I have been trying for a while to shed some light on the opaque mess that is UK electricity pricing. What follows comes from Eigen Values. It is not comfortable reading.
In the UK, renewables are subsidised by three different schemes. Feed-in-Tariffs (FiTs) fund mostly solar power. The latest report for 2022-23 shows the scheme cost over £1.7bn and average total payment was ~£193/MWh, about 3X the current cost of gas-fired power at around £65/MWh (see Figure A). I should say that, as the co-owner of Semington A, I have an income from solar FiTs.
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Contracts for Difference (CfDs) fund a range of technologies, but most of the subsidy goes to offshore wind. Latest data from the LCCC shows the subsidy per MWh fell dramatically during the energy crisis, but is now back at £95/MWh for offshore wind, £73/MWh onshore and £60/MWh for solar. April 2024 was a record month for overall subsidies with £268m paid out with average strike prices at £146/MWh for offshore wind, £113/MWh for onshore and £110/MWh for solar power (See Figure B).
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The CfD subsidy for burning trees in biomass plants rose from about £7/MWh in March to nearly £60/MWh in April. This encouraged more biomass generation and the total subsidy paid for biomass jumped from £2m in March to over £34m in April 2024. The total CfD subsidy paid for the last 12 months is over £2bn, and the trend is clearly upwards.
By far the biggest subsidy scheme is Renewables Obligations Certificates, costing over £7bn per year. This scheme awards certificates for each MWh generated, a different number depending upon technology. April reference prices for intermittent renewables have been around £53/MWh, meaning the average price paid for offshore wind under the ROC scheme has been £176/MWh, onshore £118/MWh and solar £146/MWh including the value of the certificates (See Figure C).
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Future renewables are also going to be more expensive than current market rates. The Government’s announcements of prices for their Allocation Rounds are often quoted in 2012 money. In 2024 money, Allocation Round 6 (AR6) is offering £102/MWh for fixed offshore wind, £246/MWh for floating offshore wind, £89/MWh for onshore and £85/MWh for solar power, all far higher than current market prices (see Figure D).
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It should be noted that FiTs, ROCs and CfDs are all index-linked, so prices will continue to rise with inflation. It is clear our bills are going to continue to rise for the foreseeable future as cheap gas is forced out in favour of expensive renewables.
In addition, we pay extra for balancing the grid when the wind is not blowing (or blowing too hard) and the sun is not shining. In the year ending March 2024, these balancing services cost £2.46bn. Most of these costs should be attributed as a cost of intermittent renewables. That's a total of over £12bn being paid to or because of renewables each year.
More costs are coming down the line as the National Grid ESO has announced £54bn of spending on the electricity network infrastructure up to 2030 and a further £58bnin the 2030-2035 period, a total of £112bn, or over £10bn per year for more than a decade.
I hope it is clear to all now that renewables are not cheap and are never going to be.
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You can see the complexity even if you can’t fully grasp the detail. Perhaps this is why no one ever tries to explain it.
Responses
Thank you for a sobering review of renewable energy costs using a national grid system. Yes, it is complex, and the realities of electricity via a grid system, while seemingly logical, ignore the waste within the system simply by shipping high voltage electricity across distances. When data is used about localized systems, it becomes much a more feasible and usable idea. But I doubt any national system will entertain it. Rob Hopkins for one (with his Transition Towns ideas) recognized this many years ago.