The UK government has been using a carbon price over three times higher than its present-day price, to shape projections for energy policy over the next two years, leading experts to question the strategy.
This price has fallen sharply since July, after the government announced a raft of new contracts for carbon based energy extraction, alongside easing some of the net zero targets for so-called “polluters.”
Pricing of carbon has led to the phasing out of coal in the standard UK energy mix, as its price is raised in relation to renewable energy.
The inflated price, used in the latest cost estimate for power generation, has led to questions from both sides of the carbon debate, with what appears to be a mixed message coming from the Cabinet.
According to the Department of Energy Security and Net Zero, from 2025 wind farms are estimated to cost an average of £44 per megawatt hour (MWh) over the lifetime of the project, with “large-scale” solar costing £41 per MWh.
In contrast, using modelling based on the current UK ETS price, gas-fired generation projects commissioned in the same year would reach an estimated cost of £74 per MWh. According to the government’s inflated carbon cost price, that would be a far larger cost of £114 per MWh.
Speaking to The Epoch Times, economist Julian Jessop said: “This is another example of how the government seems determined to distort the playing field in favour of renewables. The cost of fossil fuels should include a carbon premium, but this needs to be set at a sensible level. It is also important to take proper account of the downsides of solar and wind, including intermittent supply and extra storage costs.”
In the paper, the government states that: “For fossil fuel plants, the total carbon price up until 2030/31 includes illustrative estimates for the UK ETS price. Carbon prices are significantly higher than assumed in the previous 2020 report, which has resulted in an increase in LCOE [levelised cost of electricity] for fossil fuel plants”
Speaking to the Financial Times in reaction to analysis of the report, a spokesperson for the Department of Energy Security and Net Zero said the numbers used were “illustrative assumptions and not government projections.” They criticised the numbers used by analysts speaking to the Financial Times as “based on crude and simplified assumptions,” adding that the department’s own figures were “illustrative assumptions and not government projections.”
Industry body Energy UK called the report “pennywise and pound-foolish,” arguing that the analysis may lead to an increase in electricity prices long term, should it lead to backtracking on investments made in renewables.
The previous raft of government contracts to renewables companies created a drop in UK carbon prices. That price now equates to a 45 percent discount, comparative to the EU emissions trading scheme.
The government has come under fire from advocates for net zero carbon emissions targets after announcing new contracts for “polluters.”
As he unveiled plans to issue hundreds of new oil and gas licences last month, Prime Minister Rishi Sunak said, “Now, more than ever, it’s vital that we bolster our energy security and capitalise on that independence to deliver more affordable, clean energy to British homes and businesses.”
