The Cost of Electricity in the UK's Net Zero Scenario

Politicians are trying to convince the UK consumer that Net Zero will save them money, but nowhere do they provide an estimate of the real costs. I have made an attempt here, to estimate those costs.

The Net Zero plan

The UK has committed to reducing its net carbon emissions to zero by 2050. A plan to achieve that goal has been formulated by an independent group of scientists and economists known as the Climate Change Committee (CCC)

The first phase of the plan is outlined in a document published by that committee.

https://www.theccc.org.uk/publication/delivering-a-reliable-decarbonised-power-system

The document outlines the plan for decarbonizing the UK’s electrical supply by 2035. Although focused mainly on 2035, the plan includes projections for the complete decarbonization of the UK’s energy systems by 2050.

A second study, by AFRY Management Consulting, backs up the CCC study. This second study evaluated the requirements for flexibility in the electricity system and presented the plan for providing adequate energy storage and resilience.

https://www.theccc.org.uk/publication/net-zero-power-and-hydrogen-capacity-requirements-for-flexibility-afry

That study also focuses primarily on 2035, but it contains projections for 2050, including this chart showing the electricity generation mix proposed for 2050:

The plan includes a comprehensive mix of intermittent generation (wind and solar), baseload generation (nuclear, hydrogen combined heat and power, and biomass), and flexible generation provided by a combination of hydrogen and natural gas turbines, some of which are fitted with carbon capture systems.

It also includes short-term storage capable of generating up to 22 GW, and interconnections to other countries with a capacity of 28 GW.

Demand side response is shown as if it were generation capacity, but it is simply a temporary demand reduction at peak hours made possible by smart meters, time-of-use pricing, and use restrictions.

However, neither report mentions the cost of the proposed Net Zero plan. I am attempting to resolve that glaring omission by presenting in this article, my best estimate of the cost of electricity if the plan is implemented.

The cost of electricity under the Net Zero plan

The estimated annual electricity demand is 570 TWh which equates to an average demand of 65 GW. Peak demand will be about 120 GW minus any reductions achievable by demand side response (DSR).

The UK government contracts with suppliers of wind and solar energy to provide electricity at pre-determined prices. The pricing mechanism, known as Contract for Difference (CfD) subsidizes the electricity price if market prices are below the CfD strike price and collects a payment if prices are above the market price. Essentially, the electricity is bought at fixed prices.

The administrative strike prices anticipated in the next round of bids have been published by the Department of Energy.

·         Solar £61/MWh

·         Onshore wind £64/MWh

·         Offshore wind £73/MWh

·         Floating offshore wind £176/MWh

Those prices are in 2012 pounds, they must be multiplied by 1.377 to arrive at February 2024 costs.

The contracts in AR6 are for projects that will come on line between 2026 and 2029. The contracts are for 15 years, so the prices apply until at least 2040. They are adjusted for inflation, tied to the CPI. All the potential production must be paid, even if it is diverted to make hydrogen, or goes into short-term storage, or is curtailed. There is no free electricity from surplus renewables.

There is one nuclear CfD price, the contract for Hinkley Point, £90/MWh at 2012 prices, and I have assumed that it is based on an 85% capacity factor.

Using those prices and applying reasonable capacity factors, we can calculate the cost of the four major components of power generation.

As you can see, the four major power sources are producing 42% more than the demand, 812 TWh versus 570 TWh. The installed capacity of those four sources is four times the average load on the grid, there will be times when so much electricity is being generated that you can’t give it away and production must be curtailed. However, you still have to pay for it.

The interconnectors will be of dubious value because the countries at the other end of the lines are also planning systems with a substantial wind and solar content. They will very likely have a power surplus when the UK has a surplus and a deficit when the UK has a deficit.

Even with all that extra capacity, there are times when the wind isn’t blowing, and the sun isn’t shining, and other forms of power generation are needed.

One of the providers of that additional generation is the Drax power station which burns wood pellets imported from Canada and the USA. I visited the construction site at Drax when I was an engineering student. We made a trip up the stack that was about 600 ft high at the time, it’s final height I believe is 800 ft. That’s completely irrelevant to this article, except to say that it is a lot bigger than it appears on the pictures. Three enormous flues inside the stack have been pumping CO₂ into the atmosphere since 1972. It is Britain’s biggest polluter, and it makes very expensive electricity (£132/MWh in 2023).

You might ask why it hasn’t been shutdown.

The mysterious powers that decide these things have determined that burning wood pellets is carbon neutral, even though it emits more CO₂ than coal. The wood takes 100 years to regrow, and the energy used in harvesting, drying, pelletizing and transporting that wood is conveniently ignored.

By fitting carbon capture on the exhaust of the Drax power station, the UK will be able to claim negative carbon emissions for that source. That is the reason for its continued existence, it is an exercise in ticking the right boxes rather than a genuine attempt to reduce emissions.

The estimated cost of adding BECCS to the Drax power station is £1.3 billion per year, with the added CCS it will be the UK’s most expensive major power source.

Flexibility is provided by a mix of natural gas, some with CCS, and hydrogen.

The total cost of the systems that provide flexibility is estimated in the table below:

Prices for gas turbines come from the IEA, Projected cost of generating electricity 2020 edition, costs have been selected from a mid-range European source. Hydrogen turbines assume the same costs, except that fuel costs are covered separately. Hydrogen CHP includes a credit for the heat generated. The “Other” category includes hydro and a mix of small generators, I have used a cost of £132/MWh. Short-term storage is assumed to be four-hour storage batteries costing £200/MWh amortized over 20 years plus 2% per year replacement cost to compensate for degradation. All costs are based on a 7% return on investment. CCS is assumed to cost £80 per tonne of removed CO2

The proposal includes hydrogen produced by electrolysis using surplus electricity from wind and solar. Hydrogen requirements work out to 54 TWh of hydrogen per year. A paper published by the Department of Energy puts the cost of hydrogen produced by electrolysis (using free electricity) at £50/KWh. Using that figure, the annual cost to make hydrogen is £2,916,000,000 per year, electricity costs are covered in the wind and solar generation costs.

We also need to store the hydrogen. The CCC study estimates a need for 7.1 to 11.6 TWh of hydrogen storage by 2050. Taking the mid-point, 9.3 TWh, an estimated total capital cost of £6.7 billion, amortized over 30 years at 7% plus 1.5% of capex per year operating cost, equates to an annual cost of £646,269,233.

Finally, there is an extreme low wind scenario evaluated in the AFRY report. It requires an additional 20 GW of generating capacity which is not shown in the chart. It would presumably be standby capacity using the cheapest possible CAPEX. Carbon emissions would exceed the Net Zero target during its infrequent use. The cost of having 20 GW of standby capacity is estimated at £1,124,784,000.

The total cost comes to £98,041,628,060 per year for 570 TWh of demand.

It works out to £172 per MWh.

That cost includes only the power generation. Transmission costs will also be much higher because power must be transmitted from several different sources that are often located a long distance from the demand.

Subsidies and taxes are not included because they do not change costs, they only move those costs onto other payers.

Net Zero energy will be 39% more expensive than nuclear power from Hinkley Point, 3 times the current cost of power from natural gas, and 3 times the cost that France will be paying for nuclear power.

As well as high bills for consumers, it will decrease the competitiveness of Britain’s industries and drive away industry that needs a low power cost to compete. At £172 per MWh, the cost of electricity for home heating would be seven times the cost of natural gas, how do you expect to promote the use of heat pumps with that kind of price difference?

How did this plan evolve?

In 2020, the UK government forecast that wind and solar costs, including offshore wind, would reach £35/MWh in 2050.

Those projections were based on wildly inaccurate forecasts of capital and operating costs and ridiculously optimistic projections of wind power capacity factors.

That £35/MWh figure, which is less than half of the real cost has been used by the CCC and others to develop the Net Zero plan. That error has given rise to the illusion that Net Zero can be accomplished cheaply.

Why is it so expensive?

The answer is simple. There is too much intermittent generating capacity in the proposed system. Solar alone can meet all the demand, but only on a sunny summer day. The system has enough wind capacity to meet demand twice over, but only when strong winds are blowing. The installed renewables capacity must be backed up by reliable and flexible generators that can produce when there is no sun and wind, that backup system can also meet the demand with no contribution from wind or solar. That is three complete systems to do one job.

Electricity generation is a capital-intensive business. Most of the costs are fixed costs, the paying back of the capital plus interest is a major component of costs. A system in which installed capacity exceeds average demand by a factor of 5 is going to be very expensive, even if the individual components of that system are cheap.

How can the costs be reduced?

There is a possibility that solar costs will come down in the future as the cost of panels comes down. But solar only gets an 11% capacity factor in the UK and it produces at less than 4% in January when demand is highest. There is a limit to how much benefit solar can add without a cheap way to store the energy.

It is highly unlikely that the cost of offshore wind will come down, it is more likely to increase as the best locations are taken and wind turbines must be installed further from shore and in deeper water. Floating wind turbines may have to be included, and their cost is likely to be two times higher than fixed wind turbines.

The only realistic way to reduce the cost is to remove some of the duplication. However, nuclear power, gas turbines and hydrogen are needed for times when the sun doesn’t shine, and the wind doesn’t blow.

Eliminating redundancy from the system can only be done by eliminating wind and solar.

For example, in the two charts below, I show the planned power generation on the left, and a system that will provide the equivalent energy on the right. The system on the right adds 20 GW of CCGT with CCS instead of the standby emergency generators and adds another 30 GW of nuclear power.

The amount of generating capacity can be cut by two-thirds by eliminating wind and solar. That will cut the total cost of generation and will substantially reduce the amount of additional transmission capacity that needs to be installed.

The second step should be to develop cheaper nuclear power. Hinkley Point should not be the baseline. The eight countries surveyed by the IEA all have nuclear power costs that are less than Hinkley Point, in some cases less than half of Hinkley Point.

There is no reason why Britain cannot have nuclear power at the same cost as Japan or France, for example.

Finally, the Net Zero by 2050 target should be replaced by a target that considers both the costs and benefits of the proposed measures and sets an achievable time frame for implementation. As it stands, Net Zero is a case of “the perfect” becoming the enemy of “the good”.