Consumers could save £2 billion if green light given for reform of energy generation auctions - Drax

Consumers could save £2 billion if green light given for reform of energy generation auctions

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An independent report published today has revealed consumers could save more than £2 billion if the Government’s planned renewable energy auctions are opened up to include a wider mix of technologies. Drax commissioned NERA Economic Consulting and Imperial College to look at hidden costs that are not reflected in the contracts Government awards for renewable generation.

These hidden costs, or whole system costs are increasing as intermittent renewables – those reliant on the sun and wind – increase. These intermittent renewables mean other forms of power generation need to kick in, and flex up and down to meet electricity demand. These costs are passed on to consumers via their energy bills.

Currently the Government is planning three auctions for new renewable energy contracts – Contracts for Difference (CfDs) – planned over the next four years, and all are focused on offshore wind. The new research shows significant differences in the true costs of renewables once these additional costs are recognised. Offshore wind could require a CfD of £127 per MWh, onshore wind £92-97 per MWh, solar £96 per MWh, and biomass £84 per MWh.

Once these new support levels are modelled over the planned energy auctions, the new energy mix that could win contracts is shown to save consumers £1.9 -£2.2 billion. This support is already paid for through energy bills and the new cost-efficient mix would lessen the impact.

Drax Group CEO, Dorothy Thompson said:

“This independent research shows it’s crucial we get the right mix of energy generation.  The UK’s system faces growing challenges, from costs to reliability as traditional forms of generation are replaced with renewables.

“Intermittent renewables like wind and solar are vital as we continue to clean up energy generation, but they need to be backed up by a constant supply of electricity that can be flexed up and down to make sure the UK’s businesses and households always have power on demand.

“Opening up energy auctions to include other renewables could save consumers £2 billion and with more biomass in the mix energy security is also boosted.  Using the latest technology we’ve upgraded half our power station to run on compressed wood pellets, which give an 80% plus carbon saving against coal. With the right support we stand ready to finish the job.”

NERA Economic Consulting Associate Director, Daniel Radov, added:

“NERA Economic Consulting is pleased to be able to continue its partnership with Imperial College in modelling the total costs of different power generation technologies, and in helping to inform the policy discussion around renewable energy and decarbonisation.

“To ensure that we achieve environmental targets as efficiently as possible, it is essential to have policies in place that provide the right incentives to minimise costs. We hope the combination of Imperial’s whole-system energy modelling with NERA’s ability to model the details of the CfD auctions will contribute to a better understanding of the advantages and disadvantages of different policy approaches.”

ENDS

Contact

Drax

Paul Hodgson
+44 1757 612026
paul.hodgson@drax.com

NERA

David Tomlinson
+44 20 7659 8752
Mobile: +44 7919 398079
david.tomlinson@nera.com

Notes to Editors

  • NERA Economic Consulting is a global firm of experts dedicated to applying economic, finance, and quantitative principles to complex business and legal challenges. NERA brings academic rigor, objectivity, and real world industry experience to bear on issues arising from competition, regulation, public policy, strategy, finance, and litigation across many sectors including energy, infrastructure and the environment. Imperial College London is a respected academic institution with experience of energy system modelling. They were chosen to ensure the modelling would be consistent with the work they produced for the Committee on Climate Change on the same topic in 2015.
  • The report focuses on Whole System Costs. Whole System Costs (WSC) are simply the sum of the Levelised Cost of Energy and the associated System Integration Costs for a given technology (i.e. WSC = LCOE + SIC).
  • The Levelised Cost of Energy (LCOE) is the cost of building, maintaining and operating a generation asset (i.e. power station/wind farm/solar park) over the life of the asset.  This is the figure that is currently factored into CfD auction bids. System Integration Costs (SIC) represent the additional expense of operating the electricity network as a result of those assets participating in the GB electricity market. These costs include maintaining sufficient levels of backup capacity (system reliability) and managing flows on the transmission network (system balancing). Different technologies (e.g. wind, solar, biomass, etc.) have different impacts on total System Integration Costs, depending on their reliability, flexibility and location on the system.
  • The Government has committed to support offshore wind capacity in the next three CfD auctions to promote technological learning and cost reduction in that technology.  This analysis proposes that a proportion of the offshore wind budget is protected in each auction to promote such benefits. The analysis demonstrates that opening a proportion of the budget to full, technology neutral competition could reduce costs to consumers by up to £2.2bn.

Report

Click here to view the NERA Economic Consulting report

About Drax

Drax Group plc is an innovative energy company that owns and operates the UK’s largest power station in Selby, North Yorkshire, typically providing some 8% of the UK’s electricity. A vital strategic asset, the Group has transformed itself into a predominantly biomass-fuelled electricity generator through its use of innovative technology and sustainably sourced wood pellets. The largest decarbonisation project in Europe is underway to provide the UK with cost effective, low carbon, and reliable renewable power.

The Group employs around 1,400 people and also includes:

Drax Biomass, based in the US focused on the self-supply of some of its sustainable biomass requirements.

Haven Power, the Group’s retail arm, providing business electricity contracts that are simple, flexible and designed to customers specific requirements.

Billington Bioenergy, is one of the leading distributors of wood pellets for sustainable heating in the UK.