Analysis

Chancellor's dash for gas worse for economy than wind - report

Energydesk
Wind turbines in front of a fossil fuel power station in the sunset
License: All rights reserved. Credit: Greenpeace

The Chancellor's dash for gas could prove worse for the UK economy than an alternative dash for offshore wind, even if we unlock new reserves from shale - according to a new report by Cambridge Econometrics (See gas versus wind in numbers here).

It challenges the argument that extraction of gas from shale in the UK makes gas power a more economic option than renewables.

The report comes as George Osborne and the government prepare to launch a new gas strategy which could reportedly see the UK source half its power from gas by 2030.

The move, which requires building 30 new gas fired power stations will be released in the week of the government's Autumn statement and is designed to boost jobs and growth.

But the report commissioned by WWF and Greenpeace suggests 70,000 more jobs would be created through investing in wind power by 2030, with GDP also higher by 0.8% -equivalent to around £20bn. It would also allow the UK to meet it's binding carbon targets.

“Much of the debate around the choice between gas-fired and offshore wind electricity generation in the years post-2020 assumes wind is more expensive. This study presents powerful evidence to the contrary,” said Professor Paul Ekins, Professor of Resources and Environmental Policy at UCL.

Based on the government's own price assumptions, and the rising cost of carbon, the report found the cost of power from offshore wind would be within 1% of the cost of power from unabated gas power. 

Even if the gas price falls due to shale, the authors argue, the results would be similar.

But the economic benefit of a 'dash for wind' depends on foreign firms opening UK factories to supply any growth in renewables beyond 2020.

Investors argue decisions are being made over the coming years and depend on the government providing certainty beyond 2020.

Commenting on the study Andrew Raingold, director of the Aldersgate group, an alliance of 50 major companies including Asda, BT, Marks & Spencer, Microsoft and Philips called for the government to commit to a new clean energy target beyond 2020 when current measures expire.

"Delaying key decisions such as the decarbonisation target for 2030 risks damaging the UK’s future economic prospects and leaving consumers over-exposed to the price andenergy security risks of heavy dependence on imported gas”.

Fracking

Gas power provides fewer benefits to the UK because much of the money spent on it goes overseas in the form of imports.

The authors find that investing in offshore wind instead of gas could save the UK around £8bn in imported gas -  around £91 per household.

Generous tax breaks for shale, also due to be announced by the chancellor, are unlikely to change the economic equation.

Unlike the US, where fracking has dramatically cut the price of gas to consumers, the UK is part of a regional and global gas market.

That means, the report assumes, that shale gas in the UK is no more likely to bring down the cost to consumers than North Sea oil reduced the cost of petrol.

And like oil, the more of it we use at home the less we can export.

A global shale glut, however, would improve the economics of gas. Though the report models a fall in the gas price, a very dramatic fall would be likely to reverse the results.

Investment

The benefits of offshore wind, however, depend partly on the development of the UK's supply chain.

Current offshore wind farms tend to spend less than 40% of their capital on domestic content. Whilst jobs are created in engineering and installation the turbines are imported from abroad.

The report finds that if this trend continues then investing in wind has a similar economic impact to a reliance on gas.

Significant increases in skilled employment and GDP only come if the portion of the UK supply chain increases, through the construction of new factories to service the development of offshore wind in the North Sea.

Whilst the report focuses on the period from 2020, after the UK's current clean energy targets expire, decisions on supply chain investment are being made now. 

Target

Speaking to The Independent Michael Liebreich, chief executive of Bloomberg New Energy Finance said the government's energy bill failed to provide investors with the certainty they need to "pull the trigger" on supply chain investments.

A coalition of businesses, civil society and environmental groups, including Vestas and Gamesa who welcomed the Cambridge Econometrics study, have called for the government to bring in a clean energy target for 2030.

However opponents of the move have argued it would drive up costs by limiting the UK's carbon reduction options.

The reports conclusions are based on the impact of investment in the UK alone - and don't take into account the impact of exports from any UK based supply chain.

Comments Add new comment

I was interested in the carbon price assumptions used in the report, and found them in appendix table B2: the carbon floor price is assumed to reach £74.20 per tonne CO2 by 2030. That is in line with the price I think is justified (see http://www.jbs.cam.ac.uk/research/working_papers/2011/wp1105.pdf), but is well above any carbon price we have at present.
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