Steve Loftus is a businessman and utility industry analyst.
Last year, the House of Commons Library published a document, titled “Why is cheap renewable electricity is so expensive?”, intended to brief MPs on the basics of renewable energy pricing.
On the surface, it might seem like a straightforward educational piece, but in reality, it’s a collection of misleading information that’s been widely circulated across the renewable energy sector. Allow me to explain why this document doesn’t hold water – and how it’s been used to perpetuate misconceptions about renewable energy.
The document makes several bold claims: that gas sets the price for renewables, that renewables are the cheapest option in the merit order, and that renewable prices are falling.
These assertions are not just oversimplifications; they’re fundamentally flawed.
Let’s delve into each point to uncover the truth. First, the suggestion that gas sets the price for renewables in the energy market.
The idea is based on the concept of the “marginal generator” in the spot market pricing system. In theory, the cheapest sources of energy are used first, and the last, most expensive generator sets the price for everyone; typically, this ‘marginal generator’ is a gas-fired power plant.
Renewable energy advocates argue that by adding more wind and solar power to the grid, we can push gas out of the merit order, thereby lowering prices.
This, however, overlooks a critical contradiction. The document perpetuates the misleading claim that “renewables are the cheapest form of generation on the wholesale market” – but this statement conveniently ignores the substantial subsidies and financial support that renewables receive outside the wholesale market. These are funded by energy consumers but are not reflected in the wholesale price.
The House of Commons document briefly mentions this inconsistency in a section about profits but fails to address the fundamental issue.
The reality is that the prices renewables bid into the spot market are arbitrary. They can bid any price they choose knowing they receive all, or most, of their renumeration outside the wholesale market, and have settled on what’s known as “capture prices.”
‘Capture price’ represents the cost of raw materials (such as the price of bread dough to a baker) without accounting for any of the expenses of machinery, labour, storage, financing, and other operational costs required to produce electricity.
This practice undermines the very purpose of the merit order system, which is designed to utilize the cheapest forms of energy generation first. Instead, we’re seeing the most expensive forms of energy – subsidized renewables – gaming the system to be used ahead of cheaper, more reliable sources like gas and nuclear power.
Such manipulation results in higher energy bills for consumers, all under the guise of promoting green energy.
It’s important to note that this isn’t a new development or an unintended consequence. The merit order system has been in place since the early 1990s and was designed around generators operating under similar economic models.
Traditional energy sources like coal, gas, and nuclear power all have transparent operational costs and bid into the market accordingly. Had renewables been required to compete on a level playing field without subsidies and preferential treatment, they would likely have been deemed too expensive and unreliable to be viable options.
By omitting this critical information, the document and those who cite it present a skewed picture of the true cost of renewable energy. They are fully aware of this discrepancy, making the claim nothing short of a deliberate falsehood.
The document goes on to assert that renewable energy prices are falling, using a graph from the International Renewable Energy Agency (IRENA) based on 2021 data. However, this data reflects global trends, heavily influenced by countries like China, where production costs are significantly lower due to cheaper costs of energy, labour, and materials.
When looking at UK-specific data from 2023, the picture changes dramatically: renewable energy prices were increasing.
At the time the document was published, energy generators were already withdrawing from contracts because of rising costs, and the latest round of Contracts for Difference (AR5) attracted no bids for offshore wind projects. Using outdated and international data in a document intended for British MPs is not just misleading; it’s irresponsible.
Earlier this year, I took the initiative to write to the House of Commons Library, detailing these issues and highlighting the inaccuracies in their document. Unfortunately, their only response was to adjust the title slightly, adding the phrase “on the wholesale market” to the claim about renewables being the cheapest form of generation.
This minor change doesn’t address the underlying problems, and allows the misinformation to continue spreading unchecked.
This document is frequently referenced by MPs and is used to inform policy decisions that have far-reaching implications for our energy sector and economy. It’s packed with intentional disinformation that skews the debate around renewable energy. By presenting a one-sided and inaccurate portrayal of renewable energy pricing, it hinders our ability to have an honest conversation about the UK’s energy future.
It’s time for this document to be removed from the House of Commons Library. I urge you to reach out to your MP and make them aware of these issues. An informed electorate and honest discourse are essential for effective governance. We deserve transparency and accuracy, especially on matters as crucial as our national energy policy.
Let’s hold our institutions accountable and ensure that policy decisions are based on facts, not fiction.
Steve Loftus is a businessman and utility industry analyst.
Last year, the House of Commons Library published a document, titled “Why is cheap renewable electricity is so expensive?”, intended to brief MPs on the basics of renewable energy pricing.
On the surface, it might seem like a straightforward educational piece, but in reality, it’s a collection of misleading information that’s been widely circulated across the renewable energy sector. Allow me to explain why this document doesn’t hold water – and how it’s been used to perpetuate misconceptions about renewable energy.
The document makes several bold claims: that gas sets the price for renewables, that renewables are the cheapest option in the merit order, and that renewable prices are falling.
These assertions are not just oversimplifications; they’re fundamentally flawed.
Let’s delve into each point to uncover the truth. First, the suggestion that gas sets the price for renewables in the energy market.
The idea is based on the concept of the “marginal generator” in the spot market pricing system. In theory, the cheapest sources of energy are used first, and the last, most expensive generator sets the price for everyone; typically, this ‘marginal generator’ is a gas-fired power plant.
Renewable energy advocates argue that by adding more wind and solar power to the grid, we can push gas out of the merit order, thereby lowering prices.
This, however, overlooks a critical contradiction. The document perpetuates the misleading claim that “renewables are the cheapest form of generation on the wholesale market” – but this statement conveniently ignores the substantial subsidies and financial support that renewables receive outside the wholesale market. These are funded by energy consumers but are not reflected in the wholesale price.
The House of Commons document briefly mentions this inconsistency in a section about profits but fails to address the fundamental issue.
The reality is that the prices renewables bid into the spot market are arbitrary. They can bid any price they choose knowing they receive all, or most, of their renumeration outside the wholesale market, and have settled on what’s known as “capture prices.”
‘Capture price’ represents the cost of raw materials (such as the price of bread dough to a baker) without accounting for any of the expenses of machinery, labour, storage, financing, and other operational costs required to produce electricity.
This practice undermines the very purpose of the merit order system, which is designed to utilize the cheapest forms of energy generation first. Instead, we’re seeing the most expensive forms of energy – subsidized renewables – gaming the system to be used ahead of cheaper, more reliable sources like gas and nuclear power.
Such manipulation results in higher energy bills for consumers, all under the guise of promoting green energy.
It’s important to note that this isn’t a new development or an unintended consequence. The merit order system has been in place since the early 1990s and was designed around generators operating under similar economic models.
Traditional energy sources like coal, gas, and nuclear power all have transparent operational costs and bid into the market accordingly. Had renewables been required to compete on a level playing field without subsidies and preferential treatment, they would likely have been deemed too expensive and unreliable to be viable options.
By omitting this critical information, the document and those who cite it present a skewed picture of the true cost of renewable energy. They are fully aware of this discrepancy, making the claim nothing short of a deliberate falsehood.
The document goes on to assert that renewable energy prices are falling, using a graph from the International Renewable Energy Agency (IRENA) based on 2021 data. However, this data reflects global trends, heavily influenced by countries like China, where production costs are significantly lower due to cheaper costs of energy, labour, and materials.
When looking at UK-specific data from 2023, the picture changes dramatically: renewable energy prices were increasing.
At the time the document was published, energy generators were already withdrawing from contracts because of rising costs, and the latest round of Contracts for Difference (AR5) attracted no bids for offshore wind projects. Using outdated and international data in a document intended for British MPs is not just misleading; it’s irresponsible.
Earlier this year, I took the initiative to write to the House of Commons Library, detailing these issues and highlighting the inaccuracies in their document. Unfortunately, their only response was to adjust the title slightly, adding the phrase “on the wholesale market” to the claim about renewables being the cheapest form of generation.
This minor change doesn’t address the underlying problems, and allows the misinformation to continue spreading unchecked.
This document is frequently referenced by MPs and is used to inform policy decisions that have far-reaching implications for our energy sector and economy. It’s packed with intentional disinformation that skews the debate around renewable energy. By presenting a one-sided and inaccurate portrayal of renewable energy pricing, it hinders our ability to have an honest conversation about the UK’s energy future.
It’s time for this document to be removed from the House of Commons Library. I urge you to reach out to your MP and make them aware of these issues. An informed electorate and honest discourse are essential for effective governance. We deserve transparency and accuracy, especially on matters as crucial as our national energy policy.
Let’s hold our institutions accountable and ensure that policy decisions are based on facts, not fiction.