Global warming, climate change, all these things are just a dream come true for politicians. I deal with evidence and not with frightening computer models because the seeker after truth does not put his faith in any consensus. The road to the truth is long and hard, but this is the road we must follow. People who describe the unprecedented comfort and ease of modern life as a climate disaster, in my opinion have no idea what a real problem is.
Economically attractive, he says! What a joke. It is only viable because of the £3 million a year CfD subsidy plus that £1.8 million bung. And all for a miniscule contribution to UK electricity supply. The 3 MW quoted might generate 25,000 MWh a year, compared to total UK demand of 300,000,000 MWh.
The promise of underground riches is nothing new in Cornwall. But on Thursday, the region will plumb new depths in the quest to harness Britain’s natural resources.
For the first time, the United Downs deep geothermal power plant will start generating 24/7 electricity at a site near Redruth.
With an output of around three megawatts, enough to power roughly 10,000 homes, the plant cannot exactly be described as game-changing.
Yet experts believe it will help pave the way for similar projects across Britain aimed at tapping into the vast thermal resources below our feet.
The United Downs project, developed by Geothermal Engineering Ltd (GEL), will draw water at temperatures of around 190C from underground reservoirs that sit approximately five kilometres beneath the surface.
It takes advantage of a natural fault line using two wells, one that draws water up and one that pumps it back into the granite rock formations. Water that is brought above ground is run through a heat exchanger which uses another liquid with a lower boiling point to make steam and drive a turbine.
The result is power that is nearly always on – whatever the weather – save for short maintenance periods, says Ryan Law, the chief executive of GEL.
“Once you have done your drilling and the rest of it, the plant then runs 24/7 for about 96pc of the year,” he says.
In renewable energy, these kinds of numbers are virtually unheard of. Utility-scale solar tends to only push 25pc of the year while wind farms tend to land somewhere between 20pc and 40pc.
I’m not sure who these “experts” are. They would not be paid by GEL, by some chance?
The article also contains serious errors, not least the claim that solar power works at 25% efficiency. The true number is half that.
Bot the biggest error is this:
Matt Oliver obviously does not realise that £119/MWh is at 2012 prices! The current strike price is £170.50/MWh, three times the price of gas power:
Economically attractive, he says! What a joke. It is only viable because of the £3 million a year CfD subsidy plus that £1.8 million bung. And all for a miniscule contribution to UK electricity supply. The 3 MW quoted might generate 25,000 MWh a year, compared to total UK demand of 300,000,000 MWh.
But it gets much worse! The process has been causing earth tremors, as Oliver reports:
Like fracking, however, this kind of drilling can cause unnerving mini-earthquakes.
In Britain, ministers effectively outlawed fracking for oil and gas when they limited operations that create tremors of more than a 0.5 magnitude.
There are no such rules for geothermal, even though it has caused mini-tremors that were three times more powerful than this, with the industry instead regulated based on its surface vibrations. Law argues that this is more sensible because it measures the actual effects above ground.
So it’s OK to have earthquakes three times as powerful as from fracking, because geothermal is “good” and fracking “bad”.
FOOTNOTE
I have left comments for Matt Oliver, pointing out his CfD strike price error, but so far, the article still has not been corrected.
It destroys once and for all the myth that renewables are cheaper than gas. The price for offshore wind, for example, is set at £113/MWh, at 2024 prices. But we can already add 3% to that to bring it into current prices – so that’s around £116/MWh.
These prices are more than 11% higher than last year’s auction round.
It may be the case that the prices bid will come in slightly lower than these ASPs, which are the maximum on offer. But they inevitably be much higher than the cost of gas power.
Natural gas is currently trading at 78p/therm. Assuming fuel efficiency of 55%, fuel cost for a CCGT would work out at around £49/MWh. We are already paying CCGTs to provide standby, so this covers all the other overhead and running costs.
Miliband needs another 25 GW of offshore wind power. At these prices, that will add £6 billion a year to the cost of electricity.
And this, of course, does not account for all the other indirect costs of intermittent renewables, such as grid balancing, grid upgrades and standby cover.
Worse still, Miliband has decided to extend the CfD contracts from 15 to 20 years – in short, we will be locking in these high prices for even longer.
Onshore and solar power are little better, still both costlier than gas power. As for floating offshore wind at £271/MWh, one can only conclude that Mad Miliband is intent on bankrupting the country.
The Daily Sceptic ran a story yesterday about an interview that took place on BBC World At One on Monday April 14th. Sarah Montague interviewed Adam Berman who is the Director of Policy and Advocacy at Energy UK.
The Daily Sceptic ran a story yesterday about an interview that took place on BBC World At One on Monday April 14th. Sarah Montague interviewed Adam Berman who is the Director of Policy and Advocacy at Energy UK. The full interview can be found here (from 18:45). Unfortunately, the Daily Sceptic article failed to recognise that the arguments made by Mr Berman misrepresent the situation and amount to misinformation.
The gist of Berman’s argument was that gas sets the wholesale price of electricity most of the time and the marginal costs of gas-fired electricity are higher than those of wind power. If we could just get rid of all that pesky gas and move quickly to almost all intermittent renewables then bills would be lower.
As with most misinformation, Berman’s argument starts with a grain of truth. Yes, gas does set the wholesale price most of the time and yes, the marginal costs of gas-fired generation are higher than most windfarms. However, this start point has to be a contender for Most Irrelevant Fact of the Year. We have covered before that measured over a long time period, renewables have been a bigger driver of electricity bills than the rise in gas prices at the end of 2024.
Towards the end of the interview, Berman acknowledges that wholesale prices are not the only driver of high energy bills. He mentions the cost of pipes and wires and other policy costs, but manages to completely avoid discussing the elephants in the room, namely renewables subsidies and the extra costs we must pay to make intermittent renewables work. Roughly speaking, these amount to around £15 billion a year once balancing and backup is included, or more than £500 on every household’s electricity bill. Once these costs are included (as they certainly should be), renewable sources of electricity are much more expensive than gas.
Cost of Renewables Subsidies
There are three subsidy schemes supporting renewables. The first is Renewables Obligations (RO). Renewables generators are awarded certificates for each unit of electricity generated in addition to the market price they receive for their output. Accordingly, electricity from these generators will always be more expensive than market rates, often set by gas. Even though this scheme is closed to new participants, the OBR (see the October 2024 detailed forecast tables: receipts) shows us the RO scheme cost £7.6 billion in 2023-24 and the cost is forecast to rise to £8.5 billion in 2026-27. Yesterday, the electricity spot price was £73.25 per MWh, mostly set by gas including the carbon tax. ROC-funded offshore wind farms get about 1.9 certificates per MWh, onshore one certificate and solar gets about 1.4. In the current financial year, the buy-out value of each certificate is set at £67.06. Working through the arithmetic, this puts the current cost of ROC-funded offshore wind at £200 per MWh, onshore £140 per MWh and solar £169 per MWh, all much more expensive than gas-fired electricity.
The second scheme is Feed-in-Tariffs (FiT), paid mostly to small solar installations. FiT generators are paid a fixed amount to generate electricity plus a smaller amount for the power they export (or are deemed to export) to the grid. Again, this scheme is closed to new entrants. However, analysis of Ofgem’s latest report into the FiT scheme shows it cost nearly £1.9 billion in 2023-24, or around £221 per MWh which is over three times higher than market rates today. These prices are index-linked, so current prices will be higher.
Finally, we have the Contract for Difference (CfD) scheme used for the now annual renewables auctions. Here, generators receive a fixed amount for the power they generate. They receive the market value for their power and are then paid a top-up to the strike price of their contract. If market prices are above the strike price, they must pay back the difference. Analysis of data published by the Low Carbon Contract Company shows the CfD scheme cost a record £2.24 billion in subsidies during financial year 2024-25. Even though CfD generators paid back a net amount of about £346 million during the energy crisis of 2022, the total cost of CfD subsidies recently broke the £10 billion barrier. During 2024, CfD-funded offshore wind generators cost about £153 per MWh and received more than half their revenue from subsidies. Onshore wind cost £112 per MWh and solar £110 per MWh. These prices were recently indexed upwards for the new financial year and so the average will rise again, except for solar where new, lower priced generators will bring down the average for that technology.
The total cost of these subsidy schemes amounts to nearly £12 billion per year or the equivalent of over £420 per household per year and as we have seen we can expect these costs to continue to rise, putting upward pressure on bills.
Extra Costs of Renewables
However, subsidies do not represent the full cost of renewables. First, because wind and solar are intermittent their output can fluctuate significantly so that sometimes they produce less than expected and at other times can produce more than demand or more than the grid can handle. Therefore, the grid needs to be balanced, usually using gas-fired generators. NESO produce Monthly Balancing Services Summary reports and the data for 2023-24 show the cost of this service was £2.54 billion. In addition, we pay for backup through the capacity market and the OBR shows this cost us £1 billion in 2023-24 and the costs are forecast to rise to £4bn per year in 2027-28. Even if balancing costs remain constant, we can expect the total costs of balancing and backup to rise by £3 billion by 2027-28 or the equivalent of over £100 per household.
Wind and solar farms tend to be sited away from the source of demand, so we need to spend even more money to expand the electricity network to connect them to the grid. NESO has announced £54 billion of spending on grid infrastructure to 2030 and a further £58 billion to 2035, making a total spend of £112 billion. If we assume an 8% cost of capital and 2% operations and maintenance costs, the annual costs on energy bills will amount to about £11 billion once the investment is complete, or the equivalent of another £385 per household.
However, these announcements were made before the Clean Power 2030 (CP2030) plan was announced. NESO estimated this would cost £44-48 billion per year to the end of 2030, or a total of £264-290 billion over the six-year period. According to the Digest of UK Energy Statistics (DUKES) we used 205.7 TWh of gas to produce 101.7 TWh of electricity in 2023. Using the current price of gas of 83.7p per therm (or £28.57 per MWh), this gas would have cost us £5.9 billion. The CP2030 plan would eliminate much of this gas, giving a saving of around £5 billion per year. However, assuming a cost of capital of 8% and operations and maintenance costs of 2% for CP2030, would give an ongoing cost of £26-29 billion per year or more than five times the projected savings on gas. Adopting the CP2030 plan will likely increase our energy bills by £900-1,000 per household. Additional costs are in the pipeline from subsidies for Carbon Capture and Storage (CCS) and green hydrogen.
Taxes on Gas-Fired Electricity
Energy bills are also increased by the taxes placed on gas-fired electricity generation which is subject to the Emissions Trading Scheme (ETS). The UK ETS Authority has set the carbon price for 2025 at £41.84 per tonne of carbon dioxide. Actual carbon prices vary somewhat, but this price can be used to estimate the extra costs of gas-fired generation. Modern gas turbines emit around 350kgCO2 per MWh of generation, so gas-fired generation attracts a carbon tax of about £14.60 per MWh, or about 20% of today’s electricity spot price. The CP2030 plan anticipates carbon prices rising substantially to around £147 per tonne, adding further upward pressure on energy bills.
Conclusions
By ignoring the giant bull elephants in the room representing renewables subsidies and the extra costs of grid balancing, backup and expansion of the network, Berman was allowed to paint a false picture of the drivers of high energy bills. The truth is that renewables are the major force driving bills higher and if Miliband gets his way with CP2030, then our bills will rise higher still.
Perhaps we should take Adam Berman at his word and offer to pay renewables generators just the market value of their output, which on summer days can often be negative. I don’t think we will see many takers. Remember, if something needs a subsidy, it’s more expensive.
I have tried before to complain to the BBC, but the response has been along the lines of our editorial staff know more about this than the great unwashed, so we are not going to change our article or editorial stance. Others might want to see if this analysis can penetrate the citadel and force a correction, or at least a right of reply on World At One.
Stop Press: Paul Homewood has made the same points in his latest article. Branding Berman’s argument “grossly dishonest”, he writes: “Yes, of course, gas does tend to set the market price, but on top of that price renewables receive massive subsidies, which get added on to bills. These subsidies have to be paid because renewables are intrinsically much dearer than gas power, not the reverse.”
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