What's the impact of renewables on the price of energy?

Posted in: Energy

Posted on: 30.10.2015

We’ve been hearing a lot about keeping bills low for families and businesses.

And almost as predictable as the leaves changing colour and the nights drawing in, the cost of renewable subsidies on energy bills is once again under scrutiny.

Our new report, published earlier this month, puts the bill payer at the centre of this debate.

We wanted to provide the full picture and not just half of it. Our analysis shows that renewables are actually cutting the wholesale price of electricity and lessening the impact of subsidies on bill payers.

The report looks at something called the Merit Order Effect (MOE). MOE describes how, at times when they are generating, the electricity from renewable sources will be cheaper than from other sources, such as fossil-fuel power stations.

Unlike gas or coal plants, once a wind or solar farm is built, the cost of generating the electricity it produces is pretty much zero because they don’t have fuel costs.

So what were the findings of the report?

 - Wind and solar generators reduced the wholesale cost of electricity by £1.55 billion in 2014.

- In net terms, the cost of supporting wind and solar generation in 2014 was £1.12 billion – 58% less than the cost reflected in the Levy Control Framework (LCF) – the mechanism designed to limit consumer spending on energy policies.

-The Merit Order Effect will continue with more renewable deployment. In fact, the current level of savings suggests that if renewable support was viewed in net terms, the projected future overspend of the Levy Control Framework may not be a reality. 

The benefits of supporting renewables


 The report has highlighted how important it is to look at renewable support in ‘net’ terms.

In other words, to take into account the benefits of renewables, and not just how much they cost. Subsidy schemes supporting renewables are paid for by consumers and do increase bills. But we mustn’t forget that renewables also decrease bills by reducing the wholesale cost of electricity.  When viewed like this, the cost of supporting wind and solar in 2014 was reduced by 58%.

Looking at renewable support in net terms may have a significant impact on the Levy Control Framework. Recent changes to renewable support have supposedly been driven by a projected future overspend of £1.5 billion under the LCF. However, our report suggests that the overspend may not even exist.

Experts from the University of Sheffield have backed the report and are about to publish the results of their own study on the savings onshore and offshore wind are contributing to wholesale electricity costs.

Our work highlights the valuable contribution renewable technologies play in our energy market.  

Not only are renewables decarbonising our electricity generation, they’re driving down the cost of wholesale electricity in the process.  

Be part of the movement towards a greener future. Switch to 100% renewable electricity today. 

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