A Question For Ed Miliband

Energy Minister, Ed Miliband, claims that consumers will see long term savings from his plan to vastly increase the UK's renewable energy capacity. I call BS on that.

The UK’s newly elected Labour government has pledged to triple solar power capacity, double onshore wind, and quadruple offshore wind by 2030. After backing off on their initial pledge to save consumers £300/year in energy costs, Ed Miliband, the Minister in charge of the energy transition, continues to insist that those proposals will reduce energy bills in the future.

In this article, I put forward the argument that Miliband is misleading the public, his proposals will inevitably lead to higher electricity prices.

The UK’s existing power generation system

At the end of 2023, the UK electricity generation system included 16 GW of solar power, 15 GW of onshore wind, and 15 GW of offshore wind.

In 2023, wind power contributed 29.3% of the country’s electricity while solar contributed 4.9%.

Solar generated ~14,000 GWh

Offshore wind generated ~49,000 GWh

Onshore wind generated ~32,000 GWh

Total generation, including imports, was approximately 275,000 GWh, an average consumption of 31.4 GW.

The proposed additions of wind and solar

Under the proposed plan, by 2030, solar should be generating 42,000 GWh, offshore wind 196,000 GWh, and onshore wind 64,000 GWh for a total of 302,000 GWh in 2030.

The UK also has 5.9 GW of nuclear capacity, of which 4.9 GW is scheduled to close in 2028.  Whether this happens as scheduled or before the start-up of the Hinkley Point reactors is a matter of conjecture. I am going to assume for this exercise that nuclear continues to produce at its current rate beyond 2030.

Presumably hydro and biomass will also continue at their existing levels, so we are left with a baseload of about 21% of existing generation or 58,000 GWh/year. Total installed capacity will be 360,000 GWh per year including renewables and baseload but excluding gas and imports.

Increased demand and capacity

Demand will also increase as the country moves from fossil fuel-powered transport and heating towards electric cars and heat pumps. That transition was forecast to increase demand by 50% by 2035. I will assume 30% by 2030.

That leaves us with a demand of 358,000 GWh per year, of which 300,000 GWh must be supplied by wind, solar, gas, and imports after deducting the baseload of 58,000 GWh. Wind and solar generation capacity will be approximately equal to residual demand. That doesn’t mean there will always be enough electricity from wind and solar. No matter how much capacity is installed there will always be times when the wind isn’t blowing, and the sun isn’t shining.

In a recent evaluation of energy storage, The Royal Society analyzed 37 years of historical weather data to come up with the chart below:

It shows that if wind and solar capacity equals residual demand, those sources can fill 78% of that residual demand directly, leaving 22% or 66,000 GWh to be filled by other sources (gas, imports, or storage).

What about imports and exports

This brings up the question of whether or not the UK can rely on imports and exports to balance its supply and demand. European electricity prices already go negative when wind and solar supply is high, and spike when wind and solar generation is low. Most other European countries have similar energy transition plans that will rely on wind and solar for a significant portion of their future supply, so that situation will only get worse. Of course, there is hydropower from Norway and nuclear power from France, but both of those sources also feed into the remainder of the European market and will be stretched during periods of low wind and solar in Europe.

It doesn’t make sense to rely on imports and exports unless renewable generation in the UK is negatively correlated with the rest of Europe. We know that solar is positively correlated, summer and winter occur at the same time across the entire grid, but what about wind? If the wind is not blowing in the UK what are the chances that it won’t be blowing in the rest of Europe?

The chart below shows the correlation between offshore wind capacity factors in the UK and Germany.

Wind in both countries shows a strong positive correlation. In fact, based on 37 years of data, when offshore wind factors in the UK are below 30% (daily average), capacity factors will be below 30% in Germany 75% of the time.

Of course, there will be imports and exports, but it is the height of folly to expect that electricity will always be available to make up a shortfall in wind and solar or to expect that surplus power can be sold into an oversupplied market at a profit. It is probably best if we don’t rely on imports and exports if we want energy security. Certainly, we will be exporting at low prices and importing when prices are high.

The power generation system in 2030

Ignoring imports and exports, the UK generation would look something like this:

The addition of 207,000 GWh of wind and solar generation has resulted in an extra 140,000 GWh of usable energy, and there is a surplus of 67,000 GWh (22% of total wind and solar generation) that cannot be used directly because when the wind is blowing and the sun is shining, supply exceeds demand.

Some of the surplus electricity will go to batteries, but battery storage is expensive. Batteries are useful for balancing short-term variations in supply and demand, and if prices continue to fall, they will probably be viable for leveling the daily demand variations. However, the major requirements for storage in a renewables-based system are for balancing seasonal and multi-year variations in supply. For example, the Royal Society has estimated a requirement for storage to provide 55 TWh of electricity if the UK were to have an all-renewables grid. The pipeline of upcoming battery projects includes only 156 GWh of storage, about 3,000 times less than the projected needs.

More gas plants will be needed to provide for the growth in demand because there will still be times when renewables are producing close to zero. But those gas plants will operate for fewer hours per year and at lower capacities. They are more likely to be simple cycle gas turbines which are less efficient, they use about 50% more gas per KWh of output. The amount of gas used to generate electricity will hardly change between now and 2030.

If the gas plants are to be carbon emissions-free, they will be fitted with carbon capture and storage systems which will further reduce efficiency and add costs. In that case, the gas used in generating electricity may even increase.

An alternative to gas plants is hydrogen, produced by electrolysis using the surplus wind and solar power. However, hydrogen electrolysis plants are expensive, to be viable they need to be operated for as many hours as possible. As I explained in an earlier article, a 22% surplus does not allow for the operation of a hydrolysis plant for more than about 3,000 hours per year.

There is a claim that “Green” hydrogen can be produced cheaply from surplus renewables because the electricity is free. That is nonsense, someone must pay for the electricity. If 22% of it is given away free to make hydrogen, the buyers of the remainder have to pay more to make up the difference.

Making hydrogen by electrolysis, storing it, and using it to generate power also requires about 3KWh of energy input for every KWh of output. The proposed build-out of renewables would not produce enough hydrogen to replace natural gas, even if all of the surplus could be used for that purpose.

Compare the costs.

We start with renewables, which will be purchased using “Contracts for Difference”. Those CfD contracts provide fixed prices for suppliers for the duration of the contracts. If market prices are below the fixed price, subsidies are paid to make up the difference, and the energy suppliers return the difference if market prices are above the fixed price.

Wind and solar

The expected prices in the next round of bidding (adjusted to 2024 prices) are:

• Solar                                                  £85

• Onshore wind                                  £89

• Offshore wind                                 £102

• Floating offshore wind                 £252

All of those prices are higher than the current price of electricity generated from natural gas ($65/MWh).

You will also have to pay for the 22% surplus renewables. Your choices will be:

• Paying the generators to stop generating

• Selling it into an oversupplied market at below-cost

• Constructing very expensive batteries for limited quantities of storage

• Forcing the baseload generators to follow the load, thereby increasing their costs

• Constructing expensive hydrolysis plants, storage caverns, and hydrogen-fueled generators that need 3 KWh of electricity to produce 1 KWh of output.

Gas

Electricity produced from natural gas will also be more expensive because:

• Gas generators will operate with lower capacity factors and will have to charge higher prices to cover their fixed costs

• Gas generation will be more variable and less efficient, using more gas per KWh of production.

• Carbon capture will add cost.

Transmission

Finally, to get all of this to work you have to spend an estimated £100 billion on upgrades to transmission systems.

Costs can only increase

All of these factors add costs to the system. There are no offsetting savings.

You will also have backed yourself into a corner. If you look at the chart from the Royal Society (shown earlier in this article), you will see that you have moved from the steep part of the curve where 100% of the value of wind and solar is realized, to the flat part of the curve where adding more renewables mostly increases curtailment with very little added value. Future costs increase exponentially.

The Questions

Mr. Miliband:

How do you expect electricity prices to go down?

Where are the savings for consumers going to come from?