I commented earlier this week regarding the repetition, yet again, of the claim that “in the UK, renewables are now a staggering nine times cheaper than gas”. The claim was made (this time) by Green Party MP Caroline Lucas, in an article in the Guardian. This is a claim that has been doing the rounds in one form or another since July, and has been oft-repeated since then. For instance in August this year Ed Miliband MP tweeted “New renewable power is now NINE TIMES cheaper than gas.” In doing so he re-tweeted Dr Simon Evans of CarbonBrief, when he said “UK gas power now costs a staggering NINE TIMES more than new renewables The average wholesale price for electricity over the past 7 days – set by gas power – was £446/MWh In July, the govt secured 11GW for an avg £48/MWh”.
And of course this canard can be traced back to Dr Evans and CarbonBrief. On 8th July 2022 a report by CarbonBrief appeared, with an analysis of comparative energy prices following the outcome of the latest Contracts for Difference (CfD) round. In its latest incarnation (it was updated on 24th August 2022) it bears the heading “Analysis: Record-low price for UK offshore wind is nine times cheaper than gas”. There can be little doubt that CarbonBrief is the source of the claim. First there is the report itself. Secondly there is the strange language – “wind is nine times cheaper than gas” – which features in the heading to the report and which is repeated by both Caroline Lucas MP and Ed Miliband MP. Perhaps it’s just me, but that language doesn’t strike me as normal usage. A claim that gas is nine times more expensive than wind, or that wind costs one-ninth the price of gas, is how it would normally be expressed. But “nine times cheaper”? I’m pretty confident that this is a cut and paste job. Regardless of that, however, the problem with the claim is bigger than my perplexity at what strikes me as an odd way of expressing things. The issue is that although it might, briefly and technically, have been true when the claim was made, it certainly isn’t true now, and never was in anything but a highly technical sense. And yet it’s the go-to phrase of those who would have us believe that gas is ridiculously expensive while wind power is now ridiculously cheap. Let’s look at the two key problems with that claim.
As I indicated above, the Carbon Brief report first appeared, in its original incarnation, on 8th July 2022. As the url for the original article hints at, the price of gas on that date wasn’t anything like as high as it would later (briefly) become. The url, by the way, is https://www.carbonbrief.org/analysis-record-low-price-for-uk-offshore-wind-is-four-times-cheaper-than-gas/. I think it’s reasonable to surmise that the original report claimed that gas was four times more expensive than offshore wind (or, as CarbonBrief, with its mangled use of English would put it, offshore wind was four times cheaper than gas). The report hit CarbonBrief’s website on 8th July 2022, so I’m assuming the finishing touches were put to it on 7th July 2022, before its appearance the following day. If one visits the Business section of the BBC website and follows it through to the section on Market Data, one can bring up a graphic showing the price of natural gas over various time frames between one day and five years. The one we need to look at for present purposes is the one year graph. It shows gas prices peaking on 7th July 2022 at 298.31p per therm, before dropping back to 193.68p per therm just eleven days later. It was that price of 298.31p that created the “four times” number. However, that wasn’t the end of the story, because gas prices then proceeded to rise rapidly, peaking at 702.95p per therm on 26th August 2022. The re-write of the CarbonBrief headline and main message (the “nine times” price story) you will recall was on 24th August 2022. That wasn’t quite the peak, but near enough for the good folks at CarbonBrief to make the most of their claim. As they said when up-dating it – “Update 24/08/2022: The article was updated with the latest power prices, which have risen significantly.”
All well and good so far as concerns the fact that gas prices seven weeks ago justified a bit of hyperbole. Unfortunately for them, the price of natural gas as I look at the BBC price chart on the evening of 11th October 2022, is just 280p per therm, and the trend seems to be steadily downwards. In other words, the price now is 18.31p per therm lower than when CarbonBrief first got excited and produced their “four times” claim. That’s the problem with updates about prices – if you’re going to tell the whole story, you have to keep updating, otherwise people like Caroline Lucas MP will write articles recycling hopelessly out-of-date and inaccurate information.
The second problem is an equally fundamental one. It relies on the “strike price” achieved by the fourth auction round of the CfD programme. As CarbonBrief puts it:
Under the contracts, projects agree to generate electricity for a “strike price” that is fixed in real terms, meaning it is index-linked to inflation. The results are usually reported in 2012 prices.
Once projects have been built, the money they earn from generating electricity is compared with a market reference price. If this is lower than the strike price, the project receives a subsidy to make up the difference. When prices are higher, the project must pay back the extra money.
This summer’s strike price was “an average price of £41/MWh in 2012 prices (£48/MWh in today’s money).”
When the article was updated in August, the price of gas-generated electricity was £446 per MwH. Which is a little more than nine times £48 per MwH. To that extent CarbonBrief can’t be accused of exaggeration.
However, none of the renewable energy projects bid for in the latest CfD round are on-stream now. Of course they’re not – they’ll take some time (in some cases years) to build. As CarbonBrief tells us:
Figures are all in £(2021) per megawatt hour (MWh) of electricity, plotted against the year of delivery, for example the lowest figure is £44/MWh for offshore wind CfD projects due to start operating in 2026/27.
Comparing the price of energy generated by gas now (or, rather, in August, at a time of an unusually high but temporary price peak) against the hypothetical price of renewable energy to be generated in four of five years’ time, is not comparing apples with apples. Instead it is comparing apples with pears. And why do I suggest that the future price of renewable energy under the latest round of CfDs is hypothetical? Because as it turns out Contracts for Difference aren’t really contracts at all, not in any meaningful sense, and certainly not in the sense that ordinary people would expect.
To illustrate the problem, here’s an example of how CfDs don’t work for consumers, as reported by Singletrack World:
The Times has reported that the Hornsea 2 windfarm, which had a contract to sell power at £73 per megawatt hour, will instead sell in the open market, where prices have averaged £200 per megawatt hour this year, and reached £508 last week.
Britain’s struggling energy consumers are likely to end up paying a billion pounds extra for Hornsea’s electricity over the next 12 months.
The new Prime Minister should urgently look into the legal options for cancelling or revoking these poorly written contracts, the spirit of which are being grotesquely abused to the huge disadvantage to British consumers.
By 2026, there could be more than 16GW of offshore windfarms exploiting the perverse loophole (Moray East, Hornsea 2, Triton Knoll, InchCape, Seagreen Phase 1, Neart na Gaoithe, Dogger Bank A, Dogger Bank B, Dogger Bank C, Sofia, Hornsea 3, Norfolk Boreas, Moray West and East Anglia Three.)
Assuming they deliver 50% of capacity each year, and the differential between market price and CfD price remains at £130/MWh, the cost to consumers will be £9billion per year, at a cost of £337 per household.
To the best of my knowledge, the latest round of Contracts for Difference allow the renewables companies to ignore the strike price and instead to sell at market prices. That being the case, the claim of new renewable energy being generated at £44 per MwH (even by 2026/7) simply isn’t credible. Even if, by some miracle, it comes true, it doesn’t take into account the additional costs imposed on the National Grid in coping with unreliable energy generation by renewables – cabling, back-up, etc. Furthermore, gas generated energy is artificially expensive because it has to pay carbon levies that don’t apply to renewables. And as John Constable and Gordon Hughes have shown:
Audited accounts show that far from getting cheaper, wind power is actually becoming more expensive.
It’s worrying that people like Ed Miliband MP and Caroline Lucas MP, whose pronouncements are given so much credence by the mainstream media, either don’t understand how energy pricing works, or aren’t interested in ensuring that their absurd claims are accurate at the time when they are made. The CarbonBrief claim was at best only ever hypothetically true and only for a few days at most. Since then gas prices have fallen substantially and with luck will continue to fall, and there’s every chance (unless someone tears up some badly written supply contracts) that renewable energy going forward won’t be anywhere near as cheap as claimed by CarbonBrief based on the latest (unenforceable) CfD round.
As Mark Twain said, a lie can travel half way around the world while the truth is putting on its shoes.