UK’s Accelerated Energy Push Risks Rising Energy Bills

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(Bloomberg) — The U.K. government is risking higher energy costs for consumers as it tries to meet the challenging — and advanced — goal of ending the country’s electricity shortage by 2030.

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After bringing the deadline to deliver a clean energy system – defined as one that relies on electricity for less than 5% of the supply – to 2030 from 2035, ministers could lock consumers into higher prices, according to Cornwall Insight energy analysts, Carbon Tracker. and Aurora Energy Research Ltd. That’s because the cost of raw materials and borrowing has risen, making it more expensive to build new wind farms. Approving a wave of projects in a rush to meet targets can also kill competition that drives costs down.

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“Given that renewables continue to decrease in cost as production and installation costs fall, then additional installation in the short term may result in higher cost lock-in, compared to installing the same capacity later when costs have fallen,” Cornwall’s chief producer, Tom Edwards, said. He added that a more targeted policy risks reducing competition for new renewable projects, further increasing the price burden on consumers.

A delicate balance is needed to keep costs under control and there are risks associated with accelerating the UK’s clean energy drive under the assumption that renewable energy is cheap.

Prime Minister Keir Starmer and Energy Secretary Ed Miliband promised during this year’s election campaign that their plan to cut greenhouse gases would cut annual energy bills for consumers by £300 ($381) a year. Starmer’s spokesman, Tom Wells, said last week that ministers “stand by independent modeling based on pre-election costs that say savings could be £300 based on clean energy by 2030.”

Pushing to reach zero emissions in the energy sector by 2030 will cost £11.4 billion more over the next 11 years than sticking to the 2035 deadline, according to analysis by Aurora Energy Research from earlier this year. The government’s financial adviser, the Office for Budget Responsibility, has increased its forecast for UK spending on environmental costs in 2029 by a total of £8.8 billion.

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The government set out plans last week to change planning rules and grid connections in a bid to boost the £240 billion investment it says is needed by 2030 to transform the energy system and meet its decarbonisation target. The plan expected 50 gigawatts of offshore wind capacity by 2030, more than three times today’s level.

Most new wind farms are backed by government-backed contracts that fix rates for 15 years. The cost of building offshore wind has risen in recent years due to high financing and raw material costs and weather delays that have hampered projects. That means the UK will have to lock in new projects at the most expensive time.

To reach that target quickly, “we will need to choose some projects that are less economical and have higher costs,” said Lorenzo Sani, an energy analyst at energy research firm Carbon Tracker.

Electricity prices are calculated by the most expensive megawatts of generation required to meet demand. When gas is in demand, it will push the price to a much higher level than on windy or sunny days. Under the scenario proposed by the UK’s National Energy System Operator, gas would set the price of electricity around half the time, exposing buyers to international commodity markets.

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Gas plants “will be a major contributor to the overall cost of electricity as they will be setting prices during periods of shortage,” said Cornwall’s Edwards.

Building more wind capacity in Scotland does not fix everything. So far this year, the UK has spent more than £1 billion on congestion charges to shut down wind power plants due to grid problems, and switch to alternative ones. As more renewables come online, and storage solutions fail to keep pace, that wasted energy is set to quadruple under both scenarios set by NESO.

To help cut wasted energy, the UK aims to accelerate the expansion of the grid to better transport green electricity from windy, often remote areas, to population centers in England. NESO identified 68 projects that could be delivered by 2030, and said that delaying even one of those could add an additional $500 million a year in arrears.

A report by the grid operator has found that the UK can decarbonise energy by the end of the decade without raising overall costs. But that scenario is based on assumptions that may not be realistic, including natural gas prices remaining at historically high levels and a quadrupling of the UK’s carbon footprint.

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“If the price of carbon doesn’t go up to that level and the price of gas doesn’t go up, then the idea that a clean energy system is going to cost the same is wrong,” said Tara Singh, executive director of public policy. Burson and former lobbyist for Shell Plc.

The government can still block the delivery of cheap domestic energy by shifting certain parts of energy and gas to the general tariff. Currently, wholesale charges account for slightly more than 40% of total consumer bills, with the remainder comprising network charges, policy taxes and operational charges.

Whatever Labor does, any prospect of a return to the prices consumers paid before the energy crisis is slim: Pranav Menon, research fellow at Aurora Energy Research, said he expected prices to remain “always higher” than the levels enjoyed since 2014. in 2019.

Beyond the burden on consumers, high prices put the pace of the energy transition at risk as EVs, heat pumps and other parts of the economy are set to struggle with higher costs.

“Currently high electricity prices are a major obstacle to the electrification of heating and transport and the clean energy of 2030 threatens to make this worse.” Sani said. “The most important step is for the government to stop this nonsensical approach and realize that the real goal is a “Clean Economy” and not Clean Energy.”

—Courtesy of William Mathis.

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