Miliband’s Cheaper Electricity Claims Do Not Add Up

We spend around £6-8bn per year on gas for electricity, so how can spending £260-290bn on the Clean Power 2030 plan make our electricity cheaper?

Introduction

In the run up to Christmas, Energy Secretary Ed Miliband conducted a series of media interviews where he claimed that an electricity generation system based on his Clean Power by 2030 plan would be cheaper to run than one based largely on gas. In an earlier article we covered the six impossible things that Miliband had to believe before Christmas to get the plan to work. We have also looked at the diminishing impact that new renewables have on generation emissions intensity. However, until now we have not dug deeply into a cost comparison between the two systems. This time we will look in more detail at Miliband’s claims and compare them to the costs of gas.

Miliband’s Media Claims

Ed Miliband appeared on the BBC Radio 4 Today programme on 13^th December 2024.

He was interviewed by Nick Robinson and said:

“We're confident based on what they are saying is it will lead to lower wholesale costs of electricity. If you look at their document, that's what it sets out, and it can lead to lower bills…

What we're doing is we're laying the foundations for an energy system that will lead to lower bills because the costs of running a system which is largely based on renewables is significantly cheaper than running one based on gas…

Because the operating costs of running a renewable system are less than the operating costs of running a fossil fuel system.”

He was also interviewed on Sky by a very young reporter and claimed:

“[15 years ago] frankly solar wind they were more expensive than fossil fuels but now when they're cheaper why would you stick with expensive insecure fossil fuels when you can have cheaper cleaner renewables?”

Miliband is certainly claiming that it will be cheaper to run a renewables grid than one based on gas. Nothing like trying to brainwash the youngsters is there?

How Much Do We Spend on Gas for Electricity?

To test Miliband’s claim we can refer to the Digest of UK Energy Statistics (DUKES) and in Table 5.6 we can see that in 2023 we burned 205.7TWh of gas to produce 101.7TWh of electricity. To estimate the costs, we can go to Trading View and see that at the time of writing, the current cost of gas is elevated and is trading at 119.75p/therm and the 50-week moving average is 85.46p/therm. Working through the arithmetic, the cost of this gas would £8.4bn at current prices or £6bn based on the 50-week average.

For Miliband’s claim to be true, the cost of running his mostly renewables grid would have to be less than the cost of replacing the gas. However, even under his Clean Power 2030 plan, we still have unabated gas on the grid providing about 15TWh of electricity. Being kind to Miliband and assuming this electricity in 2030 is provided at roughly the same efficiency as today, then that would require about 30.3TWh of gas at a cost of £0.9bn at the 50-week average price or £1.2bn at today's elevated price.

After accounting for the cost of the gas we will still need, the cost of the gas being replaced is somewhere between £5.1 and £7.2bn. His proposed changes to the grid must cost less than that for his claim to be true.

Cost of Clean Power 2030 Plan

NESO calculated the cost of their plan at somewhere between £44bn and 48bn per year which works out at roughly £260-290bn over the six years to the end of 2030. That seems like an awful lot of money to spend to save £5.1-7.2bn. The NESO costs do not include financing or operating costs. If we assume an 8% cost of capital and 2% operating costs for the life of the assets, then that is about £26-29bn per year, assuming optimistically that there are no cost overruns.

After about 10 years for the batteries or 15-20 years for the wind and solar generators a big chunk of that investment will have to be spent again. The transmission assets will likely have a longer lifetime, maybe 45 years according to Ofgem.

But the costs of Miliband’s plan do not end there. If the 35GW of gas-fired power plants are producing only 15TWh of electricity each year, their load factor will be only 4.9%. They are going to require subsidy through the Capacity Market to be kept ready to switch on when the wind drops. This of course will cost money. According to the OBR, we spent £1bn in 2023/24 on the capacity market and their October 2024 outlook (Detailed Forecast Receipts) showed these costs rising to £4.1bn per year by 2029/30. This forecast was published before the Clean Power plan, when we were aiming for a net zero grid by 2035 and not 2030, so we can expect these costs to be even higher under Miliband’s plan. However, if we are generous, we can say the Clean Power plan will add a further cost of at least £3bn per year to the cost of operating the system.

This is likely to be a significant under-estimate because as Kathryn Porter at Watt-Logic has pointed out, it is far easier said than done for gas-turbines to be kept in a state of readiness to run only 5% of the time. Even if it can be done, there will be significant extra costs involved.

Cash Flow Model

We can put the Clean Power 2030 plan into a cashflow model and compare it to continuing with gas at the current rate. In this example annual capex is set at the mid-point of the NESO estimates of £46bn per year for six years has been chosen along with an 8% cost of capital and 2% operations and maintenance costs with the gas price at today’s elevated level of 119.75p/therm. For the purposes of this model, the extra costs of the capacity market have been ignored. The result is shown in Figure 1.

Figure 1 - CP2030 Cashflow vs Gas Only Model (£bn)

After the initial capex of £46bn per year out to 2030, the annual costs of finance, operations, maintenance and residual gas are £28.8bn per year which is far more than the gas-only costs of £8.4bn per year. At the end of the period in 2050, the CP2030 plan will have cost £738bn more than retaining the current gas plants. There might be additional costs to replace some of the gas turbines, but they would need to be replaced under the CP2030 plan too, so have been ignored in this model. Gas prices must rise to almost 600p/therm and remain there for the whole period before the CP2030 plan makes any economic sense. If that were to happen, the costs of the wind turbines and solar panels would increase anyway, negating the benefit.

Now we know that the Minister for Energy Consumers in DESNZ, Miatta Fahnbulleh describes herself as an heterodox economist. Even if we adopt heterodox views and assume the money for this plan can be printed for free and the whole system can be operated by pixies and maintained by unicorns sprinkling fairy dust without cost, the CP2030 plan still costs more than a gas only solution over the period (see Figure 2).

Figure 2 - CP2030 Cashflow vs Gas Only Model (£bn) Zero Cost of Capital

By the end of the period, the CP2030 plan would still cost £90bn more than keeping gas.

Conclusions

Even after making assumptions that are most favourable to Miliband, we can see that the extra costs of running his Clean Power grid are going to be of the order of £29-32bn each year for finance, operations and the extra costs of the capacity market.

Even considering this plan, let alone trying to implement it is the economics of the mad house. Miliband’s sums simply do not add up. He should be sent as far away from our energy system as possible. I find it difficult to imagine the size of cannon that would be required to fire him so far away he could only be seen by the Hubble telescope, but even that would cost less than his bonkers CP2030 plan.

---

Happy New Year everyone and thank you to the more than 3,100 subscribers and paid subscribers who help me make it a success. This growing interest has led to me being invited to give a talk to Sacred Cows on 28th January in London entitled “Net Zero: Why the cure is worse than the climate change disease”. More details and ticket information can be found here, do come along if you can make it

---

If you enjoyed this article, please share it with your family, friends and colleagues and sign up to receive more content.