U.K. Climate Adviser Says Low-Carbon Mix Saves $150 Bln

Britain, under pressure to build new power stations, could save as much as 100 billion pounds ($150 billion) through 2050 by spending on wind, nuclear and carbon capture rather than gas, the government’s climate adviser said.

Investing in low-carbon power is a “low-regrets strategy with potentially significant benefits,” a report from the Committee on Climate Change shows. “This could result in cost savings of 25 billion pounds to 45 billion pounds relative to a focus on investment in gas-fired generation,” or more than double that with higher gas and carbon prices, the group said.

The U.K, seeking to spur 110 billion pounds of investment in new electricity plants and grid upgrades this decade, is debating an energy law in parliament. Government pledges to stem increases in power prices, curb fuel imports and cut emissions may founder should ministers fail to provide clarity to investors on the long-term returns from clean-energy production.

“Uncertainty about development of the power system beyond 2020 threatens fundamentally to undermine the electricity market reform,” the group said, recommending that ministers set a goal to reduce carbon from power output by 90 percent by 2030, and publish strategies to develop offshore wind and carbon capture.

“As long as we are in a carbon-constrained world, you have to decarbonize the power system,” David Kennedy, the committee’s chief executive officer, said by phone, noting that investors must spend now on projects that will come online after 2020. “There’s a clear benefit in building this early rather than a stop-start approach.”

Carbon Goal

Vestas Wind Systems A/S (VWS) and five other power-generation manufacturers wrote to ministers in March saying the U.K. risked falling behind European peers by stalling on a carbon cap. While a decision on a target isn’t slated until 2016, lawmakers Tim Yeo of the Conservative Party and Barry Gardiner of Labour have drafted a bill amendment that would set a goal sooner, and will introduce it when the energy law returns to parliament June 3.

“If the government wants to secure the maximum economic benefits of its energy bill, it must listen to the advice of its own independent advisers and introduce a target to clean up the power sector by 2030,” Yeo said in an e-mailed statement. He’s chairman of the cross-party Energy and Climate Change Committee, separate from the independent Committee on Climate Change.

The savings projected in today’s report would result from investment through the 2020s that would raise the typical household power bill by 20 pounds in 2030, with the benefits accruing through to 2050, according to the group. The estimate is based on a carbon price of 32 pounds a ton in 2020 -- 10 times current prices -- and 76 pounds in 2030, with gas prices seen rising to about 70 pence a therm from about 63 pence.

Limited Savings

Even if gas prices slump, the cost savings from investing in gas-fed plants would be “very limited,” the committee said.

The government last year laid out plans to build as much as 26 gigawatts of gas-power units by 2030, raising total gas-plant capacity to 37 gigawatts. Kennedy said his committee envisages about 30 gigawatts of gas plants by then, which would be used to balance peaks and troughs in output rather than round the clock.

Generation from renewable sources including solar and offshore wind is intermittent, requiring alternative sources such as gas to maintain supply when output falls short.

Offshore wind relies on government support because it’s more than twice the cost of gas- and coal-fueled power output. Generators receive payments through the Renewables Obligation subsidy and are due to receive guaranteed energy prices when so-called contracts for difference come into force next year.

Wind Contracts

The first contracts for offshore wind should guarantee prices of 145 pounds to 175 pounds a megawatt-hour, coming down to a range of 110 pounds to 145 pounds for contracts signed in 2018, Kennedy said. For onshore wind, prices should start at about 105 pounds before coming down to 95 pounds, he said.

The contracts, part-funded by consumer energy bills, guarantee a long-term price for generating power. If the market rate is lower, the government ensures the generator gets the difference. If the price exceeds the tariff, producers return money to consumers.

The government should raise the levy that utilities are allowed to place on bills to 10 billion pounds in 2030 from the 7.6 billion pounds planned for 2020, Kennedy said.

The U.K. will consider the committee’s recommendations and set out guaranteed prices for renewable energy in July, the Department of Energy and Climate Change said in an e-mailed statement. “We agree with the Climate Change Committee on both the need to invest in a portfolio of low-carbon technologies and the need to reduce our dependence on imported gas,” it said.

To contact the reporter on this story: Alex Morales in London at amorales2@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

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