Prof Grubb’s Misleading Letter To The Times

By Paul Homewood

h/t Coeur de Lion

This letter appeared in The Times the other day.

It sis stunning just how grossly inaccurate and misleading it is:

The MPs calling to reduce electricity bills by removing VAT are looking in the wrong place. Instead we should ask why electricity is so much more expensive than the cheapest and cleanest ways of producing it.
Consumers are paying three to four times the cost of generating electricity from new wind and solar. Last year these renewables generated more than a quarter of our electricity, and nuclear energy and imports another quarter, the cost of transmission and balancing the system is only a modest add-on. Yet our electricity market design ensures that gas sets the price for all consumers, which is what has mainly driven the recent price surge.
We need to redesign the system rules to allow direct consumer access to cheaper, low-carbon electricity and to accelerate expansion of wind energy which, onshore, is the cheapest of all.

Michael Grubb
Professor of Energy and Climate Change UCL

Let’s start with a few basic facts:

At the end of last year, forward wholesale power prices were around £110/MWh. Day ahead were much higher, about £190/MWh. Both were around £50/MWh a year ago.

With retail prices set at 19p/KWh, it is clear that wholesale prices are the main driver of recent price increases.

Now for Grubb’s assertion that:

Instead we should ask why electricity is so much more expensive than the cheapest and cleanest ways of producing it.
Consumers are paying three to four times the cost of generating electricity from new wind and solar. Last year these renewables generated more than a quarter of our electricity

He talks about “new” wind and solar, but the wind farms he refers are not even up and running yet. Most of them, such as Dogger and Hornsea Project 2 won’t commission for at least two to three years.

The “quarter” of our electricity generated by renewables, which he refers to, are in fact extremely expensive.

The offshore farms currently covered by CfDs and operational have guaranteed strike prices between £88.59 and £176.57/MWh. The weighted average is £159/MWh, which is well above the market price. This huge subsidy is adding to electricity bills.

Most of the UK’s renewable generation, however, is subsidised by Renewable Obligation Certificates (ROCs), which account for a quarter of UK generation. Subsidies to these are running at more than £6bn a year, equivalent to £240 per household.

Wind farms receive the bulk of this subsidy, about £3.6bn. This is of course on top of the revenue they receive for electricity sold. A typical offshore wind farm for example, receives a subsidy of about £95/MWh, effectively doubling the income from sales.

Whether subsidised by CfDs or ROCs, wind and solar farms are paid much more than the market price.

This is the reason why electricity bills are sky high, not the system rules. Indeed, I am sure consumers would be delighted to have their bills based on the price of gas!