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Decarbonisation Report Raises Storm in UK

A report entitled "Powerful Targets: Exploring the relative cost of meeting decarbonisation and renewables targets in the British power sector" has ignited a war of words in the UK's policy and renewables circles. Consultancy KPMG had commissioned the report in 2011 from sub-contractor AF Consult, but in early March KPMG announced that it would not be released due to its controversial conclusions stemming from an economic model that many call 'questionable'. KPMG added that the report was 'ripe for misinterpretation'.

Trade body RenewableUK, which represents the country’s wind, wave and tidal sectors, as well as several major utilities and the Department of Energy and Climate Change (DECC) have all questioned the study’s methodology and conclusions.

AF Consult subsequently released the report independently of KPMG. It presents three scenarios for achieving the UK’s climate change targets and meeting electricity demand at the lowest cost by 2050.

The first, a ‘no targets’ scenario, puts the unit cost of generation at 5.8 p/kWh and total generation costs at £780 billion (€934 billion). The second, an emissions reduction targets scenario, puts the unit cost of generation at 7.2 p/kWh and total generation costs at £960 billion (€1150 billion). And the third scenario, with renewables and emissions reduction targets, projects the unit cost of generation at 8.4 p/KWh and total generation costs at £1100 billion (€1318 billion).

The report concludes that the least costly way for the UK to meet its 2050 CO2 emissions reduction targets is to do so without renewable electricity — specifically, without the UK’s planned significant expansion in wind farm projects. It also argues that nuclear and gas-fired generation will be the cheapest way to meet these targets with the least cost.

In November 2011 KPMG released preliminary findings from the report, at which time it was harshly criticised by the renewables sector, especially the wind industry. The findings suggested that building nuclear and gas-fired power stations instead of wind could save the nation £34 billion (€41 billion) while meeting its 2020 carbon reduction targets. In the final version of the report released this month, AF Consult estimates the savings at £45 billion (€54 billion).

However, RenewableUK said the KPMG report focuses solely on the up-front costs of building new power plants, ignoring other lifecycle costs such as fuel and decommissioning. ‘In comparing the costs of the various technologies,’ RenewableUK said, ‘the report appears to deliberately fail to take into account the low operating costs of wind, which counterbalance the high capital and construction cost.’ The trade body argued that in Germany, Denmark and Spain the low operational cost of wind means that it is the first choice of power source used to meet demand, displacing more expensive options, and thereby reducing electricity prices.

RenewableUK questioned AF Consult’s model because, among other issues, it constrains onshore wind to only 15 GW of deployment on planning grounds, while nuclear power, which has its own set of planning and supply chain issues, is not constrained. RenewableUK also said that the report’s renewables scenario includes an extensive build-up of new open-cycle gas turbine plants, which are not the only solution for balancing variable renewable output.

The preliminary findings gave rise to a series of media attacks on renewables, after home energy prices increased and were projected to rise further. In a response to the preliminary findings, RenewableUK’s communications director, Charles Anglin, said: ‘The recent rises in electricity bills have been caused by the global increase in the price of gas, not by renewables. DECC’s own Annual Report on Fuel Poverty clearly states that between 2004 and 2009, "domestic electricity prices increased by over 75 percent, while gas prices increased by over 122 percent", while the cost of generating electricity from wind, according to market regulator Ofgem, is less than £10 (€12) per year per household, or less than 1 percent of the average household fuel bill.’

Anglin also criticised the report’s assumption that a new fleet of nuclear plants can be deployed by the end of the decade. He said current estimates show two new nuclear plans will come online by 2020, which would not be enough to meet UK energy demand without either a significant increase in renewable energy capacity or an increase in fossil fuel imports.

While the report stated that wind farms only generate electricity for about one-third of the time, RenewableUK pointed out that wind turbines actually generate electricity for 80 percent to 85 percent of the time; and they generate the maximum possible amount at full speed for about one-third of the time. ‘KPMG appear to have confused these two concepts, leading to a basic error which does not inspire confidence in the rest of their research,’ RenewableUK said.

Mark Powell, the author of the report, went on record to defend it after November’s criticism, saying that it was based on a ‘pure economics case’, not on policy considerations. ‘We are presenting the pure economics,’ he said. ‘It is increasingly clear that in the current financial situation, cost is an issue whatever we decide to do. Hitting our carbon target and renewables target — delivering these two things — should be done at the lowest cost possible.’

Dr Gordon Edge, RenewableUK’s policy director, said, ‘Bringing this willfully narrow report back from the dead fails to bring anything worthwhile to the current energy debate. KPMG has been wise to distance itself from the study and its findings as the extremely simplistic approach it uses bears little relation to reality, simply translating a set of assumptions into a particular conclusion.

‘The real debate should be around how the UK protects consumers from the fluctuating price of fossil fuels, decreases its reliance on imported energy and maximises the economic benefits from developing new forms of energy including wind.’ 

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