DESNZ’s latest deception

I have written, at considerable length, about the costs of renewable energy, and in particular about Energy Generation Costs 2023, a publication of the Department for Energy Security and Net Zero (DESNZ).

This purports to show that it is (or will imminently be) considerably cheaper to get power from wind or solar than from a gas-fired power station:

I have shown that the assumptions behind the offshore wind cost are absurd. For example, DESNZ’s capital cost figure is half what recent offshore windfarms have cost. Their operating cost figure is about a quarter of the true level. Their forecast output is around 50% higher than recent offshore windfarms in the real world.

But what about the cost for gas-fired power? Most of the component values presented don’t look daft, with the exception of that carbon cost of £60/MWh. Where does it come from? The social cost of carbon – the damage done by greenhouse gases – would normally be put at less than £50/tonne, which would equate to about £10/MWh. Prices in the UK Emissions Trading scheme are higher, but only slightly.

I wrote to DESNZ to ask and was told:

For a CCGT plant commissioning in 2025 the 60 £/MWh carbon price is derived by using the projected carbon prices throughout the operational lifetime of the plant, which is estimated to be 25 years for a generic CCGT plant. For the 2023 report, by 2050 we assumed that carbon prices had reached the appraisal prices of 378 £/t as published (2020 prices). This is a projection and not a forecast, as mentioned below.

The “appraisal price” of £378/tonne – some seven times higher than the social cost of carbon – is described by DESNZ here. It is supposed to represent the carbon price that will deliver on the UK’s climate commitments. There is a paper here describing the rationale for switching from social costs (i.e. damage) to appraisal costs (i.e. what we’ve agreed to do).

But for the purposes of this story, we need to understand this: if we are going to deliver on our climate commitments, we have to stop using fossil fuels. The carbon price that will make this happen therefore necessarily has to make the cost of power from a gas turbine more expensive than power from a windfarm.

In other words, the case that gas-fired power is more expensive than wind, as presented by DESNZ, relies on assuming a carbon price that is large enough to make gas-fired power look more expensive than wind.

To describe this as “a deception” is probably far too polite.