Mark Brophy

Home » Politics » Low Carbon Energy Choices Need Not Ignore Economic Sense

Low Carbon Energy Choices Need Not Ignore Economic Sense

There are several key challenges which must be met in order to provide the nation’s energy needs in the future. The Climate Change Act 2008 [1] specified that UK greenhouse gas emissions must be reduced by 80% from 1990 levels by 2050. As a major producer of these emissions [2], the energy generation sector must also bear the brunt of a large part of the reduction. Change is required to remove or at worst dramatically reduce environmentally unfriendly generation methods in the energy mix. In addition, political instability in several regions of the world which are major suppliers of gas and oil means that energy generation relying on these sources is likely to become more unreliable over time and therefore also more expensive. Security of supply is vital and self-sufficiency in energy sources must be pursued as far as is possible.

About a quarter of current UK generating capacity is due to be closed down in the next decade. In addition, the need to reduce oil and gas combustion, for reasons of cost, emissions, and security of supply, means that the method of heating commercial and residential properties is likely to change to use electricity, and road transport will see an increase in use of electric vehicles in place of those powered by internal combustion engines. So demand is likely to rise, and generating capacity to fall should nothing be done. Current UK energy policy is to build 8 new nuclear power stations to replace generation plants at the end of their lifespan, and make up the potential future gap between demand and supply of generated electricity. However, a 2003 Parliamentary Office of Science and Technology briefing on nuclear energy options pointed out that

a renaissance of nuclear power in the UK would need the government and industry to address…. public acceptability of a long-term strategy to manage radioactive waste”. [3]

as well as requiring market acceptability; that is, financial attractiveness to investors. Yet no strategy for long-term high-activity waste management has been implemented. The Nuclear Decommissioning Authority strategy from April 2011 speaks of using a Geological Disposal Facility for this function, but that it would be

several decades before such a facility will be available to accept waste”and that Development of a Geological Disposal Facility requires both a willing local community and a suitable geology”.[4]

No such site has been identified, let alone approved. So the only long-term strategy is that of burying waste for thousands of years in an as-yet unidentified facility somewhere locals don’t mind that it’s there. New power stations cannot be allowed to recommence adding to our stockpile of this waste while we have no idea what to do with it.

The recent and ongoing disaster at Fukushima, Japan, would almost certainly never be reproduced in the UK, not least because of the lack of earthquake risk. The Japanese disaster does show however the vulnerability of nuclear power stations to catastrophic events generally.

The economic case for nuclear power is no more impressive. What case is generally made relies on the limited liability of energy companies for the consequences of a disaster. From very early in the life of the industry it was realised that

“nuclear power makes a valuable contribution to meeting the world’s energy demands and that in order for it to continue doing so, individual operator liability had to be curtailed, and beyond a certain level, risk had to be socialized.”[5]

Though this is enshrined in law, it doesn’t reduce the actual possible liabilities. If individual operators didn’t have their liabilities for nuclear accidents limited by a cap, they would have to insure for all possible losses, the costs of which would immediately make the entire industry unsustainable financially. The costs of cleaning up the Fukushima disaster have been estimated by the Japan Center for Economic Research at up to 20 trillion yen, about £160bn, over the next 10 years for instance. They also state that nuclear generation costs could treble by 2020 which makes it

“difficult to argue that nuclear energy has any cost advantages over renewable forms of energy, such as wind power.”[6]

Renewable energy sources provide an opportunity to solve these problems. Replacing dirty energy generation methods with renewables of course takes the associated greenhouse gases out of the total produced. Renewables by definition also remove the need for insecure and unstable fuel supply channels. The renewable natural processes of wave, wind, sun, tide and others, are used for generation in the seas surrounding the UK, on hills and moors, on rooftops and in reservoirs all around the nation. No fuel need be transported from abroad, no remote pipelines vulnerable to sabotage are required.

The intermittent, volatile nature of processes like wind and sun means other energy sources are required, whose output can be controlled to fulfil demand on cold, sunless, windless days when energy generation reliant on these processes will not be operating at full capacity. Hydroelectric, implicitly a storage as well as generation method, cannot provide enough of either in the UK to meet the our back-up needs. Such back-up energy generation is generally assumed to involve nuclear or fossil fuels. However, without these, this function could be met also by the use of energy storage, waste-to-energy and other carbon-neutral biofuel generation, the particular advantage of waste-to-energy being that it doesn’t require energy crops to be grown specifically for this purpose, and possibly endangering food security. There are other options for back-up of intermittent primary generation. The transmission of solar-generated power from areas of highly reliable sunshine as in the Desertec project [7], while a good match for local wind generation, would introduce vulnerability of supply and undermine the goal of self-sufficiency. Norwegian excess hydro resources could be similarly used to balance demand here. Clean coal technology, and Carbon Capture and Storage generally, could allow the tailing-off of fossil fuel use in a low-carbon way until more long-term solutions kicked in if necessary. Co-operative onshore wind  projects, as well as being funded by communities, would both increase the likelihood of planning permission being granted due to local support, and again boost local economies by channelling profits into the communities hosting the projects.[8]

The use of renewables on such as is proposed has the drawback of the large capital costs involved however. A 2010 DECC cost assessment found that onshore wind, currently the lowest cost major renewable, had capital costs around $2500/kW, or £1500/kW, offshore wind about double that. The report assumed that costs would fall by 2020 due to economies of scale, technology breakthroughs and improvements in production techniques, to about £1200/kW and £2400/kW respectively [9]. At some point however, onshore wind will no longer be available or at least become more expensive due to the finite number of suitable sites. Greenpeace estimate that to achieve 30% of total UK electricity supply being provided by offshore wind requires a rate of increase in capacity of 5GW/year by 2020[10]. By 2020 then the capital cost just of offshore wind could be £12bn/year.

Unless the government of the time is to say that the cost is immaterial, somehow these measures must be paid for. Such a programme would provide an unmissable opportunity to grow a renewables manufacturing industry. Seeding such growth in regions currently struggling to provide enough jobs but traditionally containing a manufacturing skills-base would cut unemployment rates and boost local economies.

It’s been estimated that efforts to reduce greenhouse gas output in all climate-change related industries could create 1 million jobs, saving the government £13000 for each job in taxes and benefits, around £13bn/year [11]. With this industry in place, worldwide requirements for renewables technology as all nations strive to meet 2050 treaty agreements would provide further opportunity for exports, global spending on renewables possibly reaching $2.3tr, roughly £1.5tr by 2020 [12]. Capturing just 1% of this spend, for instance, would provide £15bn of sales. Virtually limitless demand is therefore projected to exist for a world-leading industry as could be created here.

North Sea offshore wind is possibly the most valuable renewable resource in Europe. Large-scale implementation of generation plant to take advantage of this would necessarily involve building over-capacity to cover peaks and troughs in the range of generation methods. Offshore wind generating at full capacity in this scenario would be likely to provide unneeded energy. After possible storage of some, the sale of energy to other nations without the good fortune to possess access to this resource could pay back some of the initial capital costs. The EWEA suggests a feasible target of 50% of EU electricity could be supplied by wind by 2050, some 350GW of a renewables total of 600GW from offshore in the North Sea [13]. This suggests any unneeded energy generated could be disposed of on a European energy market. The Offshore Valuation Group, “an informal collaboration of government and industry organisations ” set up to value UK offshore resources, describe a scenario with £443bn capital costs (roughly in line with the yearly estimate mentioned earlier) up to 2050 on building offshore wind, wave and tidal projects which would provide £62bn of revenue and £16bn of profits per year by then, and make the UK a net electricity exporter [14].

In addition, if the capital costs can be considered to be paid back over time through these general economic movements, operating costs for renewables are relatively low, especially in respect to the currently rocketing costs of oil and gas generation. This provides another opportunity, comparatively low-cost energy to the consumer in the UK which would take millions of people out of fuel poverty. The health benefits associated with this and with increased prosperity in some of the UK’s poorest regions would mean savings in health budgets. A 2011 report on the costs of fuel poverty to the NHS quotes costs of £145m for the 656,000 privately rented dwellings with these problems, £221 per dwelling. Extrapolating these costs to the total number of dwellings with these problems, about 3.6m, gives costs to the NHS per annum of £796m [15].

Renewables possess an unsurmountable environmental, and some would also say moral case for their use. Arguments against rely in part on certain practical difficulties which could be overcome with the application of some political will, but mainly on financial grounds. It’s futile to attempt to specify exactly how much energy will need to be generated by which method in 2050, as decisions will be influenced by open market electricity prices, technology developments, the political landscape, in fact many unforeseeable factors. It can be seen however that it is perfectly possible to make a case for the switch to an energy generation mix based primarily on renewable methods to pay for at  the very least a large proportion of the costs through the general economic benefits which would accrue to the nation from that switch.

References

[1] Climate Change Act 2008: http://www.decc.gov.uk/en/content/cms/legislation/cc_act_08/cc_act_08.aspx

[2] UK Emissions of Air Pollutants 1990-2006.pdf: http://uk-air.defra.gov.uk/reports/cat07/0810141045_2006_Report_Final_Version_ready_to_print.pdf

[3] THE NUCLEAR ENERGY OPTION IN THE UK

http://www.parliament.uk/documents/post/postpn208.pdf

[4] Nuclear Decommissioning Authority Strategy Document (April 2011)

http://www.nda.gov.uk/documents/upload/NDA-Strategy-Effective-from-April-2011-print-friendly-version.pdf

[5] Civil Liability for Nuclear Damage

http://www.world-nuclear.org/info/inf67.html

[6] FY2020 Nuclear Generating Cost Treble Pre-Accident Level

http://www.jcer.or.jp/eng/research/pdf/pe(kobayashi20110719)e.pdf

[7] Desertec Foundation

http://www.desertec.org/

[8] Energy4All

http://www.energy4all.co.uk/

[9] UK Electricity Generation Costs Update June 2010

http://www.decc.gov.uk/assets/decc/statistics/projections/71-uk-electricity-generation-costs-update-.pdf

[10] OFFSHORE WIND ONSHORE JOBS – A NEW INDUSTRY FOR BRITAIN http://www.greenpeace.org.uk/MultimediaFiles/Live/FullReport/6702.pdf

[11] One Million Climate Jobs, Solving the economic and environmental crises

http://www.climate-change-jobs.org/sites/default/files/1MillionClimateJobs_2010.PDF

[12] Pew Reports on Potential $2.3 Trillion Clean Power Investment by 2020

http://www.energyboom.com/finance/pew-reports-potential-23-trillion-clean-power-investment-2020

[13] Powering Europe: wind energy and the electricity grid – European Wind Energy Association Nov 2010

http://www.ewea.org/fileadmin/ewea_documents/documents/publications/reports/Grids_Report_2010.pdf

[14] The Offshore Valuation: A valuation of the UK’s offshore renewable energy resource http://www.offshorevaluation.org/downloads/offshore_vaulation_full.pdf

[15] The Health Costs of cold dwellings – Buildings Research Establishment

http://www.foe.co.uk/resource/reports/warm_homes_nhs_costs.pdf

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