House of Commons Library Gaslighting MPs

Commons library using misleading charts and lies of omission to deceive MPs and the public about the cost of renewables.

Introduction

The House of Commons Library (HoCL) presents itself as a provider of “impartial research and information.” MPs and the public rely upon it to present a balanced view of contentious issues. Last September, the HoCL released an insight entitled “Why is cheap renewable electricity so expensive”. Some time later, they changed the title to “Why is cheap renewable electricity so expensive in the wholesale market” and the updated article can be found here. Because of the hitherto impeccable reputation of the HoCL, the article is being used by proponents of renewables as evidence that renewables are cheap, when in fact the opposite is the case.

Their piece contains misleading charts, makes false claims and in effect, lies by omission by not including relevant information on the costs of renewables. This article seeks to unpick their errors and put forward a more balanced view on the real costs of renewables.

Commons Library Claims Renewables are Cheap

The first thing that is wrong with their “insight” is the title, because it starts with the premise that renewables are cheap. Their description of how the electricity generation mix has changed in favour of renewables is fine. But the obvious question is if renewables are so cheap, why have our bills gone up as the share of renewables has increased?

Their explanation of the merit order which describes how generators are selected is also fine, as far as it goes. However, they do not explain that even though the marginal costs of wind and solar renewables are low, the marginal costs are only a tiny fraction of their full costs. This is the core of the deception: intermittent renewables bid into the market at low marginal costs, knowing that they will get paid much more through the subsidy systems. In effect, they are allowed to game the system.

Their article then has a section entitled “how much cheaper are renewables than fossil fuels?” They then show a chart (Figure 1 below), sourced from IRENA that purports to show that the cost of renewables has fallen dramatically.

Figure 1 - Commons Library Chart on the Cost of Renewables (Source: IRENA)

The article also claims that “even before the rise in gas prices, new renewables schemes were able to generate more cheaply than fossil fuels.”

Why is the House of Commons Library Wrong?

To explain why the HoCL has got its analysis so wrong, we should start with that chart from IRENA. It suggests that the costs of new onshore wind in 2021 was ~$0.04/kWh with solar around $0.05/kWh and offshore wind around $0.08/kWh. Converting this to sterling (at an exchange rate of $1.25) and the more usual pricing per MWh, gives £32/MWh, £40/MWh and £64/MWh, respectively.

Current Cost of Renewables

Bearing that in mind, we can see the first problem. The chart they used is a modelled estimate of global costs, not data about actual UK costs. We pay for renewables through three different subsidy regimes: Feed-in-Tariffs (FiTs), Contracts for Difference (CfDs) and Renewables Obligations (ROCs). The prices for all subsidy regimes are index-linked and therefore go up each year in line with inflation.

Feed-In-Tariffs

We can glean the cost of FiTs from the annual report produced by Ofgem. The total cost of the FiT scheme in year ended March 2023 was just over £1.7bn. The average cost of renewables (mostly solar) produced under the FiT regime is shown in Figure 2 below.

Figure 2 - Comparison of FiT Payments with IRENA 2021 (£ per MWh)

The green line shows the payments made for each MWh of generation for each scheme year. Scheme year 13 (SY13) is year ended 31 March 2023. Generators also receive extra export payments for a portion of their output. The orange line shows the total payments per MWh in each year of operation. In the early days of the FiT scheme the average cost per MWh was extremely high and rose to over £300/MWh in SY3 (year-ended March 2013). The IRENA chart in Figure 1, claims solar cost $0.25/kWh in 2013, which equates to ~£200/MWh, so their model even under-estimates the cost at that time. Average FiT costs then fell, reaching a trough in SY8 and since then the impact of indexing tariff prices has overwhelmed the rate of bringing on new developments and the average cost has been rising, so the average payment in SY13 was over £190/MWh or nearly five times the IRENA estimate of ~£40/MWh for 2021.

We can compare the chart above to the average reference price for solar CfDs obtained from the Low Carbon Contract Company (LCCC) shown in Figure 3.

Figure 3 - Reference Price for Solar Power 2016 to 2024 (£ per MWh)

The reference price can be thought of as the market price on that day, typically set by gas-fired electricity. CfD generators get paid the difference between the strike price and the reference price. By inspection, we can see that the reference price was above £190/MWh for only a few months in 2021 and 2022 which are the only times FiT tariffs were cheaper than gas-fired power and currently FiT payments are about three times reference prices. It is also clear that at no point before late 2021 were FiT tariffs less costly than gas.

Contracts for Difference

The strike prices for CfDs can also be found at the LCCC link above. Figure 4 shows the strike price for wind and solar technologies in each fiscal year, weighted by generation.

Figure 4 - Weighted Average Strike Price of Operational CfDs for Wind and Solar (£ per MWh)

In the current year, the weighted average strike price for onshore wind is £109/MWh, which is more than three times the IRENA estimate for 2021. Solar currently costs us £106/MWh, 2.5 times the IRENA estimate and offshore wind costs us £174/MWh or nearly three times the IRENA estimate of £64/MWh. CfDs are clearly not cheap.

For completeness, we should note that for a short time in 2021 and 2022, the price of gas-fired electricity was higher than the strike price of CfDs and generators were refunding money under the scheme as shown in Figure 5. However, since then, CfD subsidies have soared to record levels.

Figure 5 - Total Wind and Solar CfD Subsidies by Month (£)

The total cost of CfD subsidies in the 12 months to February 2024 is £1.73bn. The subsidies paid up to late-2021 demonstrate that gas-fired generation was much cheaper than CfD-funded renewables in that period.

Renewables Obligations

The amount we pay for ROC-funded generation varies considerably. Generators are awarded differing amounts of Renewables Obligations Certificates according to technology and how much electricity is produced. These certificates are then sold to suppliers. The amount they receive for the ROCs is in addition to the amount they get for the power they sell. As the market price for their electricity is mostly set by gas, then ROC-funded generation has been and will always be more expensive than gas-fired generation. As Figure 6 below shows, the ROC scheme is by far the most costly scheme, currently at around £7bn per year with the OBR forecasting costs will rise to £8.6bn in year-ended March 2027.

Future Cost of Renewables

The author of the HoCL piece might argue that the above analysis is looking backwards, and we should instead focus on what the future costs might be for new renewables. A comparison of the prices from the IRENA model, the AR4 results and upcoming AR6 auctions is shown in Figure 7 below.

Figure 7 - Comparison of IRENA model prices with AR4 and AR6 Auctions for Wind and Solar (£ per MWh)

In the cases of onshore wind and solar, the IRENA estimate for 2021 is below the AR4 levels achieved even in 2012 prices, let alone current prices. The guide-price for onshore wind in AR6 at 2024 prices is £89/MWh, nearly three times the IRENA estimate of £32/MWh and the AR6 price for solar at £85/MWh is more than double the IRENA estimate of £40/MWh.

The IRENA estimate for offshore wind is higher than the prices achieved in AR4. However, the developer of Norfolk Boreas has pulled out of the project because it can no longer achieve the agreed price and other developments are being allowed to re-bid parts of their projects under AR6 to increase the effective price they receive. The AR6 price for offshore wind in 2024 prices is some 59% above the IRENA estimate for 2021.

Note that the strike price of all three technologies in AR6 in 2024 terms is higher than the average reference price for early March 2024 of £64/MWh. It is clear the price of future renewables is far higher than claimed in the HoCL piece and higher than today’s gas price.

Hidden Costs of Renewables

The headline price of renewables is only part of the cost of renewables. We pay more in the form of additional grid balancing costs and more again for the expansion of the grid to connect distant offshore windfarms to the sources of demand.

Grid balancing costs are incurred when reliable generators are paid to switch on at short notice to cover shortfalls in supply when the wind stops blowing or the sun stops shining. They are also incurred when the wind is blowing too much, when wind farms are curtailed and get paid to not produce. As shown in Figure 8, grid balancing costs have increased substantially since 2010, from just over £0.5bn to over £4bn in the year to March 2023.

Figure 8 - Grid Balancing Costs by Fiscal Year Ended (£bn)

The increase in 2022 and 2023 is partly due to the increase in the gas price, but the rise to March 2021 is almost wholly explained by the increased penetration of renewables.

According to the Ofgem price cap calculations (Annex 9), network costs, which include transmission and distribution network costs as well as balancing costs have risen from £119 per customer in April 2017 to £164 from next month. The National Grid has also recently proposed a £58bn investment plan to ensure the grid is ready to be decarbonised by 2035. This is in addition to the £54bn announced in 2022, bringing the total to £112bn, or nearly £4,000 per household. Network costs are obviously set to rise much further.

It is easy to claim that renewables are cheap when you do not count all the costs.

What About Biomass?

Biomass, aka burning trees, is also classed as a renewable form of electricity generation. The main biomass generator in the UK is Drax. It was notable that the HoCL article did not mention biomass at all. However, biomass is included in the share of renewables generation shown in their first chart.

The HoCL piece claims that “renewables generators typically have the lowest [marginal] costs (because they do not have to buy fuel to burn).” However, this is obviously not true for biomass as they must buy the wood pellets, shipped in at great expense from North America.

As previously discussed, biomass is a dirty and expensive form of generation and Drax alone has received over £5bn in CfD and ROC subsidies since April 2013. It is much more expensive than gas, yet HoCL have completely overlooked it.

Conclusions

This article has demonstrated that the HoCL “insight” started with a false premise, used a misleading chart, included an inadequate explanation of costs by only focusing on marginal costs in the merit order and made several other false or misleading statements. It looks like the HoCL piece is trying to hoodwink readers into believing renewables are cheap, when the opposite is the case. Moreover, they effectively lie by omission by missing out key information about the true costs of renewables because they do not properly cover the massive costs of the various subsidy schemes and ignore completely the additional grid balancing and transmission costs. The answer to their question “why is cheap renewable electricity so expensive?” is obviously because renewable energy never was cheap, it has always been expensive.

In short, the article is a travesty that damages the formerly good reputation of the House of Commons Library. Parliamentarians and the public deserve better than gaslighting by this kind of tendentious twaddle.

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Note that I have submitted Freedom of Information request to find out who advised HoCL on the content of their article and asked for copies of correspondence. This article will also be sent to them, and I will offer them the right of reply on this Substack if they so wish.

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