Picking apart the CCC’s electricity cost projections

This morning the Guardian reported that relying on gas would push up UK energy bills by £600 by 2020, whereas renewables would only increase them by £100. The basis of the article is a report by the Committee on Climate Change. A quick glance at the executive summary of the report makes clear that the Guardian reporter mixed up 2020 and 2050. The £600 figure is a projection of costs in 2050. The £100 figure is one for 2020. Not exactly apples to apples.

A secondary point, not mentioned by the Guardian, is that the £600 figure comes from a high carbon price scenario. How high?

CCC

£500/tCO2 is a rather high price on carbon. Given the farcical state of the ETS carbon price I would not want to predict it reaching this level by 2050.

How high do they think electricity prices will go under this scenario?

electricity

So, a pretty huge increase if you are relying on unabated gas (i.e. no CCS) for most of your electricity.

An immediate problem here is that a carbon price this high ought to force all gas plants to install CCS. So, a more credible scenario would be a high carbon price, but high amounts of CCS and no unabated gas. In an earlier report the CCS provided estimates of the cost of electricity from gas with CCS.

ccscost

These prices ought to be a much more accurate prediction of the costs of electricity under a high carbon price and scenario. A quick glance at this also makes it clear that Gas with CCS may turn out to be cheaper than a grid with a mix of nuclear or renewables.

No one really knows what the cost of gas will be in the next few decades, or most other sources of electricity. This is another reason why I believe carbon pricing is the best way to deliver low carbon power. It should work even if we are wrong about the costs of different technology in future decades.

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7 thoughts on “Picking apart the CCC’s electricity cost projections”

  1. One problem is (like all low C tech) public acceptance of CCS and perhaps a more profound concern would be potentially limited availability of places to store captured CO2 in such a CO2 intensive scenario. So I think it is worth considering unabated CO2 with a high carbon price. However, it does appear that a high C price and unabated gas would be politically unacceptable, implying the C price would be dropped in such a scenario.

    I’ve found this resource an excellent intro into to the problems with CCS:

    http://www.withbotheyesopen.com/pdftransponder.php?c=10

  2. Aiden

    I agree that CCS probably has limits due to politics, and technical problems. A secondary problem though with a price of £500/t CO2 is that an all unabated gas scenario would only happen if utilities were run by complete idiots. Based on the CCC’s figures the choice between a gas plant and most low carbon power sources is an absolute no brainer.

    £500 either kills gas due to political problems with CCS, or because nuclear/wind are far cheaper. It seems bizarre for the CCC to not have factored this in.

    1. While utilities are probably not run by idiots, is the risk not that they will make short-term decisions? If it’s not too off-topic, what are your thoughts on the criticism of the carbon tax-approach that utilities won’t dare invest in large capital cost projects like nuclear power due to uncertainty if the next election will lower the tax and make electricity from gas generation cheaper? With the contracts-for-difference approach my understanding is that they have a legally binding price-guarantee regardless of change in government? Choosing who will get these contracts is a kind of picking winners which I understood you argued for avoiding by simply taxing carbon, or could the two approaches be successfully combined in your mind?

      1. This is probably true if the carbon price was only going for a while. The CCC however is assuming it will stay really high for decades. In such circumstances a utility company would be smart to bet on CCS, or nuclear/renewables.

  3. This has already become a zombie stat – uncritically repeated by those more interested in taking a position than understanding it. Just to add emphasis to Robert’s points… The £600 is a merely an artefact of assumptions made about future gas and, especially, future carbon prices. The scenario that generates the £600 figure uses £500/tCO2 as the carbon price, which is, as you say, very high. ETS prices have varied between £3-15/tCO2 and DECC gives £200/tCO2 in 2050 as its central estimate for a ‘shadow price’ for CO2. It is also very large compared to the price of gas – it equates to about £3/therm or five times the current wholesale price of about 60p. So if you assume that very high carbon price and no change in gas burn you obviously get a big number like £600 for the increase in bills. But apart from the heroic assumptions, here are two further challenges to the approach taken by CCC:

    1. It is not relevant to current investment decisions. If governments did raise carbon prices to that level in 2050, it would take determined fiscal policy over two-three decades and policy intent would be visible well in advance. If that was happening, we would see more renewables, nuclear and CCS developed. Gas fired power stations built today would close or modify before 2050, or remain is a capacity market. Shale gas may even remain in the ground if such a carbon price came to pass – though it would be in demand to replace coal for a couple of transitional decades. But a £500/tCO2 2050 carbon price won’t make much difference to investments made today because it is too far away and would be regarded as unlikely (ie. seen as a low probability political risk) given there is no sign of the necessary impetus in the ETS or anywhere else to get close to this. The figures produced by CCC for 2050 bills have no relevance for decisions made about gas fired power stations built today or exploitation of shale gas resources – so why produce them?

    2. Carbon price is a fiscal transfer not a cost. It is misleading to treat a carbon price (which would be applied as a fiscal instrument like a carbon tax or permit auction) in the same way as resource costs (money you have to spend on actual energy production). These carbon costs are relevant when calculating ‘levelised costs’ for comparing energy technologies and getting a sense of future mix under carbon constrained conditions, and do make a difference to bills if implemented as fiscal instruments. But a carbon tax is a ‘transfer’ – meaning that revenue is raised from electricity bills that can be transferred to be used to reduce other taxes or to increase benefits or other spending. It can be fiscally neutral and so the net effect on households can also be neutral, depending on how the revenue is recycled. Even if bills go up, something else should go down. This has always been the green argument for green taxes. That neutrality does not, of course, apply to the £100 carbon policy costs with which the £600 was erroneously compared as an ‘insurance policy’. That £100 is actual money, mostly renewables obligation, paid to generators for producing low carbon energy. Carbon costs are paid by generators for producing carbon. They are not the same thing or comparable.

    The moment the CCC starts to look like it’s cutting corners to make political points, then it will soon lose the confidence of its stakeholders and climate policy will be weakened. So why did it happen?

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