renewables by 2020 at a total cost of about £90 per domestic customer.

In 2011, the government published an outline of how it expected to get to 30% renewables. It provided a range of estimates of the installed capacity of the main technologies for achieving the target.

Technology Range of likely capacity in 2020
Offshore wind 11-18 gigawatts
Onshore wind 10-13 gigawatts
Biomass electricity  generation 4-6 gigawatts

 

For simplicity, I use a single number  for each type; offshore 14 gw, onshore 12 gw and biomass 5 gw. How much electricity will this produce in a typical year? This requires us to estimate the output of each technology as a percentage of what would be achieved if the generator worked flat out all the hours of the year (the ‘capacity factor’)

Technology Assumed capacity  factor
Offshore 38%
Onshore 31%
Biomass 80%

 

This mix would produce about 111 terawatt hours a year which is just over 30% of current electricity demand. Demand by 2020 may be higher than it is today, or it might be lower. (Over the last few years, electricity demand has fallen quite sharply – partly as a result of recession, partly because of efficiency gains).

 

Technology Assumed production
Offshore 46 terawatt hours
Onshore 30 terawatt hours
Biomass 35 terawatt hours
Total 111 terawatt hours
Total 2011 production 368 terawatt hours

 

So, if the 2011 predictions are accurate, the UK will get 30% electricity from the 3 main renewable technologies though personally I doubt that biomass will grow much. Solar PV, hydro and marine renewables are additional to these forecasts but together their contribution is unlikely to be more than 5%, probably about balancing the shortfall I think is likely in biomass generation.

Will the proposed cap on support in 2020 provide enough cash to incentivise the increased installation? New offshore wind earns about £90 a megawatt hour from ROCs, onshore about £40 and biomass averages about £60. So the question to ask is: what will the estimated levels of electricity output from these new installations, multiplied by the RO subsidy per megawatt hour, actually cost?

To get the answer, we need to know the current RO cost (about £2.1bn this year) which pays for existing installations. This leaves about £5.5bn to fund the new installations. (The RO itself stops accepting new sites in 2017 but I’ve assumed the level of support remains at the same level in any scheme replacing it).

What will the levels of operating generation be at the end of this financial year? These are my rough estimates.

Technology End 2012/13 operational generation
Offshore wind 3 gigawatts
Onshore wind* 5 gigawatts
Biomass 3 gigawatts

 

£2.1bn pays for the subsidies for these technologies. Will the remaining £5.5bn pay for the new capacity due to come on stream by 2020?

Technology Capacity installed between 2012/13 and 2020
Offshore wind 11 gigawatts
Onshore wind 7 gigawatts
Biomass 2 gigawatts

 

Applying the RO to these new installations yields a cost of about £5.0bn per year, less than the available £5.5bn. The subsidy cap announced today, 23rd November 2012, will therefore pay for enough new capacity to fulfil the UK’s promises to get 30% of its electricity from renewable sources.

In addition, smaller installations, such as PV developments, will take subsidies from the separate FiT scheme. The cost of FiTs will probably rise to almost £400m this year and will increase in future years as new PV roofs and farms are put in place. The FiT rates in place will encourage large schemes but the cost is unlikely to rise very much from today’s levels. Probably correctly, the government has decided to prioritise large scale RO developments rather than hundreds of thousands of more expensive household FiT installations.

In summary, the FiT cost is likely to rise much more slowly than in recent years. This will mean that it will use up all the remaining £500m in 2020 but will not massively exceed this figure. The £7.6bn promised in subsidy for 2020 is enough to buy the renewable energy necessary in 2020 to meet the government’s 30% target.

 

 

  1. Damon Hart-Davis’s avatar

    Re the biomass likely capacity…

    DRAX seems to be taking us quite a long way there with its plans, IIRC, and there’s new-build biomass and conversion of other plant too, so I don’t see 5GW of biomass capacity as unlikely.

    Rgds

    Damon

  2. Paul Dodgshun’s avatar

    Chris,
    Not too many takers for this topic, as yet. The strains of attempting to reach this short-term (by 2020) target are beginning to show.

    Windmills are being planted on the seabed like rice seedlings in a paddy field. Onshore is being restrained somewhat by public opposition. Biomass generation seems to involve shipping woodchips from other parts of the world, to be burnt in old coal burning stations. I note that Tilbury ‘B’, a biomass burner, on the Thames estuary has just been closed; I cannot see how this helps the target. Peak wind generation is now about 4.6GW and there is another 2GW of wind power that the Grid cannot see because it is connected to the distribution systems.

    The immediate problem with this renewable generation, and I guess we can add solar, tidal, etc, is that it is distorting the capacity development in the conventional generation market. In short, nobody wants to invest new money in conventional plant, yet a fifth of conventional capacity must close on the same timescale. Intermittent renewable generation adds nothing to peak generation capacity. The government has also noticed this problem. The answer is ‘capacity markets’; the cost will be huge :-
    http://www.publications.parliament.uk/pa/cm201213/cmhansrd/cm121219/debtext/121219-0002.htm#12121957000002
    3.25 pm
    The Secretary of State for Energy and Climate Change (Mr Edward Davey):
    We estimate that an enormous £110 billion of energy infrastructure investment is needed between now and the end of the decade in low-carbon energy generation and the grid network.

    First, about a fifth of Britain’s existing power plants are scheduled to close during this decade, which will reduce supply.
    Secondly, even if we are heroically successful in terms of energy efficiency and reducing energy waste, overall demand for electricity is set to rise—partly because of population growth, but also because our transport system is likely to be more electrified over the next two decades, as are our heating systems.
    What with supply falling and demand increasing, we would have a real energy problem if we sat back and did nothing. Energy security—keeping the lights on—is a critical rationale for the Bill.

    19 Dec 2012 : Column 903
    … wind and solar are intermittent, and may need either storage technologies and/or back-up generation. Both nuclear and renewables tend to have low margin running costs and are likely to mean that fossil fuel power stations run at lower load capacities than in the past. If we do not consider the implications of such things, there might in the future be a danger of insufficient investment in the flexible generating capacity needed at certain times, especially at the peak, for example on less windy days.
    Moreover, given that new nuclear reactors will take some time to come online, and that new renewables may not fill the energy gap created by the closure of old coal and nuclear quickly enough in the next few years, there is the challenge of ensuring energy security over the next decade or more. Alongside CFDs we will introduce a capacity market to ensure that sufficient reliable generating capacity is available to meet electricity demand as it increases over the next decade. The capacity market will provide an up-front payment for capacity, reducing the risk of investing in flexible generation. The capacity market will provide an insurance policy against the possibility of future black-outs—for example, during periods of low wind and high demand.

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