The rising costs of the UK’s green energy revolution

The UK government’s July energy white paper seeks to set out the criteria needed to meet the country’s ambitious green house gas reduction targets. The additional investment in green technology has been hailed as a revolution, but even the considerable economic cost is outweighed by the social cost, with more households facing fuel poverty as consumers’ energy bills will fund the proposed schemes.

The UK government’s Renewable Energy Strategy, which aims to increase the level of renewable generation in the country from 5.5% to 30% by 2020, has an associated cost of GBP4 billion each year. This amounts to between GBP57 billion and GBP70 billion over the lifetime of the scheme, with associated benefits from this outlay expected to be at most GBP5 billion over the same period.

The burden of recovering the remaining projected GBP65 billion cost will fall on domestic consumers and small businesses, with the reported additional cost being GBP249 per household, an increase on the average household energy bill of around 20%.

There are just under 25 million households in the UK, and four million of them are reportedly already in fuel poverty, which is classified as when a household spends in excess of 10% of disposable income on heating the home to an adequate level. A further increase in energy bills will undoubtedly see more households forced into fuel poverty. Even with schemes in place to mitigate the growth in the fuel bills of the fuel poor through energy efficiency savings, higher bills are inevitable and the social consequences are significant, with help not always available for those who need it most.

While the economic penalties are clear to see, the benefits of the renewable strategy are less tangible. The term green industrial revolution is widely touted but this will be a significant investment with little in the way of increased output. Fundamentally, regardless of the source, the power obtained from a plug socket will be the same. There will be no step-change increase in industrial output to help fund the investments, as was the case during the industrial revolution.

That is not to say that the government’s ambition to reduce greenhouse gas emissions is unwise or unnecessary. However, the best of intentions do not resolve the fact that households and small businesses that are already struggling in difficult economic times will be further burdened by the need to pay for the proposed schemes. The ability of renewable sources to provide unsubsidized energy at a competitive price is questionable and alternatives are available. Efficiency improvements in combined cycle gas turbines would certainly offer a lower level of emissions than existing generations, at a fraction of the cost of a heavily renewable portfolio.

Source - Istockanalyst