Bill Jamieson: A chill wind blows over the high price of green energy

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TWENTY years at least of electricity price rises for businesses and households: what a cheerless prospect is set out in a leaked European Commission report.

It says that all scenarios point to wind farms becoming the greatest source of electricity by 2050. By then they will be producing as much as 49 per cent of European Union electricity, up from a mere 5 per cent today.

Here’s another prediction: long before then, much of UK and continental European industry will have buckled under or moved to the Far East, unless there is a dramatic change in technology that lowers the cost of wind power.

Yesterday’s “Energy Summit”, hosted by Prime Minister David Cameron and Climate Change Secretary Chris Huhne, understandably focused on the plight of hard-pressed households struggling with a relentless rise in fuel bills. But businesses, too, are being hit.

“Green” policies may be all the cheer of environmental politicians and target setters. But piling them on with the economy teetering on recession and when so many businesses are struggling on so many fronts, seems beyond reason.

So I am grateful to Ruth Lea, former chief economist at the Institute of Directors and now economic adviser to the Arbuthnot Banking Group, for a paper this week casting a critical eye on the economics of wind power. It is an area that deserves searching scrutiny.

In July, the Department of Energy and Climate Change estimated that electricity prices for industry could be as much as 52 per cent higher because of “green policies” by 2020. As Lea points out, for chemicals and steel, “these are competitiveness-shredding, viability-wrecking increases in energy costs. They risk driving these industries to migrate overseas, along with their CO2 emissions, thus having zero net impact on global emissions totals”.

The 2008 Climate Change Act prescribed an overall target of cutting greenhouse gases by 80 per cent by 2020 compared with the 1990 level. “This”, she writes, “is tantamount to the near decarbonisation of the economy – with huge implications for the energy sector in particular and the economy more generally.”

(As an aide memoire, the UK was responsible for just 1.7 per cent of global emissions in 2008, while China was responsible for more than 23 per cent and the US for 18 per cent.)

Her assessment draws on research by the engineering consultancy Mott MacDonald commissioned by the DECC to update UK electricity generation costs. Initial studies showed that, omitting carbon costs, coal-fired plants and gas and coal-fired plants were the cheapest generators and offshore wind and gas the most costly. When carbon costs are included, gas is the least costly with onshore wind in second place.

However, these figures tend to flatter wind power on two counts. First, wind power is intermittent and requires conventional standby capacity, raising its cost.

MacDonald assumed load factors of just 25-31 per cent for onshore wind and 35-45 per cent for offshore wind. But these can critically mislead: during very cold weather spells, such as we had last winter, there tends to be little wind. The result is that, on 21 December last year wind’s contribution to electricity output was just 0.04 per cent of the total.

Parsons Brinckerhoff Power, another engineering consultancy, estimated that in 2004 stand-by costs could add around 45 per cent to the costs for onshore wind and 30 per cent to offshore wind. This would make onshore wind uneconomic and offshore wind, in the words of Lea, “even more absurdly expensive”.

MacDonald’s main findings , allowing for carbon costs, were that gas-fired condensed cylinder gas turbine power was expected to be the least-cost option in the near term, nuclear power in the long term. Both onshore, and especially offshore wind, fared relatively badly in this analysis.

Lea’s conclusion is that “there is no economic case for expensive wind power. It only adds to consumers’ energy bills – both domestically and for business”.

But here in Scotland on we charge – as if money was no object. And when it comes out the pockets of consumers, it never really is, is it?

Little wonder then that big energy users are now pressing for some lifeline in the autumn statement due on 29 November.

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