Renewable energy cheaper than gas

Investing in low-carbon energy sources over the next decade will result in lower electricity prices than whole-scale deployment of unabated gas, predicts the committee on climate change (CCC)

In its latest analysis of energy prices, the CCC concludes that by 2050 wholesale electricity prices would be more than three times higher with a gas-based energy system than if the UK had largely decarbonised its electricity supply.

While the report concedes that in 2020 energy bills will rise as a result of low-carbon policies, it argues that the increases will be lower than those seen in recent years from hikes in gas prices.

According to the CCC, commercial and industrial energy bills in 2020 will be 20–25% higher than today to help pay for renewables and carbon reductions. This compares with the 110-140% rise in energy costs between 2004 and 2011, mainly due to changes in wholesale gas prices.

“Adopting a strategy which invests in low-carbon technologies ... provides a portfolio of energy sources as insurance against the risk of high gas prices,” commented Lord Deben, chair of the CCC. “It lessens the impact on household bills in the long term and enhances the competitiveness of UK industry.”

Companies can offset the costs of increased energy bills by 8–10% by becoming more energy efficient, says the CCC, but stronger incentives are needed.

Meanwhile, the environment audit committee (EAC) warned the government that it risked rewarding energy-intensive firms with its proposed scheme to compensate companies for the indirect costs of climate change policy on energy bills.

MPs concluded it was “nonsensical” to compensate businesses for the impact of the EU emissions trading system (ETS), for example, when they were benefiting from selling excess allowances.

“The government shouldn’t throw good money after bad by giving compensation to those already making windfall profits from the ETS, when allowances were allocated free of charge,” said Joan Walley, chair of the EAC.

Across the EU, allowances worth €4.1 billion have been accrued by industry.