Renewables cut consumers' energy bills by over £1.5bn last year

by Search Gate staff. Published Mon 19 Oct 2016 13:32, Last updated: 2016-10-19
Study finds renewables cuts the price of energy bills
Study finds renewables cuts the price of energy bills

Renewable energy slashed the wholesale price of the UK’s energy last year to soften the impact of subsidies on bill payers, a new report has found.

The research, published today by independent energy company Good Energy and backed by experts at the University of Sheffield, reveals that wind and solar brought down the wholesale cost of electricity by £1.55 billion in 2014.

The findings blow a huge hole in recent claims by the Government that it will cut subsidies for renewables such as solar and wind in order to keep bills as low as possible for families and businesses.

The study describes how concerns over the cost of renewable subsidy schemes have led to significant policy changes and cast doubt over future deployment of renewables.

It found that while these support mechanisms ultimately increase consumer bills in the short term, renewables also act to reduce them by driving down wholesale electricity prices – a phenomenon described as the Merit Order Effect.

Researchers repeated a methodology used by others to quantify the Merit Order Effect of wind and solar in 2014 and their main findings include:

• Wind and solar generators reduced the wholesale cost of electricity by £1.55 billion in 2014

• In net terms, the cost of supporting wind and solar generation in 2014 was £1.12 billion – 58% less than the cost reflected in the Levy Control Framework

• The value of the Merit Order Effect will increase with further renewable deployment – the current level of savings suggest that, if renewable support was viewed in net terms, the projected future overspend of the Levy Control Framework may not be a reality

• If existing savings are maintained, future planned renewable development may deliver net benefit (in cost terms) to the consumer.

Good Energy Chief Executive Juliet Davenport said: "This analysis puts the bill payer at the centre of the debate around renewable energy subsidies. Let's give them the full picture and not just half of it.

"What is not taken into account is the fact that renewable energy, such as wind and solar, has actually been bringing the cost of energy down for consumers.”

"The bill payer money invested into supporting renewables yields significant benefits, let's be very clear about that."

Experts from the University of Sheffield have backed the report and are about to publish the results of their own study on the savings onshore and offshore are contributing to wholesale energy costs.

Dr Lisa Clark, from the Department of Physics and Astronomy at the University of Sheffield, said: "Decarbonising electricity generation is critical for the future sustainability of the planet. In the UK wind is a really important source of renewable electricity."

"At the moment the costs of renewable subsidy schemes such as Feed-in Tariff and Renewable Obligation have cast doubt over future of renewables. But there are very few reports of the actual financial savings from renewable generation like wind and existing savings to consumers."

"However, this report provides clear evidence that UK wind generation is typically saving UK consumers around £1.5 billion per year. This is more or less the same amount that the subsidies cost. At the University of Sheffield we have recently finished a similar study and we find very similar numbers.

"So not only is wind energy decarbonising our electricity generation, it isn't costing any more than any other source of electricity to do so."

Paul Barwell, Chief Executive of the Solar Trade Association said: "With the Government’s consultation on the Feed-in Tariff review closing this week, this report is very timely. This analysis shows that the net effect on bills of supporting new rooftop solar - under the STA's £1 plan - is zero.

“The £100m we need added to consumer bills over three years will be completely offset by the savings from solar lowering the wholesale price. This is just the evidence that the Government needs."

The last few years have seen rapid deployment of renewable technologies in the UK. Current renewable capacity stands at 28.4GW – a threefold increase in just five years. Renewables are playing an increasingly important role in generating the UK’s electricity. Latest figures show that, in the second quarter of 2016, 25.3% of electricity was generated by wind, solar, hydro and other renewable generators.

The report explained: “Solar, more so than any technology, has epitomised this dramatic growth. Spurred by rapidly decreasing costs (a doubling of solar capacity leads to prices falling by around 20%3), solar capacity in the UK has increased from just 96MW in 2010 to over 8,200MW today.

“Wind, whilst not quite matching this increase in capacity, has also seen significant growth. The UK now boasts more offshore wind capacity than the rest of Europe combined.

“Emissions from the generation of electricity currently account for around a third of the UK’s annual greenhouse gas emissions. Renewable technologies will play a key part in helping the UK achieve its ambitious carbon reduction targets – at least 80% in 2050 from 1990 levels. Decarbonising electricity provides one of the quickest paths to emission reduction.

“Other major contributors to emissions, particularly transport and heat, are harder to tackle and methods to do so are themselves heavily reliant on greener electricity.

“Alongside decreasing costs and the need to meet emissions reduction targets, renewable deployment has been supported by various subsidy schemes paid for through consumer bills. The Feed-in Tariff and Renewables Obligation are two such schemes, and make up the majority of the support. Both pay a fixed amount per unit of renewable generation, irrespective of wholesale electricity prices or other market metrics.”

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