This assertion is entirely based on the work of Colin Gibson, a former National Grid engineer, who has made some informal estimates of the cost of integrating wind power into the electricity networks. He suggests that these costs are about £60 a megawatt hour, adding perhaps 70% to the cost of electricity from wind turbines. Ms Lea fails to mention that many, many other analysts and engineers have also estimated the extra costs of adding large volumes of wind power to the electricity system. In this note I suggest that these alternative sources support a view that Mr Gibson’s estimates are wrong by about a factor of four, meaning that Ms Lea’s contention that wind is a very expensive technology is based on shaky foundations.

The task of estimating the relative costs of electricity generating technologies is complex. The result depends critically on the assumptions we make about the cost of investment capital, the amount of bank debt that can be used, how long the generating plant takes to build, the cost of fossil fuels and a host of many other variables. The final numbers, usually expressed as pounds per megawatt hour of electricity produced are, at best, approximations.

Ms Lea uses as her source the figures produced by Mott McDonald, an engineering firm, in 2010. She should probably have the used the more tentative and up-to-date figures generated by Mott McDonald for the Committee on Climate Change in 2011. The 2011 numbers give ranges of estimates for the direct costs of all the main technologies, for both today and in the future. These figures suggest that onshore wind power is broadly competitive with nuclear power. Offshore wind is currently much more expensive but advances in technology are projected to make it competitive over the next few decades. Mott McDonald, whether in 2010 or in 2011, certainly doesn’t see direct costs of wind power as ‘quite uneconomic’ and, to be fair, neither does Ruth Lea.

Wind power is more costly to integrate into the grid than conventional power stations. There are three major types of extra charges and these incremental costs are not included in the Mott McDonald figures.

• The impact of having to have spare capacity on hand to react to unexpected changes in the outputs of UK wind farms. (Even if the electricity network were entirely powered by large nuclear plants, the UK would still need this spare capacity, ready to ramp up to full power, because of the risk of a station ‘tripping’ and its power not being available to the National Grid. Wind farms are actually less risky than a single nuclear power plant)
• The cost of having to construct power stations that are used only when the wind is not blowing.
• Charges arising from having to construct new distribution lines to connect wind farms, often in remote locations or offshore, to the National Grid.

Mr Gibson’s work, on which Ruth Lea entirely relies, suggests that the cost of these extra measures is about £60 per megawatt hour.

Table 1

Other sources give very different figures for the unseen costs of wind generated electricity. From the many available, I have used two reports produced by consulting engineers and by electricity network specialists. As far as I can see the numbers in these reports are representative of the consensus view of wind integration costs.

I don’t claim that these numbers are right, but I do think that Ms Lea should have given reasons why this recent work is less appropriate to use than the rough estimates of a single individual, however competent.

Table 2

(1)    Sinclair Knight Merz, Growth Scenarios for UK Renewables Generation and Implications for Future Developments and Operation of Electricity Networks, June 2008. (A report for BERR, now the Department of Business, Innovation and Skills.) Page 90

(2)    Sinclair Knight Merz, Growth Scenarios for UK Renewables Generation and Implications for Future Developments and Operation of Electricity Networks, June 2008. (A report for BERR, now the Department of Business, Innovation and Skills.) Page 91

(3)    Energy Networks Strategy Group, Our Electricity Transmission Network: A Vision for 2020, March 2009. This report estimates the gross cost of new transmission infrastructure to cope with dramatically increased renewables generation at £4.7bn. I turned this into a cost per megawatt hour using the calculator in Mr Gibson’s spreadsheet, thus ensuring reasonable comparability with the figure used in Ruth Lea’s paper.

The implication of the far lower costs in Table 2 is that we should add about 15-20% to the direct costs of wind power to properly account for the impacts of this source of electricity on the costs of the network as a whole, not 70%. This leaves wind as an entirely economic and carbon-saving technology. Did Ms Lea, a noted climate change sceptic,  use Colin Gibson’s very high figures because of her dislike for the renewables policy of the UK government?

At five in the morning, Britain’s wind farms were delivering about 2.5 GW, just under 10% of total electricity need and the number was expected to go higher. The opposite happened. After five hours of steep decline as a result of unplanned closures, wind turbines managed a little over 1.0 GW, no more than about 40% of what was forecast yesterday, leaving a shortfall of about 6% of electricity supply. Did the Grid suffer? Did we come close to having the lights go out? No. As the unexpected shortage of electricity became apparent, the price for immediate delivery of power rose from about £30 a MWh to £90 and unused power stations willingly revved up to meet the extra demand.

The crucial indicator of whether the Grid was under stress barely moved: the frequency of electricity supply remained close to 50 Hertz. An unexpected loss of large amounts of power will usually result in a fall in the frequency of Grid electricity but a close look at the numbers every few seconds from 5 to 10 am shows no obvious perturbation. Grid frequency stuck to about 50 Hertz for the entire period. The electricity supply system settled down with first gas fired power stations and then coal plants from 8 o’clock meeting the unexpected gap in supply.

By ten o’clock in the morning, things had settled down. Then the next unplanned event happened. Some of the wind farms started coming back online. The amount of power generated by wind rose almost as fast as it had fallen earlier in the day. By four in the afternoon the electricity from turbines was back at nearly the same level as five in the morning. Once again, Grid stability was unchallenged. Spot prices spiked up and down as operators adjusted to the new supply but the key indicator, Grid frequency, was unaffected.

Now, at 10.30 in the evening, wind is providing about 7% of the UK’s total needs. During the last day, the country’s 3,000 turbines have averaged about 5.5% of all power. However this number has varied by a factor of three during the day, and not in any way that was remotely predictable even 24 hours ago. The average cost of electricity has probably been relatively high as spare power stations have been fired up and down to meet swings in demand but I would guess there hasn’t been a single moment of real anxiety anywhere across the UK generation and supply industry.

What continues to amaze me is that people who scorn the value of wind energy are often also the most fervent believers in free markets and their apparently magical power to match supply and demand. The UK’s electricity market is far from perfect, but it is quite robust enough to handle a near hurricane, followed by unexpected falls in wind speed. What further demonstrations that wind turbines are effective providers of electricity could possibly be required? Today’s weather might have been more of a problem had the UK had 30,000 wind turbines rather than 3,000 but as of early 2012 the freely functioning electricity market is coping very well indeed with intermittency.

A press release today (January 3^rd 2011) from the Department of Energy and Climate Change makes the following assertion as part of the Department’s response to a campaign on child poverty.[1]

‘we’re also focusing on the causes of fuel poverty – in particular poor household energy efficiency. There’s free and cheap insulation available to low income households now from energy suppliers and the Warm Front scheme, and this will be also be a core feature of the new Green Deal from the end of the year.’

This statement isn’t true. The Green Deal proposals do not have ‘free and cheap insulation’ as a ‘core feature’. The Green Deal is a mechanism for allowing householders to improve the energy performance of their homes and pay back the cost slowly using a loan from electricity companies. Helping get people out of fuel poverty – one of the most important challenges facing the UK – is nothing to do with the Green Deal.

However DECC would be right to say that the alleviation of fuel poverty is indeed a feature of the proposed Energy Company Obligation (ECO) to be introduced in the spring of next year. This mechanism will force the energy companies to spend about £1.3bn a year for the next ten years on subsidising home energy improvements. But only about 25% of this amount, or something around £375m a year, will go towards those with the lowest incomes and greatest risk of fuel poverty.

This may sound a lot. Unfortunately it isn’t. Compare it with today’s position: the government obliges the energy companies to disburse £2.4bn a year through the CERT programme. Rising prices mean that the proposed £1.3bn will achieve less than half of the old figure. Of that £2.4bn, about 40% is spent on vulnerable homeowners, or about three times what will spent under the future ECO plan for helping the fuel poor.

Separately, the government also provides funds today for the Warm Front home insulation scheme. Even after the public expenditure cuts of 2010, Warm Front disburses £100m a year to the most needy for home improvements. This help will cease entirely at the end of the year. Despite what DECC asserts, the only scheme left for directly helping the less well-off improve their homes will be ECO, and it will be a shadow of existing schemes. However one looks at it, the government is reducing its efforts to cut fuel poverty.

The small scale of the new plan can be gauged by comparing the 5 million or so UK homes classed as in fuel poverty and spending 10% or more of their income on energy, with the size of ECO support for home improvements for vulnerable homes. The ECO scheme will be spending the equivalent of about £75 a year per fuel poor household on energy efficiency improvement. ECO is only expected to remove about 450,000 homes from fuel poverty by 2022m, or less than 10% of those classified as in this position. That’s it: a one percent reduction in fuel poverty per year, even under the Department’s own estimates.

It gets worse. On average, the poorest ten per cent of households will actually see a greater proportion of their income being spent on energy in 2020 than today as a result of the government’s new scheme. The Green Deal and ECO are highly regressive, with the bottom decile, excluding those small numbers who get help from ECO, spending a greater fraction of their cash on energy than if the Green Deal and ECO did not exist.  By contrast the top half of the income distribution is expected to see virtually no change.[2]  So even under the government’s own figures, ECO is expected to take more from the poor than it gives back in free or subsidised energy efficiency benefits.

I apologise for writing again about DECC’s Green Deal and ECO plans. I do so because these proposals will both substantially reduce the rate of home energy improvement and redistribute cash from the poor to the rich. DECC must be pushed back from these regressive policies.