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« Making poverty permanent | Main | Meehl bashes Karl »
Wednesday
Oct282015

Behind the CCC's numbers

In my absence last week, I missed the latest from the Committee on Climate Change, a document entitled "Power sector scenarios for the fifth carbon budget". This was widely reported as showing that renewables would be competitive with natural gas by 2020.

A reader has sent me some interesting observations which I thought were worth sharing.

Take this for example:

In a central scenario for gas prices and with a value attached to carbon that is consistent with meeting the UK’s 2050 target, the full cost of new gas generation would be £85/MWh for new plants coming on line in 2020 and £95/MWh for 2025. That assumes a gas price that increases from 46p/therm in 2015 to 66p/therm by 2025;

In fact, in a footnote, they note that the central scenario was in fact for a price of 72p/therm, but that they decided to reduce it by 6p "given sustained low gas prices".

In the UK, the wholesale price is currently 41p/therm, while in the US it is at $1.948/MMBtu, which is equivalent to $0.19 or 12p/therm. So UK prices are 3.4 times those stateside. Now there is a gas glut in the US for sure, but this is likely to ease. We know that huge quantities of LPG capacity are coming on stream, for example, so there is likely to be strong downward pressure on UK prices. This is reflected in the US futures market, where US prices are expected to increase by 60% or thereabouts by 2020. Despite this, the CCC is betting that the differential between the two markets will be maintained. This looks...odd.

The other major change that the CCC expects is the introduction of a carbon tax.

The Government’s carbon values are designed to be consistent with action required under the Climate Change Act (Box 3). They reach £78/tonne in 2030 and would be enough to push the costs of gas-fired generation up above the level of mature low-carbon options in the 2020s

So let us understand this. It is a level of tax designed to reduce CO2 emissions regardless of whether this is a sensible thing to do. It is not a Pigou tax, designed to reflect the cost of damage (allegedly) done. That would be rather lower. 

There are 0.005tCO2 in each therm of natural gas, so a carbon tax of £78/tCO2 is equivalent to a carbon tax of 39p/therm. Yes you read that correctly: the CCC is not only assuming that gas prices will increase by half despite the downward pressure from unconventional gas, they are also assuming that the government will impose a carbon tax at a level equal to today's wholesale price. A 100% tax!

Once you understand this, the declaration that renewables will be cost-competitive in this world looks more like a guilty verdict than a vote of confidence.

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Reader Comments (36)

Every time I fill up my car I wish that fuel tax was "only" 100% !!

Oct 28, 2015 at 11:42 AM | Unregistered CommenterMartin

The CCC seem to want 'support' for renewables between now and 2028 of as much as £112 billion. Meanwhile, greens are complaining that the subsidies for Hinkley Point C are unfair. Yet £112bn is enough to buy six Hinkley Point Cs outright, and as many as 12 at a realistic price - which would be nearly enough to power the entire UK at the CCC's own projections of UK demand. http://www.climate-resistance.org/2015/10/the-uks-energy-policy-money-pit.html

If subsidising green energy is a cost that could be spent on buying low-carbon plant outright, it seems hard to argue for support in any case, for 'renewables'. It's just a totally unnecessary cash transfer to green energy firms. I'm not particularly moved for or against state ownership of energy companies, but if it is so clearly a cheaper option than the scam the CCC are proposing, it would seem to be the better deal.

Oct 28, 2015 at 11:49 AM | Unregistered CommenterBen Pile

We know that the CCC has a political agenda. Just like "climate scientists", its predictions are designed to give the desired answer, which is totally divorced from reality. You should write to your MP and ask him to pass the information on to Amber Rudd.

You only have to look at the members of the CCC to see how "independent" it really is.- not. It contains so-called experts in the fields of climate change, science and economics. They are having a laugh when they write that.

Oct 28, 2015 at 11:51 AM | Registered CommenterPhillip Bratby

For realistic information on Renewable Energy performances and capacity factors derived from Renewable Energy industry sources see:

https://edmhdotme.wordpress.com/european-renewable-energy-costs-and-performance-2014/

This cost comparison of course strips out all the positive profitability effects of government regulation and subsidies that are being applied to Renewable Energy. The Renewable Energy industry could not exist without the Government mandated subsidies and preferential tariffs. So the industry is not a truly viable business proposition.

Accounting for the capacity factors, (the actual electrical output as compared to the Nameplate capacity of the Renewable installation) that are reported by the Renewable Industry, the overall capital cost of all European Renewable Energy installations averages out at about €29billion / Gigawatt, whereas the comparative cost of a conventional gas-fired generation is about €1billion / Gigawatt.

The overall capital value accounting for capacity of Renewables at €29billion / Gigawatt is derived from the combination of:
Onshore Windpower ~€14.2 billion/GW
Offshore Windpower ~€41.4 billion/GW
On Grid Solar Power ~€48.5 billion/GW

Overall wind and solar power capacity in Europe is ~18%

The burden of these additional Renewable costs is imposed on consumers via the increase in their utility bills.

According to these Renewable Energy supporting sources by 2014 European Union countries had invested approximately €1 trillion €1,000,000,000,000 in large scale Renewable Energy installations. This may well be an underestimate.

This has provided a nameplate electrical generating capacity of about 216 Gigawatts, nominally about ~22% of the total European generation needs of some 1000 Gigawatts.

But the actual measured output by 2014 from Renewable Industry sources has been 38 Gigawatts or ~3.8% of Europe’s electricity requirement, at a capacity factor of ~18% overall.

Accordingly the whole 1000 Gigawatt fleet of European electricity generation installations could have been replaced with dispatchable, lower capital cost Gas-fired installations for the €1trillion of capital costs already expended on Renewable Energy in Europe.

However Renewable Energy production is dependent on the seasons, local weather conditions and the rotation of the earth, day and night. The Renewable Energy contribution to the electricity supply grid is inevitably erratic, intermittent and non-dispatchable. It is therefore much less useful than dispatchable sources of electricity, which can be engaged whenever necessary to match demand and maintain grid stability.

That 3.8% Renewable Energy contribution to the grid is often not available when needed at peak times and obversely its mandatory use and feed-in obligations can cause major grid disruption if the Renewable Energy contribution is suddenly over abundant.

In addition using the US EIA data, it becomes clear that Renewable Energy installations are also rather more expensive to run even accounting for the costs of fuel, and of course that cost of Gas is likely to reduce radically in future as it has in the USA.

Viewed from the point of view of the engineering viability of a nation’s electrical grid, Renewable Energy would never be part of the generating mix without its Government mandate and Government market interference.

So the Green thinking in its enthusiasm to save the world from an indefinable but probably minimal threat, will destroy civilisation long before the world fails from excessive overheating from CO2 emissions.

references:

EurObservER-Wind-Energy-Barometer-2015-EN-2.pdf
http://www.eurobserv-er.org/wind-energy-barometer-2015/
EurObservER-Photovoltaic-Barometer-2015-EN.pdf
http://www.eurobserv-er.org/photovoltaic-barometer-2015/

Cost comparisons are have been clearly made by the US EIA
US EIA electricity_generation.pdf 2015 Table 1
http://www.eia.gov/forecasts/aeo/electricity_generation.cfm

Oct 28, 2015 at 11:52 AM | Unregistered Commenteredmh

Of course, any product can be made "competitive" if a government passes laws to make the alternative products prohibitively expensive. The weasel-word that leaps out at me is in the phrase

"..mature low-carbon options"

Any insights on the word mature, and the reasons for its choice?

Oct 28, 2015 at 11:53 AM | Unregistered Commentermichael hart

I tried to engage with that Guardian article. It didn't go well.

The believers were convinced that ;
1) Negative externalities of fossil fuels were being subsidised by not being taxed (the polluter pays).
2) That the true cost of burning fossil fuels was infinitely high (or we're all going to die).
3) There are no positive externalities of fossil fuels.

The fact that they had claimed that Solar was already competitive and yet the businesses went under when the subsidy was cut... was because of unfair competition from fossil fuel subsidies. They hadn't been wrong. No, no, no.

The fact that heavy industry (like steel) was abandoning the UK for cheaper and less regulated countries had nothing to do with energy costs. Just because.

The fact that the poor would be hurt greatest by doubling the fuel bills was a price worth paying as they would be the ones to drown if we don't do this. And we can control the whole planet because the UK is so powerful and influential. If it weren't for the Tories and their Anti-Imperial agenda
(That last was implied. It was explicitly stated that the Tories were deliberately bankrupting the UK because fossil fuel companies have paid then to keep down the electric car - and presumably make Steve Guttenberg a star).

It was hard to have a sensible debate with people who are either delusional or dishonest.

Oct 28, 2015 at 12:04 PM | Registered CommenterM Courtney

It's a fairly safe bet that the authors are both dishonest and arithmetically challenged

Just look at the herd of troughers credited in the opening report pages.... and an executive board filled with Jeremy Grantham placemen and the Gummer thing....

Since they (CCC) are a statutory body - funded wholly by public monies - does that mean they are obliged to adhere to codes of conduct extant for other public officials ?

The fig leaf of " transparency " is a joke when the numbers are so skewed that they bear little relationship to reality.

M Courtney - I think it is clear that delusion and dishonesty are a given.

What is far in a way more importanat to whats left of my mind - is that there is little will in the arms of government tasked with reining in bad behavior to tackle the lies spouted by a bunch of shameless shills for corporate bandits on the government payroll.

Oct 28, 2015 at 12:05 PM | Registered Commentertomo

Even without the crafty business outlined above, the renewables cost always makes me think of an old joke.

A man goes into a shop and asks for something, when told the price he exclaims 'but that's twice the price they're selling it for next door.' 'Well why don't you buy it there then?' 'Because they haven't got any'. 'Ahhh,' says the shop keeper 'but when we haven't got any we sell them at a quarter of this price.' 'In that case, I'll come back when you haven't got any'.

The price of gas energy may soar, simply because they will be able to charge what they want so we have energy when we need it.

Oct 28, 2015 at 12:07 PM | Unregistered CommenterTinyCO2

Read some interesting investor research this morning, going back to the mid 1800's and looking at the commodity cycles they are on average 10 years of boom followed by 20 years of bust. So we are 4 years into a 20 year commodity bust era, which will only break when the outputs drop enough to allow prices to increase, so gas and oil prices are likely to stay low for another 16 years.

Oct 28, 2015 at 12:14 PM | Registered CommenterBreath of Fresh Air

If only CCC predictions about price fixing forecasts,, had half the accuracy of climate sciences predictions about the climate, we would know they are only 97% wrong, 50% of the time. The other 50% of the time is just a proven track record of unlucky guesswork.

Oct 28, 2015 at 12:15 PM | Unregistered Commentergolf charlie

TinyCO2

The whole idea and utility of "energy" is that it's there when you *need* it.

What this bunch of Enron-esque shysters have been beavering away at - is leveraging existing energy provision with "renewables" to destabilise the working energy markets in order to position themselves to ransom the undisputed utility of electricity(and much else) to the peons...

Ken Lay must be looking up and laughing

Oct 28, 2015 at 12:18 PM | Registered Commentertomo

Another example of how figures can lie – A manager was called into an urgent meeting with accountants. They were convinced they had detected a blatant case of fraud. Two entries for the same stuff on the accounts showed that something dodgy was going on. At one point a massive order had been placed for a few hundred metres of product but when bought in single metre quantities the price was a fraction of the cost per metre. Where had the money for the big order gone to? The manager sighed and explained. The ‘stuff’ was conveyor belt. When replacing the entire conveyor, it was standard practice to buy a whole conveyor but when patching or repairing the conveyor the supplier would sell off cuts at a knock down price because they would other wise be scrap.

Continuity is sometimes worth a lot.

Oct 28, 2015 at 12:20 PM | Unregistered CommenterTinyCO2

This is the equivalent of a man beating a child when he reaches for a loaf of bread, then saying, "Look! the child isn't hungry."

Oct 28, 2015 at 12:33 PM | Unregistered CommenterStuck-Record

tomo, it is amazing how little we hear about Ken Lay and ENRON these days. Climate science economists had to learn 21st century creative accountancy and market fixing from someone. He really deserves more credit for discredited economic models, and the generation of false financial confidence, relied on by so many, to this day.

Interestingly, he was incredibly abusive about anyone who dared to question his methodology and warped thinking. As was Robert Maxwell.

Oct 28, 2015 at 12:47 PM | Unregistered Commentergolf charlie

Hello everyone.

Been off-line for weeks due to a nightmare house move. DON'T DO IT...

Anyway - marginally off-topic but related - Sky News last night had a feature as the 'run up' to the Paris Conference - loads of pictures of floods; drought; etc - text such as 'The earth is getting warmer..' (really..? Sez who..? Ah - 'scientists' - oh, right..) - and interviews with commited warmists...

Look out for propoganda overload over the next few weeks....

Oct 28, 2015 at 12:49 PM | Unregistered Commentersherlock1

Committee on Climate Change, given that climate has always changed it is worth consider why this committee do no exist before. Its' creation was one of many elements that came out of the whole AGW scare , therefore like the IPCC it is a patristic organisation whose very existence depends on AGW being real and being a problem .

Therefore it is hardly a surprise to find that it 'sees' that AGW is real and a problem and given it has become a vehicle by which the renewable 'INDUSTRY' can get cash out of the government and people like Gummer can gain 'consultant fees ' is not a surprise to find it telling us great renewable is and why they should get more cash and why their competitors should be but at a disadvantage.

Oct 28, 2015 at 12:59 PM | Unregistered Commenterknr

Look, every turbine EVER built could have been for free, it makes no difference what the costs are at all.

For every MW of renewable, you need a MW of safe/tried/trusted stuff too. The cost of wind etc etc is the cost PLUS the Backup.

It is impossible for it ever to be cheaper.

Oct 28, 2015 at 1:31 PM | Unregistered CommenterRockySpears

The CCC have to kill gas since electricity is only 25% of UK emissions, to get to the magic 80% reduction they have to force us to ditch the gas central heating and cooking.

I suggest an 80% reduction in the CCC budget, since anyone with a spreadsheet could do what they do.

Oct 28, 2015 at 1:41 PM | Unregistered CommenterMikky

golf charlie

ENRON is the model ...

criminal accounting (as in this case)
lies
PR tsunamis
co-opting of (bent, stupid or both) politicians
criminally manipulating supply and demand to the detriment of customers.

These gits should be in jail. From where I am sat - this looks like Conspiracy to Defraud.

Ken Lay was a crook as were many of his colleagues and the external auditors / accountants - see KPMG are in there with CCC - nice, not so little fee earner - I suspect.

Oct 28, 2015 at 2:02 PM | Registered Commentertomo

Mikky, I fully sympathise with your 80% reduction suggestion for CCC funding, but as there is no evidence to suggest they are ever going to produce anything of benefit to anyone but themselves, it is only fair that the members should pay for the privilege and honour that the CCC brings to their careers.

Oct 28, 2015 at 2:09 PM | Unregistered Commentergolf charlie

I wonder what all those people living off AGW will do come Feb/Mar 2016 when the results of the 350 day trial of the commercial 1 MW thermal LENR plant are published. The plant, consisting of four 250 kW E-Cats, has now been operating well for 249 days. I suppose they will pretend it means nothing for a year or two.

Oct 28, 2015 at 2:57 PM | Unregistered CommenterAdrian Ashfield

Adrian Ashfield, global warmists will simply state the the trial was funded by Big Oil. This is their default response whether they do not know what they are talking about, or are deliberately lying, to cover up the fact that they do not know what they are talking about.

Oct 28, 2015 at 3:11 PM | Unregistered Commentergolf charlie

"There are 0.05 tCO2 in each therm of natural gas, so a carbon tax of £78/tCO2 is equivalent to a carbon tax of 39p/therm."

A missing zero? The source cited states 0.005 tCO2/therm. The 39 p is correct based on 0.005 and the stated carbon tax, but I believe the proposed carbon tax is £78 per tonne of carbon, not of CO2. That equates to £21.3/tCO2, equivalent to 10.6 p/therm, not 39 p/therm.

[BH adds - I've updated accordingly]

Oct 28, 2015 at 3:22 PM | Unregistered CommenterNic Lewis

Should China be congratulated for penalising fertile couples, to limit population growth? In which case, birth control must be considered the most efficient carbon tax of all. The Pope really ought to discuss this with the Church of Global Warming, so a joint proclamation can be made in Paris.

Oct 28, 2015 at 4:38 PM | Unregistered Commentergolf charlie

golf charlie, more likely the government will tax the new LENR plants to fund the "stranded assets" of solar and wind (that they will keep on building). From the thread topic, possibly LENR could be taxed highly enough to keep "alternative energy" competitive.. I doubt anyone will claim big oil had a hand in it as they will be big losers.

Oct 28, 2015 at 4:43 PM | Unregistered CommenterAdrian Ashfield

ENRON

In case you missed it Arthur Anderson ..... is a phoenix rising from the ashes....

Relying on short memory spans eh?

Wonder if they've tendered on any CCC projects?

Oct 28, 2015 at 6:37 PM | Registered Commentertomo

Of course, the comparison of dispatchable and non-dispatchable is meaningless.

The real comparison should be with avoided costs, which even the US EIA stresses.

This shows just how ludicrously expensive onshore wind is.

https://notalotofpeopleknowthat.wordpress.com/2015/10/24/wind-power-avoided-energy-costs/


I do find it ironic though that amidst all this bigging up of onshore wind by the greenies, they are keeping totally mum about offshore wind! I wonder why?

Oct 28, 2015 at 7:58 PM | Unregistered CommenterPaul Homewood

I guess what they may not have figured into the renewable figures will be the mean time to failure (MTTF) of renewable energy generation. Huge expenditure will be due starting 2020 for renewing wind and solar installations. (MTTF = 15 to 25 yrs)

Oct 28, 2015 at 9:26 PM | Unregistered CommenterStephen Richards

I have not read the comments so forgive me if I make a point already made by someone else.

The position is simple, renewables can never be competitive with gas (or coal or whatever) since renewables are intermittent and not despatchable. This means that they either need costly storage so that they can provide energy when the sun does not shine or the wind does not blow (and there is presently no feasible storage scheme on the horizon), or they require 100% back up by conventional fossil fuel generation.

The upshot of this one simple fact is that either you have to cost in the cost of storage (which presently is technologically impossible), or you have to cost in the building and running of a conventional fossil fuel powered generator.

in other words, if one wants to use wind as a renewable, one has to pay the cost of building the windfarm 9including connecting it to the grid), and the cost of building a gas powered generator and supplying it with gas.

So the cost of any renewable programme is always more than the costs associated in supplying energy with conventional fossil fuel powered generation, and is always more expensive by the cost involved in building the renewable producer (windfarm or solar farm) and coupling that to the grid. the renewable producer is surplus to requirement since the conventional fossil fuel generation can do the job on its own.

Any 14 year old school child would appreciate that. If Government or an economist is duped by the claims made in this article, we have really entered the age of stupid.

Oct 28, 2015 at 11:13 PM | Unregistered Commenterrichard verney

O/T - but M Courtney - I salute you for your persistnce at the Guardian, better man than me in your politeness.

Oct 29, 2015 at 12:47 AM | Unregistered Commenterdougieh

A Rolls-Royce would be competitive with my Fiesta, if my Fiesta were subject to a 100% tax on all its running costs.

So what?

Oct 29, 2015 at 8:05 AM | Unregistered CommenterAndrew Duffin

Talking about Arthur Anderson, I well remember Lord Simpson boasting on CNN and telling the rest of the business that they should be copying Ferranti's business model. This was part of a regular spot sponsored by Arthur Anderson. A Few short years later and the inevitable dotcom bubble burst meant the death of the once mighty GEC, the disgrace of Simpson and Arthur Anderson and their clients Enron were exposed as massive fraudsters. Not long after that there was an obvious housing bubble caused by slicing up bad debt and distributing it as widely as possible as good debt and somehow all the top financial pundits, economists and supposedly smart bankers and quants somehow missed seeing the bleeding obvious yet again. Unlearned lessons in optimistic hubris abound for those who claim to know the markets in advance. Alas for energy supplies there is no plan B and such past experience tells us that there is zero likelihood of these 'smart' people being able to spot their gross stupidity in time so we will see either an explosive growth in home generators or mass emigration to a country that still has energy capacity. Will the free market save us? It darn well has to now!

Oct 29, 2015 at 9:18 AM | Unregistered CommenterJamesG

Richard Verney,

There is an inherent assumption in your analysis, namely that the conventional plant would be built to support the renewable plant. Is it not the greenies (as yet) unspoken wish to reduce the electricity network so that it is supplied solely by renewables with all that implies for intermittent supply? As the safety margin of spare capacity is remorselessly reduced in the UK network are we not rapidly approaching the point where the acceptability (or otherwise!) of an intermittent supply is going to be tested on an unsuspecting public?

Idiot_Wind

Oct 29, 2015 at 9:43 AM | Unregistered CommenterIdiot_Wind

Richard Verney,

There is an inherent assumption in your analysis, namely that the conventional plant would be built to support the renewable plant. Is it not the greenies (as yet) unspoken wish to reduce the electricity network so that it is supplied solely by renewables with all that implies for intermittent supply? As the safety margin of spare capacity is remorselessly reduced in the UK network are we not rapidly approaching the point where the acceptability (or otherwise!) of an intermittent supply is going to be tested on an unsuspecting public?

Idiot_Wind

Oct 29, 2015 at 9:46 AM | Unregistered CommenterIdiot_Wind

JamesG, for the record, Simpson was Marconi, not Ferranti, although both companies were brought down in remarkably similar ways.

Oct 30, 2015 at 10:26 AM | Unregistered CommenterOwen Morgan

I've just picked this up and skimmed through it. One thing struck me about their thoughts on the mitigation of solar and wind intermittency was that, if I've picked this up correctly, they talk of target intermittency capacities in MW. I think they're saying that they'll need an extra 10 GW of capacity for solar.

This is a nonsense.

The point about solar and wind intermittency isn't just the drop off in available capacity, but also the time for which it disappears. Since both wind and solar can almost disappear for days on end, even in the middle of winter, the storage requirements become enormous. For wind alone (on a 10 GW fleet) my wind paper shows that, from past data, that we'd need perhaps 250 GWh of storage. That's a lot of batteries, or ten Dinorwigs. It's so high I don't think it's unreasonable to say that, actually, it's impossible.

Nov 2, 2015 at 11:50 AM | Unregistered CommenterCapell

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