The Govt’s Fake Claims About Smart Energy Savings

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By Paul Homewood

The article in The Times, Revolution heralds change in balance of power, that I mentioned today, contains this statement:

Last year the National Infrastructure Commission identified flexible demand as one of three innovations, alongside interconnectors and batteries, that could help to reduce the costs of Britain’s drive for green energy by up to £8 billion a year by 2030.

This claim has been quoted on many occasions in the last year, and dates back to this government press release from the National Infrastructure Commission on Smart Power:

The National Infrastructure Commission was asked to consider how the UK can better balance supply and demand, aiming towards an electricity market where prices are reflective of costs to the overall system.

The Commission’s central finding is that smart power – principally built around three innovations, interconnection, storage, and demand flexibility – could save consumers up to £8 billion a year by 2030, help the UK meet its 2050 carbon targets, and secure the UK’s energy supply for generations.

The report ‘Smart power’ makes practical recommendations to this end – not new subsidies or substantial public spending – but towards the creation of a level playing field and a better managed network.

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This statement by the NIC was based on Lord Adonis’ report “Smart Power”, which in turn relied on a 2015 analysis by Imperial College & NERA, Value of Flexibility in a Decarbonised Grid, commissioned by the CCC.

CCC_Externalities_report_Imperial_Final_21Oct20151

Now you would be forgiven for thinking that we are going get £8bn a year in our pockets to spend on foreign holidays, wine and women!

But this is climate policy we are talking about, and for years the Government, Committee on Climate Change, National Grid and OFGEM have been conspiring to cover up the real cost of the Climate Change Act.

Far from saving consumers money, the most that all of this smart power (if it ever works) will do is make the frightening cost of decarbonisation slightly less than it might have been otherwise.

First, let’s look at the “up to £8bn a year” claim.

As we will see when we look at the detail, the cost analysis was calculated for two CO2 emissions scenarios, 50g/KWh and 100g/KWh. This came up with savings of £3bn to £3.8bn for 100g, and £7.1bn to £8.1bn for the 50g option.

So we can see straightaway that the £8bn claim is at the extreme end of the scale. But it gets worse.

As we all know, even the CCC admit that there will be massive costs involved in decarbonising electricity. These predominantly involve subsidies for low carbon energy and the cost of providing standby capacity. Analysis shows the annual cost by 2030, based on the CCC’s own modelling, will exceed £15bn.

But the CCC figures are all based around the 100g/KWh scenario. To achieve the 50g/KWh target, we would need much more low carbon capacity, and therefore the subsidies would also be much greater.

So essentially we have the choice of being burnt or scalded. We can either pay out £15bn in subsidies, and get back £3bn from smart power. Or we can pay out much more in subsidies, in order to get back £8bn.

But the dishonesty does not stop there. Oh, no!

To understand this, let’s look at Imperial College’s Foreword:

And the Executive Summary elaborates:

In other words, the report accepts that these system integration costs of low carbon generation will be huge, and that they will escalate disproportionately as renewable generation increases.

But more importantly, the costs don’t only involve the commonly discussed ones of standby capacity.

They also include:

System balancing and
Reinforcement of transmission and distribution grids

Neither of these are included in the CCC’s budgeted costs in their Fifth Carbon Budget, which takes us through to 2030. When the cost of these items are included, the whole policy becomes even more unaffordable.

Put simply, the Government is claiming savings against additional costs it has not declared.

Figure E.2 gives some idea of where these supposed savings come from:

Much of the supposed savings on the 100g scenario come from the need for less CCS, which we don’t need anyway, and and what they term D CAPEX. This latter actually refers to “distribution investment, which is driven by reinforcements triggered by increased reverse power flows in the UK distribution grid”.

It hardly needs to be said that none of these costs would arise if the Government was not bound by the Climate Change Act.

And if that was not bad enough, page 9 of the Imperial report tells us that the cost of smart meters and DSR are not even included in their analysis of “savings”.

The excuse is that smart meters are already being rolled out (even though there is no possible financial justification), and the cost of introducing DSR schemes is unknown!