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Electricity: Cost-competitiveness

Volume 838: debated on Thursday 16 May 2024


Asked by

To ask His Majesty’s Government what assessment they have made of the overall cost-competitiveness of electricity generated from recently commissioned offshore wind farms compared to electricity generated from recently commissioned gas-fired power stations at current gas prices.

My Lords, I beg leave to ask the Question standing in my name on the Order Paper, and I draw attention to my relevant unpaid interests in the register.

My Lords, offshore wind is one of the cheapest generating technologies in the UK and is comparable to or cheaper in cost than fossil-fuel based alternatives. It is a vital technology that will allow us to decarbonise the power sector by 2035 and enhance the UK’s energy independence. The department publishes its cost estimates in the generation costs report.

My Lords, I thank the Minister for that response, but I gently suggest that perhaps he needs to look more carefully at the plausibility of the assessment he has just given. If renewables were as cheap as he asserts, it is hard to understand why bill payers and taxpayers are having to pay about £12 billion per year in subsidy, which is £600 for every family in the country. If offshore wind can be produced for £50 per megawatt hour, as his department asserts, it is hard to understand why the Government have had to offer twice that this year to get anyone to take up a contract. Would the Minister agree that it is better to be honest and that pushing out these fantasy figures just makes it easier for the proponents of net zero and the party opposite to indulge in fantasy politics that the whole energy sector can be decarbonised in just six years?

I certainly agree that the Opposition’s policy is fantasy politics. However, I will give the noble Lord the costs in the latest published analysis, which show that electricity from offshore wind is 60% cheaper to build and operate than gas-fired power. The levelised costs are £44 per megawatt hour for offshore wind, versus £114 per megawatt hour for closed-cycle gas turbines. The other key point is energy security. As the noble Lord is well aware, the amount of gas coming from the North Sea is declining year on year, and therefore we have to import increasing amounts of gas. It makes no sense to make us dependent on imported gas for the years to come. We can see the effects of the Russian invasion of Ukraine on gas prices. With the current turmoil in the Middle East, it makes even less sense.

My Lords, is it not the case that the only way we will address this is by building new nuclear plants? The last Labour Government identified sites and were developing a planning system that would have pushed them through. Over nearly 14 years, what have the Government been doing to create opportunities for more nuclear power?

The noble Lord is right and wrong at the same time. Of course, it makes absolute sense to build more nuclear power, and we are doing that. However, his reference to the last Labour Government gives me the opportunity to state that, when they came to power in 1997, they cancelled all our new nuclear generation.

My Lords, the UK green economy grew by 9% last year, delivering much needed green growth and green jobs for UK workers. Does the Minister agree that investment in our world-leading offshore wind capacity not only provides the UK with the long-term energy security we require but is also good for UK energy bill payers and our environmental futures? Will the Government consider increasing the funding for AR6 to secure the future energy capacity and security we require?

We have allocated over £1 billion for AR6, and it is important to procure newer capacity. It is also worth saying that we cannot rely on offshore wind alone: we need to consider the whole system. That is why we need nuclear, storage and technologies such as tidal, which my noble friend is always asking me about. We need a range of technologies, including interconnectors with other parts of the world, because that is the best way to secure a levelised grid that is secure and provides our energy independence in the future.

My Lords, the UK is well placed to become a global leader in offshore wind, as we have heard, but a lack of capacity at UK ports is limiting our potential and, therefore, the economic growth, energy security and jobs that come with it. The chief executive of RenewableUK said that

“to maximise investment in offshore wind manufacturing and assembly facilities in the UK, the public and private sector are going to have to come together to invest in our ports”.

What steps are the Government taking to bring relevant parties together towards this end?

My Lords, we are already a leader in the offshore wind sector: we had the largest amount of offshore wind production in the world, although we have now been overtaken by China. We have the first, second, third and fourth-largest wind farms in the world already operating in UK waters—but we have ambitions to go even further. That includes investing in ports, and we have the offshore wind manufacturing investment scheme and the floating offshore wind investment scheme, bringing together government and business to make sure that we develop these new technologies and, more importantly, locate the supply chains for them in the United Kingdom.

My Lords, the leading expert in the field is probably Professor Dieter Helm of the University of Oxford, who has been arguing for a long time that the true cost of wind power has been greatly understated in government publications, not least because they do not take full account of the intermittency of wind power and its effects on gas generation, which in turn has to be turned on and off at considerable extra cost. As he has identified, this is one of the major hidden costs of net zero. Can the Government now review their estimates of intermittency thoroughly and fundamentally, using some of Professor Helm’s work, and come back to us with what they think are the most considered estimates?

We already have considered estimates—work on this is going on all the time. It is a constantly evolving picture, and we take into account the views of all experts. It is undoubtedly true that renewables are intermittent: we had huge amounts of solar earlier this week, but, looking at the weather outside, I think we will not have quite so much today. That is why we need a diversified supply—nuclear, long-term storage and intermittent storage—to take account of the fact, which we know is true, that renewables are cheap, effective and quick to deploy, but they are intermittent, which is why we need a variety of technologies.

My Lords, following that last question, do the costs that the Minister gave include all the grid and system costs, as well as everything that has been referred to? Will the Minister agree that it is important to get these different costs right if we are going to gain public consent for the various incentives, taxes and charges that will be necessary to guide the system forward? As for gas, which is also mentioned in the Question, is it not the position that, in the long term, it will continue to have a substantial place, particularly in generating electricity? Is it the position that we need to ensure that its carbon emissions are handled by carbon capture and storage schemes, two of which are currently beginning? Should we not be giving a lot more attention to this area if we want a net-zero world?

The costs that I quoted are what are called the levelised costs, which are an industry standard, and they take account of other system costs. But, as I said, we will of course need back-up and storage. What the noble Lord said is true: gas will play an increasingly marginal role, but it will play a role in ensuring that we have energy security going forward. The estimates are that we will have about 7% of gas generation by about 2035.

My Lords, a battery plant is being built in Somerset and electric arc steel is being put into Wales. It would benefit the country if offshore wind were built on the west side of it as well as the east. So can the Government explain what is happening to encourage offshore wind in the Celtic Sea and its environs?

There is already some wind generation, but of course the waters are deeper, which is one reason why we are developing floating offshore wind, which I referred to earlier.

On the hidden costs of harnessing wind power, which seems to be a theme, will the Minister acknowledge that, in any wind turbine, there is a huge amount of steel, fibreglass, resin, plastic, copper, aluminium, iron and cast iron? Therefore, does the Minister acknowledge that, for decades to come, these materials will be extracted and manufactured only with the help of fossil fuels? As is often the case, fossil fuels are invaluable, but that is never part of the public discussion.

My Lords, I am happy to acknowledge the noble Baroness’s point, but, if she is attempting to say that other forms of generation—gas-fired power plants, nuclear power plants or whatever—do not have many of those materials, she would be wrong.

My Lords, the Minister mentioned China. Why are some of the offshore wind farm components, especially the huge structures and blades, being manufactured in China rather than in Britain?

The noble Lord makes an important point. Actually, relatively few components are manufactured in China, although some are. Many of them are manufactured in other parts of Europe, and increasingly many are manufactured in the UK. If the noble Lord had been in the Grand Committee earlier this week, he would have heard us debate a new regulation designed precisely to overcome that problem. This is to make sure that there are extra payments to some of the developers to make sure that we locate more of the supply chains in the UK, because we want to see the benefits spread throughout the country, particularly Wales and northern parts of the UK, which already have many of these supply chain companies. We need to become increasingly successful at that. The rest of the world is proceeding to copy us and develop offshore wind, so there are massive export opportunities if we can locate those supply chains in the UK.