What is the true cost of the low carbon agenda?

While Ofgem recently warned the big six energy companies they weren’t passing on lower fuel costs, consumer champion Which? has questioned the cost effectiveness of the government’s low carbon agenda.

Carbon Co2

Energy secretary Ed Davey has proposed new subsidy schemes to encourage less cost effective methods of energy production such as wind farms that might not realistically deliver on value. Which? is concerned that the government hasn’t got the balance right and that too much leverage is being given to expensive projects over cheaper ones, for example off shore farms as opposed to those on land.

The price of energy is one of the major and toxic concerns for consumers and the problem is that some green alternatives may, in the long run, be adding costs that could see us paying more for our bills. The Contracts for Difference (CfD) subsidy reforms, argue Which?, don’t allow for full competition and therefore there is the risk of investments being made that do not profit the consumer.

If more expensive energy generation projects are given more priority than cheaper alternatives and there is no competition, developers will be shielded from cost pressures. And it’s not just a simple case of cost. There is huge concern and pressure from Conservative backbenchers and local communities over land based wind farms, for instance, which has led to more development of higher cost projects such as offshore wind farms.

While it is true that the offshore wind farm initiative provides a large number of jobs and feeds a great deal of money back into the UK economy, Which? complains that the “cost information is hard to come by” for such projects and “allocating subsidy competitively is the best way of revealing this information”.

The problem is that long term sustainable energy concerns may be undervalued under the current system, and that there needs to be more competition between different kinds of technologies. The Department for Energy and Climate change however say that CfDs are the most cost effective way to develop the low carbon agenda and will protect consumers in the long run from volatile wholesale prices and ensure we are not held to ransom by the major energy suppliers.

Offshore wind farms are still considered one of the most expensive green technologies (50% more expensive than nuclear) while onshore is much cheaper to develop. The expectation is that the cost of electricity produced by offshore wind farms will come down, as they did for onshore, although it is estimated that this could take as much as 18 years.

A whole host of problems come into effect with building offshore wind farms starting with the difficulty in construction, the restriction on locations, the need to take into account fishing and boat navigation and marine conservation concerns. All these constraints have an effect on the time it and money it takes to construct an offshore wind farm and the amount of time it takes to pay back on the investment.

Which? says it is fully behind the green agenda and the development of better low carbon sources of energy but that we need to be concerned if we are only encouraging the building of higher cost projects that will, in the end, have a detrimental effect on the consumer.