The UK government should improve investment conditions in low-cost renewable energy technologies such as onshore wind to support competitive industrial electricity prices, according to a new report from the Aldersgate Group.
Industrial energy prices in the UK are higher than in countries such as France and Germany. The report also recommende co-ordinating investment in power generation and network infrastructure more efficiently and and ensures that the UK leaves the EU in a way that supports increased interconnection with European power grids and cross-border electricity trading.
The report’s authors, Michael Grubb and Paul Drummond from UCL, made the following policy recommendations:
- Remove barriers to investment in mature renewable energy projects, given that technologies like onshore wind no longer need subsidy provided the political risks are minimised. This should be coupled with a resumption of the carbon price escalator, taking effect as coal retires from the UK system in the early 2020s, so that investors have confidence that they will save on fuel and rising carbon costs (with an appropriate compensation mechanism for those electro-intensive businesses in need of support);
- Encourage greater co-ordination between investments in network and generation infrastructure to avoid congestion and inefficient network development. This should be done in conjunction with a review considering how to support electro-intensive companies with network costs;
- Ensure that the UK leaves the EU in a way that retains unrestricted access to the internal energy market and supports continued investment in interconnection with continental grids, which will be essential to maintain system security affordably as the UK electricity system decarbonises. Research suggests that for every 1 GW of additional interconnection, UK wholesale electricity prices could reduce by 1% to 2% ;
- Facilitate cross-border industrial electricity purchases;
- Use the five-year review of the Electricity Market Reform and Capacity Market to help UK industrial electricity consumers benefit from providing system-related services to the electricity system, such as demand-shifting and frequency support;
- Establishing a long-term market of zero carbon and tradeable electricity contracts to facilitate industry access to low cost and unsubsidised sources of renewable electricity such as onshore wind. Industrial consumers holding these contracts would avoid paying the carbon price.
Michael Grubb said: “With costs tumbling, the clean energy revolution presents an opportunity for UK industry. But harnessing the benefits will require removing the obstacles to mature renewables including onshore wind, and helping business consumers profit from flexibility. It also means ensuring that both fossil fuels and renewables face their environmental and system costs along with developing smarter energy markets, through which industry can procure its energy efficiently with the most cost-effective renewables.”
Click here to download the full report: UK industrial electricity prices: competitiveness in a low-carbon world.