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Centre for Integrated Energy Research

PRASEG, WWF and Greenpeace Report Launch: A Study into the Economics of Gas and Offshore Wind

On 4th December 2012 'A Study into the Economics of Gas and Offshore Wind' was published and Low Carbon DTC student, Laura Campbell attended the PRASEG meeting for this report launch.The report was written by Cambridge Econometrics and funded by WWF-UK and Greenpeace.This event was held in Portcullis house, Westminster which has a spectacular glass lattice roof over the atrium and the surrounding hallways were adorned with impressive portrait paintings of past and the present members of parliament.

The meeting was chaired by MP Alan Whitehead who was joined by a panel consisting of Professor Paul Ekins Director of UCL Energy Institute; MP Laura Sandys, PPS to Greg Barker MP, Minister of State, DECC; Richard Howard, Chief Economist, The Crown Estate; and Sarah Merrick, Head of Public Affairs, Vestas.

Professor Paul Ekins started by presenting the key points of the report with the other panelists commenting afterwards. The study was to assess the macroeconomic impact of large-scale offshore wind in comparison to a dominant gas powered future. Professor Ekins consulted on the study providing his experience in whole energy system modeling which he is the theme leader for UKERC. Ultimately the report found that a future with 65% electricity supply from offshore wind (same as CCC high wind scenario) with gas back up would provide positive impacts; seeing 0.8% higher GDP worth £20bn, 70,000 more jobs and saving £8 billion in gas imports by 2030 than if the UK chose to continue along a path with dependency on gas.

Assumptions

Professor Ekins explained that the model uses inputs and assumptions from published government reports by the DECC, the CCC and other peer reviewed literature - full details can be found in the report. These include gas pricing scenarios, capital costs, carbon floor pricing and UK import contents. The results above assume 50% UK content in the supply chain in 2020, decreasing to 37% in 2030. Creating an offshore wind supply chain would also bring regeneration to coastal towns. The future high gas scenario assumes no round 3 offshore wind construction post 2020 and the construction of 42GW gas plants by 2020 which is inline with recent treasury announcements on new gas builds.

CO2 Emissions

Following the gas scenario means the decarbonisation targets recommended by CCC of 50kgCO2/MWh would be missed, with more EU ETS allowances being purchased from Europe. The wind scenario meets this target and would save 265.7 MtCO2 between 2020 and 2030 resulting in a two-thirds reduction. Keeping the UK on track to meet 80% reduction targets by 2050 even with gas back up during periods of intermittency.

Cost of Electricity (COE)

In the wind scenario there is an increase in price of electricity to consumers by 1% in 2030 to allow for the investment in wind infrastructure, this has been seen as minor compared to other societal benefits such as jobs and regeneration. There are also further opportunities to reduce the levelised COE through time; learning from current projects, standardization in construction, lowered project risks in financing and benefits from economies of scale. The uncertainties in gas prices means the UK is open to price volatility and uncertainty regarding how this will impact future bills.

MP Laura Sandys, PPS to Greg Barker MP, Minister of State, DECC

Next to take the floor was Laura Sandys MP for South Thanet which includes coastal towns of Margate and Ramsgate. Laura made some interesting points on the benefits of creating an offshore wind industry in coastal areas in need of regeneration, which have been in decline over the last few decades. She drew particular parallels to the towns of Margate and Ramsgate, which have seen an increase in footfall due to the construction of Thanet wind farm and the London Array extension. This increase is having a positive impact on service industries such as hotels, restaurants and transport. In addition, if the UK content of the supply chain can be maximized this would further increase these benefits with local opportunities for skilled jobs. The London array aims to provide 50% UK content. Richard Howard stated that this could be difficult to mandate under EU regulations for an open EU market. Sandys also stressed that low carbon technologies such as wind must be married up with energy demand reductions and understanding the contribution to kWs saved and that energy efficiency should really be seen in terms of energy wasted.

Richard Howard - Chief Economist Crown Estates

Richard stated he was pleased that this was the first analysis that brings together the impacts of wider areas such as society, the economy, CO2 emissions, jobs and costs. Richard worked on the Offshore Wind Cost Reduction Task Force with DECC to reduce the levelised cost of electricity from £140/MWh to £100/MWh and he believes the high wind scenario is challenging but achievable. Richard was also encouraged that the report was built on cost data from existing projects and factors such as larger turbine sizes, supply chain alliancing, economies of scale and long-term financing options will help to reduce costs in the wind sector. As part of the cost reduction task force there is an action plan to deliver these reductions. Richard’s final comments were that policy certainty is a must for long-term investment and commitment to supply chain investments. Uncertainty leads to long delays in the whole process risking the UK greenhouse targets. In the near future the strike price must be set using longer-term renewable targets (post 2020), alongside a clear industrial strategy.

Sarah Merrick - Head of Public Affairs, Vestas

Sarah Merrick started by stating that across the report sensitivity analysis of the scenarios the outcome was always positive for the economy either way; ranging from 0.2% with low UK supply chain content to 1% high gas prices and high UK content. Regarding improved efficiency and increasing turbine sizes, she stated that Vestas are also prototyping the largest wind turbine at present at 8MW with UK manufacturing of the prototype in the Isle of Wight. Sarah rightly pointed out that there is already lessons being learnt and progress being made to meet the wind scenario.

Observations and Comments

The meeting was well represented with a wide range of stakeholders in attendance. There were questions throughout the panel discussions with the main points being raised by those in the wind farm industry that future renewable targets are needed post 2020 to allow confidence in the future of the industry. Also, further clarity on how the new CfD FiT contracts and grandfathering of current ROC scheme will work. There was also a comment on how zero marginal pricing will work considering that wind and solar alike have no fuel costs – this remains to be seen under the CfD FiT to protect wind farms. A representative from the Carbon Capture Storage Association also commented why gas with CCS had not been included in the analysis, as it could potentially allow future gas expansion with abated CO2 emissions.

Overall, Laura found it beneficial and informative to attend a meeting with a wide range of viewpoints in a very topical area surrounding future gas generation. It also complemented work Laura has carried out on techno-economic assessment of combined cycle gas turbine generation with post combustion CCS. It is clear that the government needs to quickly confirm details of the energy market reform around strike prices and other mechanisms, as well as setting post 2020 renewable targets - although Laura guesses they want the market to decide what the future energy mix will be. A gas dependent future will only be viable with CCS technologies in order to maintain 2050 greenhouse emissions targets. However, the complete CCS chain has not yet been implemented and still has many risks surrounding investments. Gas also ensures the UK is vulnerable to fuel pricing hikes or could it be the government is betting on a shale gas windfall – excuse the pun!