The Treasury and the cost of solar in the UK

Hitting the EU 2020 CO2 targets will cost UK plc.

All low carbon electricity generation technologies cost more than conventional gas and coal-fired power stations (excluding the external costs of climate change). The Levy Control Framework (LCF) budget seeks to control this cost. The LCF is established at £7.6billion a year in 2020/21. The LCF represents the maximum amount of public spending allowable through consumer bills to support government’s electricity market decarbonisation objectives.

The LCF covers projects under the Rewnewable Obligation (RO), feed-in tariff (FiT) and contracts for difference (CfD) through to 2020. The European Commission State Aid guidelines require the UK to allocate the budget by auctions from the start of the regime for more established technologies.

The government will split the budget between established and less established technologies. Auctions for those more established technologies (presumably solar and offshore wind) will be held twice per year and the projects bidding the cheapest strike price will be awarded contracts. These are the projects which enable the UK to hit its 2020 targets at the lowest possible cost per tonne of CO2 saved.

Less established technologies (for example wave and tidal) will be awarded minimum allocations, and a proportion of the LCF budget will be set aside for them, exempt from auctioning. Even if they are more expensive ways of hitting the EU’s 2020 targets, they may provide other strategic benefits to the UK.

Cost per tonne CO2 saved Graph

The graph shows the cost per tonne of CO2 saved in comparison to CCTT (446 kg/MWh CO2) for various technologies as projects are commissioned over the coming decade. It shows FiT based projects which have their subsidy automatically degressed at 3.5% per quarter. ROC and CfD projects are shown at the subsidies set by DECC, as well as the lower rate called for by the Solar Trade Association. 

It is very clear that solar farms (whether supported by ROCs or CFD) and industrial roofs (150kW-250kW and over 250kW) are already cheaper in terms of CO2 saved than offshore wind.

Established policy in HM Treasury and DECC is based on outdated thinking and needs to be revisited to reduce the cost to consumers of hitting the 2020 targets.

Can solar deliver the TWh?

It has been argued that offshore wind is the only way to generate sufficient TWh for the UK. The EMR delivery plan reproduced below suggests that only 2.4-4GW of large scale solar will be deployed.

EMR Delivery Plan

The table below is extracted from DECC’s 2011 Renewable Energy Road Map. It said offshore wind could deliver 33-58TWh pa, with no meaningful assumption for solar.

Renewable energy strategy

However, the 2009 Element Energy Report suggested the technical resource for solar is much greater:

22 TWhpa for domestic roofs  

30 TWhpa for commercial & industrial roofs

And TGC Renewables' analysis of the land available for solar farms also suggests a higher number, (subject to DNO grid reinforcement, and responsible site selection to overcome visual impact concerns). Solar is the most efficient energy crop there is. Even in Britain, with 1MWp DC of solar requiring two hectares of land, generating 500MWh pa/Ha, (ie it’s up to 25 times better than the next best crop). If you put solar farms just on the land currently planted with biofuels (around 1.1m acres) then you could generate 190TWh pa and displace no food production. Farmers Weekly suggests two-thirds of the biofuel land will be cut by new EU biofuels regulations.

190 TWh from solar farms

DECC's own 2020 pathway calculator puts rooftop output potential from south-facing domestic roofs alone at 140TWh of power per annum, and an equivalent number from solar farms.

There is clearly some work to do to reconcile these numbers, but even if you’re massively conservative, solar (balanced with gas) can still do the heavy lifting that offshore wind can do (balanced with gas), and at a cheaper cost. Arguably, the roll out of solar is faster and also less risky than offshore wind, so more likely to deliver in time.

Can the grid cope?

There are unfounded concerns that the intermittency of solar is somehow more challenging to deal with than the intermittency of wind. Solar power is measurably more predictable and easier to handle as demonstrated by the reduced balancing costs for solar over wind. National Grid has advised David MacKay (Chief Scientific Advisor to DECC) that to attach 22GW of solar capacity to today’s grid there would be some technical challenges. But Germany and Italy have shown what solution oriented engineers can achieve with a smart grid.

  • On load tap changers which control the voltages according to demand and generation
  • Providing national grid with remote control of PV systems to constrain generation within 2s when required
  • Greater use of interconnectors to trade with neighbouring countries in different time zones, and different usage habits
  • Requiring inverters which play a more active role in frequency, voltage and power factor management
  • Use of storage to turn solar into base load. The economics of this would work without subsidy with an installed cost of $1/W for the solar plant and installed costs of storage of $125/kWh, aligned to pump storage
  • Use of battery or compressed air storage to capture peak midday solar generation and release it into the evening peak demand
  • Industrial, Commercial and Domestic Demand side response which rewards consumers of electricity for moving their variable demand to times of day where electricity is cheapest