Why an energy system dominated by renewables remains the lowest cost for billpayers

In short, renewable energy is now a mature technology, meaning the industry can continue to lower costs through ongoing economies of scale and stronger and more efficient supply chains, whilst realising design and technological innovations through facilities like the New Technology Development Centre in Blyth. This is reflected in the fact that subsidies for the industry will begin falling in the near future, with a £1.8 billion reduction in 2027/28 as older wind and solar farms are retired from the Renewables Obligation scheme and the associated costs of maintaining this are removed from household bills.

Renewables don’t stop being a good deal for billpayers once you consider the grid, storage and other system costs which will come alongside it

Recent analysis by Aurora, which modelled a range of scenarios and factored in all the running costs for each possible electricity system, made clear that managing the wider system costs of renewables does not override the benefits for billpayers of transitioning to a clean system. It concluded that, contrary to popular opinion in some quarters, the lowest cost electricity system we can build by 2035 is one dominated by offshore wind.

Leaving aside the environmental benefits, billpayers would be around £68 a year better off under such a system, compared to a scenario in which Government did not proactively encourage investment in clean power. Not only would this be cheaper than alternatives such as gas, with or without carbon capture and storage, it would also be lower cost than importing power from abroad via interconnectors.

This is fundamentally because the costs of renewables are so low, as the cost of electricity generation is the dominant factor in determining total electricity costs, as well as the simple fact that any type of future energy system for the country will also require new grid and system development to keep pace with rising electricity demand.

Reliability is essential to any efficient and low-cost energy system, and it’s part of the reason why so much of the world currently depends on energy sources like gas. Although wind and solar is abundant and low cost, it can also be subject to periods of reduced generation. This is true of anywhere on earth, with all regions experiencing times of reduced sunlight and lower winds, but it doesn’t mean things simply stop working.

Going forward, energy storage will become an increasingly vital part of system balancing, helping to capture power when it’s abundant and release it when it’s needed. Similarly, low carbon fuels such as hydrogen, which can be stored for long periods and produced using the electricity generated by renewable sources, as well as other long duration energy storage technologies like compressed air, will manage the peaks and troughs.

However, it’s important to note that the intermittency issue doesn’t apply to all forms of renewable energy. Wave and tidal energy, for example, is entirely reliable, as the ocean does not go through periods where it ceases to move. Although it is often skipped over and regarded as less consequential within our overall energy mix, the most recent clean energy auction saw six tidal stream projects secure contracts in Scottish and Welsh waters, and this technology could ultimately meet 11% of the UK’s electricity demand.

And, of course, we still have the option of burning gas to top things up in the short term, using the gas plants we already have. However, it is in the interest of billpayers to reduce our use of gas for electricity given this is more costly than renewable energy.

And proponents of prioritising gas over further roll out of renewables are missing a key point – renewables protect billpayers from the volatility of international gas prices

International gas price spikes are incredibly damaging for the UK economy and billpayers - just take the last three years as an example. During that period, we saw the single biggest energy subsidy in the UK’s history when the Government spent £42 billion subsidising the cost of gas to shield consumers from skyrocketing bills. Household bills at this time would have been even higher if we did not have our existing wind and solar farms.

Without renewables, the country would have relied on gas power stations operating more frequently, potentially using twice as much gas for power generation as we currently do. In 2022 alone, this would have equated to a 32% rise in demand for gas, increasing our gas imports by 58% at a cost of £12.5 billion. During this time of sustained high prices, however, we were fortunate to only require around half of our power to be fuelled by gas, meaning we were significantly less exposed than countries with less advanced renewable energy sources.  If the events of 2022 were to happen again, it would add around £10 billion to electricity system costs in 2030, but only £5 billion in a system dominated by clean energy.

In 2021, the Government’s Contracts for Difference (CfD) scheme, which secures a fixed price for every megawatt hour of electricity a renewable energy project generates, saved consumers over £6.1 billion by displacing gas, equivalent to £221 per household. And CfDs are continuing to provide better value to billpayers year on year, with contracts awarded for offshore wind in this year’s auction (£58 per MWh) almost three times cheaper than CfDs awarded in 2012 (£150 per MWh).

Ah ha! Renewables may be better than gas, but what about nuclear?

Although polling earlier this year showed that renewable energy is undeniably popular, with 79% of voters wanting political parties to work together to create a consensus on maximising investment in clean power, there are other routes the country could pursue. But are they feasible within the next decade?

One such alternative is nuclear energy, which is often portrayed in contrast to renewables as an antidote to the challenges associated with intermittency. Nuclear energy is clean, and its production of electricity is constant, but it only produces 12.5% of our electricity at present, having fallen to a record 21st century low of 40.6TWh in 2023. Development times for new nuclear reactors also typically exceed ten years. Reforms to the planning system could reduce this, but these themselves will take time to implement.  

This means that, while up to 24GW of nuclear power could be operational by 2050, given appropriate reforms and support, it is renewables that must deliver most of the new low carbon generation that we need in the immediate future. The answer therefore lies in a combination of technologies, rather than a zero-sum race between them.

Renewables and nuclear energy compliment one another when it comes to delivering net zero and our clean energy ambitions, so maximising the speed at which each can be deployed is the key to realising this challenge. No single low carbon technology will achieve our aims, and there are no credible scenarios in which renewables do not delivery a significant portion of the future system. Nuclear therefore has an important role to play at times where generation from wind and solar is reduced, and it is this combination of technologies that will best limit our need for imported gas and ensure our future energy security is maximised.

Conclusion: pushing forward the renewable energy roll out is the right thing to do, but that doesn’t mean we shouldn’t relentlessly seek out ways to reduce consumer bills within a new system

With the importance of decarbonisation and energy security a largely settled issue, and our collective destination agreed, the question becomes which vehicle is best suited to take us there. When recent years are taken into account, and global events lay bare how precarious and costly it can be to rely on imported gas, the case for renewables as our route to realising the lowest cost electricity by 2035 becomes undeniable.

The lowest cost electricity system that we can build by 2035 is one dominated by offshore wind. But the key to cheap, clean and secure energy relies on a healthy mix of sources, and by 2029 the Government will have expanded the grid and further developed an energy ecosystem geared not only to support the rapid roll out of renewable energy, but also to vastly increase the scope for low carbon storage technology and new nuclear build to compliment this.

Furthermore, our report earlier this year demonstrated how building more energy storage projects alongside onshore wind and solar farms further reduces electricity system costs, benefitting billpayers in the long term whilst providing flexibility in our system to ensure it continues to meet demand at all times and addresses the issue of intermittency. Of course, this can only be realised by reforming the planning system, but that also goes for alternatives such as nuclear energy and is a wider systemic problem the country must face. The report also sets out the importance of encouraging more battery storage and green hydrogen projects to “co-locate” at sites where clean electricity is generated throughout the UK, with a range of financial support mechanisms capable to achieving this.

All of this should be taken into account when considering the question of lower costs and value for money, along with the scope for linking the UK Emissions Trading Scheme (ETS) with the EU ETS, which will ensure more efficient trading is realised, to the benefit of billpayers, by removing taxes on imports and exports of electricity.

When set alongside the immense work that has already gone into developing the renewables sector over the last two decades, and acknowledging the fact that subsidies for the industry will begin falling from 2027 as it reaches full maturity, it makes little sense from either a billpayer or national perspective to pivot away and turn back now.