James Smith, Chair of the Carbon Trust, considers the options for investment in low carbon electricity
The euphoric phase on low carbon energy is over. There is no solution that is clean and cheap and always on.
Yet we must make major investments in energy. Old coal and nuclear plants will have to close. And climate change has to be tackled or it will result in costly economic damage.
So let's consider the options for investment in low carbon electricity. Over the coming twenty years there are only three options that are relevant - wind, carbon capture and storage (CCS) and nuclear. Each has significant imperfections yet each works. And there is no muddle through option.
Each technology has deeply entrenched opponents. But if all the opponents have their way, we are left with no solution. Or at a minimum there will be a long period of argument, muddle and delay, followed by a rushed, expensive and late period of investment. Isn't that how it is already feeling?
Let's consider the three energy technology options in turn. Each is a different kind of curate's egg.
The great thing about wind is it's free. The bad thing about wind is we can't control its availability like we can when we pay for something. Deeply cold anticyclones in winter are widespread, windless and can last for days. So if we build lots of wind based power, we have to build lots of gas fired backup which will bring some extra cost. This is starkly evident in DECC'S recently published gas strategy. The right balance must be struck. Energy storage and demand management will help but will not be panaceas.
The further offshore we go the bigger the wind farms can be. That's good but it means more costly foundations and cables. The Carbon Trust is working with industry on some nice innovations to bring these costs down.
It would be a big help if there was more acceptance of onshore wind. It is fundamentally cheaper than offshore wind.
CCS has few friends and no natural owner. CCS is a nuisance on a gas fired power station. It creates complexity and reduces flexibility. It adds about 50% to the all in unit cost of gas based electricity. CCS perpetuates fossil fuel use and leaves us open to long run gas price fluctuations.
Critics say CCS is not commercial. But, despite the complications, if CCS, once demonstrated at scale, were to receive the current subsidy for offshore wind, DECC, I would wager, would have a queue of CCS investors at its door.
Globally, because coal and gas are relatively cheap and will be used, if we don't have CCS, we can't stop damage to the climate.
Nuclear can deliver enormous quantities of low carbon power. It can't ramp up and down as demand fluctuates through day and night. But nuclear offers a secure base load.
On paper, nuclear seems to offer the cheapest low carbon carbon electricity. But new plants being built in Finland and France are taking far longer to build and costing far more than budgeted. It looks too that the cost estimates for new nuclear plants in the UK are soaring.
With its enormous capital cost and the risk of project overruns it is hard to find willing investors for nuclear. We worry about lack of competition but EDF deserve credit for hanging in there.
So where does this leave us? There are no emotional highs with any of these technologies. They are hard work and more costly than current technologies.
But, imperfect though they are, these low carbon technologies work. And, though more costly, the cost of climate damage looks likely to be higher. Also, it is clear that at least any two of these technologies will have to be deployed if our energy and carbon reduction targets are to be met. Looking at it another way, diversification makes sense and the weaknesses of each option tend to be compensated by the strengths of another. In short, it is best if we have all three.
But of course we can't write blank cheques on any of these technologies. The focus has fallen on nuclear, particularly with Centrica pulling out of the nuclear joint venture with EDF.
There is a decent case that the consumer, us, takes some of the risk to get the first few nuclear plants going. Let's hope that DECC has enough tools in its negotiating kitbag. They need to get the balance right in creating incentives for EDF to deliver, to shoulder a realistic level of risk but not to earn super profits. Both DECC and EDF know that paying a high price for the first few nuclear plants can only make sense if it represents a credible pathway to lower costs in future.
As consumers we should have two serious worries if nuclear prices itself out of the energy market. Firstly the benefits to innovation and cost control that come from inter technology competition would be much diminished. Secondly a key source of diversification of risk to our energy system would be lost. The outcome could be a more costly and risky energy system. Like the other technologies, nuclear has to prove itself in cost terms. But we should not be thinking of giving up now.