The Crocodile Jaws That Will Crush Net Zero
The Crocodile Jaws That Will Crush Net Zero
Yawning gap between Government projections for renewables prices and reality
Introduction
The new Labour Government has set itself five missions to rebuild Britain. Mission number two is to make Britain a clean energy superpower” to “cut bills, create jobs and deliver security with cheaper zero-carbon electricity by 2030, accelerating to net zero.”
This article looks at the veracity of those claims and the forces that are likely to crush the Net Zero pipedream.
Cost of Renewables
First, as discussed here, existing intermittent renewables are much more expensive than the reliable gas-fired electricity which must be displaced if we are to achieve a zero carbon grid by 2030. Although new renewables are cheaper than the existing fleet, they are still much more expensive than gas-fired power as shown in Figure 1 below.
All the technologies that are being pushed by the Government for GB Energy and the debt-funded National Wealth Fund have increased in price since last year, and the basic costs of the Contracts for Difference (CfDs) are more expensive than the £66/MWh average market price for the first four months of financial year 2024/25. The average market price is largely set by gas and includes carbon taxes.
In addition, we should add extra costs to renewables such as the £2.5bn in grid balancing costs we paid last year and ~£1bn for the Capacity Market which would not be needed on such a scale if we did not have so much renewable capacity on the grid. Finally, National Grid ESO has announced £54bn of spending on the electricity network infrastructure up to 2030 and a further £58bn in the 2030-2035 period, a total of £112bn. This is over £10bn per year for more than a decade to connect remote, intermittent renewables to the grid.
Yawning Gap Between Projections and Reality
The claim they are going to cut bills and deliver cheaper, cleaner zero-carbon electricity by 2030 looks to be on very shaky ground. We need to understand where this claim comes from. Many reports of cheaper renewables originate from the Government’s own 2023 Generation Costs Report which made some extraordinary claims that are proving to be untrue.
When two lines diverge on a chart, they are often referred to as ‘crocodile jaws.’ As we shall see below, the crocodile jaws made by comparing the reality of contract awards and offers in the allocation round auctions to Government predictions are getting wider. The upper jaw in magenta is the contract awards and offers and the lower jaw in orange is the Government projections made in the 2023 Generation Cost report. The yawning gap between projections and reality must surely crush their Net Zero plans.
Solar Power Projections vs CfD Awards and Offers
Let us start with solar power, see Figure 2. Remember Labour wants to triple solar capacity by 2030.
The Generation Cost report quoted all technologies using 2021 prices and they stated solar power could be delivered in 2025 at £41/MWh, falling to £30/MWh by 2040. We can see that the price of solar power was over £110/MWh (in 2024 prices) when Triangle Farm won a Contract for Difference (CfD) in AR1 and became operational in 2018. Prices then fell to AR4 with awards made for 2024/25 delivery in AR4 at £64/MWh. That was the low point of offers and delivery, AR5 awarded contracts for 2026/27 delivery at £66/MWh and AR6 is offering new contracts for 2027/28 delivery at £85/MWh, more than double the Government projections for 2025 and 2030.
These recent offers are above current market prices, even without factoring in the extra costs that should be attributed to renewables, so there is no way that tripling solar power by 2030 will cut bills.
Onshore Wind Projections vs CfD Awards and Offers
Moving on to onshore wind, see Figure 3. Remember Labour wants to double onshore wind capacity by 2030.
The Generation Cost report stated onshore wind power could be delivered in 2025 at £44/MWh, falling slightly to £41/MWh by 2040. Moor House onshore wind farm was awarded a contract in AR1 and became operational in 2018 at a current price of over £110/MWh. Prices then fell, with awards made for 2024/25 delivery in AR4 at £59/MWh (at 2024 prices). That was the low point of offers and delivery, AR5 awarded contracts for 2026/27 delivery at £73/MWh and AR6 is offering new contracts for 2027/28 delivery at £89/MWh, more than double the Government projections for 2025 and 2030 and above recent gas-fired electricity prices. Again, there is no way that adding more expensive onshore wind capacity will bring down bills.
Offshore Wind Projections vs CfD Awards and Offers
Finally, we come to offshore wind, see Figure 4. Remember Labour wants to quadruple offshore wind capacity by 2030 and want it to become the largest source of renewable electricity.
The crocodile jaws of the chart are widest for offshore wind. The Generation Cost report stated offshore wind power could be delivered in 2025 at £44/MWh, then fluctuating somewhat before settling at £41/MWh by 2040. Prices have fallen since East Anglia 1 was awarded a contract in AR1 at £166/MWh at today’s prices and activated its CfD in 2019. More recent projects such as Triton Knoll and Moray East also saw prices falling further. The low point of contract awards came with AR4 when projects for 2024/25 delivery at £52/MWh (at 2024 prices) won the auction. However, we should remember that Vattenfall has pulled out of the Norfolk Boreas project that won a contract in AR4 because of soaring costs. Other projects are being offered the possibility of re-bidding parts of their projects at higher prices. AR5 offered contracts for 2026/27 delivery at £61/MWh but received no bids. AR6 is offering new contracts for 2027/28 delivery at £102/MWh, much more than double the Government projections for 2025 and 2030 and higher than gas-fired electricity. Again, adding more offshore wind capacity at these prices will only increase our energy bills.
Conclusions
It is clear the Government peddled dangerous disinformation in its Generation Costs report from 2023. It must know the prices it projected are wrong because it also sets the strike prices for the CfD auction rounds. But Labour and others use this report to substantiate their claim that renewables are getting cheaper.
In reality, the opposite is the case; renewables were never cheap and they are now getting much more expensive. More expensive than Government projections and more expensive than gas-fired electricity. Yet the Labour Government has recently increased the budget for AR6 so they can deliver even more of this more expensive, intermittent electricity. Labour has also announced that the Winter Fuel Allowance will be cut, reducing the ability of pensioners to pay for this more expensive electricity. Their self-declared mission is to “cut bills, create jobs and deliver security with cheaper zero-carbon electricity by 2030” is in tatters. We can only hope that the jaws of the reality crocodile close soon to avoid further damage and the 2023 Generation Cost Report is withdrawn.
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Don't worry, I have reported Mr Miliband to my local Labour MP for spreading misinformation. and included a link to this article as evidence.
Given Sir T Starmer"s (sic) commitment to eradicating misinformation I expect Mr Miliband to take up the only prison place remaining before Monday afternoon (IE tomorrow)
This is of course only part of the story. Increasingly, renewables will be curtailed on days when output exceeds the level that the Grid can absorb. The alternatives are to pay to dispose of the surplus into exports or storage. The result is that the real cost to consumers of the power they use is inflated to cover for the wasted output. Meanwhile we will have to compete for supply via imports on days when wind and sun are inadequate, and have to pay for capacity kept on standby as backup. Those costs will also grow, particularly if electrification leads to rising demand, which would entail much more backup capacity being needed.