Government cuts its estimates of costs of renewable electricity

The UK government has officially recognised recent and dramatic falls in the cost of generating electricity from renewable sources – particularly wind and solar – in updated estimates of the ‘levelised cost of electricity’ (LCOE).

Published by the Department for Business, Energy and Industrial Strategy (BEIS) in late August, Electricity Generation Costs 2020 is expected to underpin the upcoming energy white paper and thus be influential for energy policymaking for the future.

The LCOE is the discounted lifetime cost of building and operating a generation asset, expressed as a cost per unit of electricity generated (£/MWh), says BEIS. It covers all relevant costs faced by the generator, including pre-development, capital, operating, fuel and financing costs. The main intention of the metric is to provide a convenient ‘rule-of-thumb’ comparison between different generating technologies.

The analysis of costs carried by BEIS incorporates recent data from the renewables industry, consultants and project developers, together with new information on capital costs and likely operating lifetimes of the different generation technologies. The most striking result is that BEIS has again slashed its estimates for the LCOE of wind and solar power, according to analysis of the BEIS data by the CarbonBrief website.

For example, in 2013, the government estimated that an offshore wind farm opening in 2025 would generate electricity for £140/MWh. By 2016, this had been revised down to £107/MWh. The latest estimate puts the cost at £57/MWh, a further 47% reduction, says CarbonBrief.

The new estimates include similarly dramatic reductions for onshore wind and solar, with levelised costs in 2025 now thought to be up to 50% lower than those expected by the 2013 government report.

The reasons for the renewable cost reductions are well documented, adds CarbonBrief. They include technological learning in the industry – with larger, more efficient manufacturing plants for solar and larger turbines for wind – but also operational experience, longer project lifetimes and cheaper finance.

Meanwhile, new research carried out by Aurora Energy for the National Infrastructure Commission (NIC) shows how sharp falls in the cost of renewable generation mean that Britain should aim for renewables to meet two-thirds of its electricity needs by 2030. The report also suggests that this can be delivered at the same overall cost as meeting only half of total demand by that date. The Commission has updated its recommended target for deployment of renewables from 50% to 65% by 2030.

The Commission’s report notes that government has made some positive commitments on renewables deployment recently, including setting a goal to deliver 40 GW of offshore wind power by 2030. The Commission welcomes these steps and recommends that a refreshed pipeline of contracts for difference (CfD) auctions should be set out to accelerate more offshore and onshore wind, and solar power projects.

Commenting on the report, trade association RenewableUK’s Head of Policy and Regulation Rebecca Williams said: ‘We welcome the NIC’s call for annual auctions for contracts to generate renewable power, but the most important step that government could take would be to lift the cap on the amount of new renewable energy capacity we can procure in each auction. This would allow us to maximise the benefits of cheap renewable power for consumers, cutting bills.’

• A new wind power record was set on Wednesday 26 August when wind was generating nearly 60% of Britain’s electricity as the UK was experiencing high winds from storm Francis. National Grid ESO confirmed that at 01.30 on that day, wind met 59.9% of the total power demand of 24 GW. The rest of the power mix was made up of gas (19%), nuclear (15%), biomass (3.1%), imports (2.5%) and hydro/others (0.7%).