EU Renewables Forcing: At What Cost and What Loss of Reliability?

The European Union has set a target of doubling the share of renewable energy sources (RES) to 20 percent by 2020. This is a very aggressive target given the growing grass-roots opposition of landscape-loving citizens against windpower and the large country-by-country deficits compared to the target.

The political consensus behind this renewables target is premised on the notions that:

1. The transition will be done at little or no cost and will result in economic recovery and job creation, and
2. The target will mitigate environmental disaster, most notably the ill effects of anthropogenic climate change.

Unfortunately, the target has been adopted before realizing what it would mean for the EU’s economy. Now, more detailed information has emerged. As more information becomes available–and the costs become more apparent–expect a public backlash. One can even predict that ‘green fatigue’ will increasingly emerge in the EU.

Cost Information

The latest piece of information that was made available is the British Government’s Low Carbon Transition Plan, and particularly its statistical annex.

Under the EU policy, Britain will have to raise the share of renewables up to 15% of its final energy demand, from just 1.6% in 2006. While London has been one of the most vocal governments in requiring stringent targets from the European Union, paradoxically it is the single member state with the largest gap to fill.

The following table shows the estimated costs for promoting RES (which exclude the costs to limit carbon emissions by relying on the EU Emissions Trading Scheme as well as a huge array of other costs attached to meeting different environmental targets). It should be noted that these costs refer to the UK’s own targets, which are more stringent than the EU’s own ones.

Net Present Renewable Cost (2009 £ million)

Large scale renewable electricity: 31,400

Small scale renewable electricity: 8,890

Renewable heat: 11,700

Extension of biofuels to 10% (by energy): 3,100

Total: 55,090

Source: The UK Low Carbon Transition Plan. Analytical Annex, p.55.

 According to the British government – which can hardly be suspected of overestimating the costs – promoting RES to the point that would allow to meet its own targets would cost over 55 billion pounds, or $91 billion dollars at current exchange rates. This is as much as 13% as the $700 billion package that the Bush Administration launched to save the U.S. economy from the subprime crisis. And all this in a country that has a GDP around 15% of that of America. Moreover, such a huge cost is not intended to save the economy; it is intended to cover a relatively small share of energy demand!

Consistently, another document from the UK government – the UK Renewable Energy Strategy paper (download pdf)– estimates the cost of reaching the target of 15% RES by 2020 at around 4 billion pounds, or $6.6 billion, under the assumption of oil being traded as high as the equivalent of today’s $80 per barrel. If oil becomes more expensive, the cost to the British economy will be lower, and vice-versa (p.181). According to the same documents, boosting RES will result in a cumulative reduction of British carbon emissions by 755 MtCO2. This is about one-third of the emission reduction (Low Carbon Transition Plan, p. 38) set by the U.K., (34% below 1990 levels, or 18% below 2008 levels in 2018–2022).

This means that the British consumers will pay as much as $120 per ton of CO2, a price which is well above both the value at which carbon allowances are traded in the European market , and the estimated social cost of carbon.

 To make the situation worse, most estimates do not include the hidden costs of renewables, which are massive in the power sector in particular. For instance, offshore wind power (as well as wind turbines installed on the top of mountains) require massive hookup investments to connect with the national grid.

Then comes reliability. Wind and solar power are by definition intermittent and unpredictable: since electricity demand is, on the contrary, relatively stable and all but intermittent, conventional power plants should be kept in standby in order to cover moment-by-moment supply deficits.

On average, one might expect that, at any given moment, some RES will be working and some others will not, which means that the “backup power” will be working at a less than optimal load. Unless all the backup is covered by nuclear power plants (which are at least as much taboo as coal to the environmentalists) these plants will produce incremental emissions. Since they will not be working at their optimum, the amount of emissions per unit of electricity (say, per kWh) will be higher than the optimum level. Such extra emissions can be hardly accounted for in any cost estimate, but nevertheless they do exist and matter: that is, the alleged environmental benefit is even smaller than expected, or the average abatement cost for carbon emissions is even higher than estimated.

Conclusion

One does not need to be a climate “skeptic” to understand that the EU’s renewable strategy is too costly–and will have virtually no effect on climate under anyone’s math. The cost of reducing emissions by subsidizing RES, even under the most optimistic assumptions, is much higher than the expected environmental benefit, even in the most pessimistic scenario. And that is certified even by official documents that, alas, ultimately play on numbers so as to let a different picture emerge.

Carlo Stagnaro is Research and Studies Director at Istituto Bruno Leoni (www.brunoleoni.it).