How does one compare apples with oranges?
Under the Electricity Market Reform (EMR) framework, low-carbon electricity technologies are compared on the basis of their costs – specifically their strike price (the price for electricity that reflects the cost of investing in the technology).
The difference between this strike price and the market reference price is the amount of subsidy paid by the government to the low-carbon electricity generator. However, comparing technologies on this strike price alone raises some interesting questions.
Firstly, does the strike price truly reflect the respective roles and value of each type of low-carbon technology in the electricity mix? The EMR framework was introduced to meet the trilemma of secure, affordable and low-carbon electricity.
While renewable sources of electricity such as wind or solar PV may add value in terms of emissions reductions, some commentators have raised issues with what to do when the wind doesn’t blow or the sun doesn’t shine?
Similarly, nuclear is often characterised as providing reliable baseload capacity, but current nuclear plant cannot ramp up or down in response to demand as, say, a gas-fired power station can.
At present, carbon capture and storage (CCS) fitted to fossil fuel power stations can offer the only truly flexible low-carbon generation, and yet the EMR framework offers no incentive or reward for this valuable characteristic.
It is also important to understand what length of contract the strike price is associated with.
If for example, a nuclear generator is allocated a strike price based on a 35-year contract, whereas a CCS generator has a 20-year contract, then the strike price will reflect the time it takes for a generator to recover their investment (so a longer contract means more time to recover the investment, and therefore a lower strike price).
Finally – and possibly the most important point for CCS – is the question of what costs the strike price actually includes. For renewable technologies there is some uncertainty as to whether the strike price includes the full system costs (eg grid connections and the cost of providing back-up electricity).
The committee on climate change has gone so far as saying that the “true cost” of solar PV, for example, may be as much as an additional £26.20/MWh over and above its strike price.
Don’t be fooled
For CCS, the CCS Cost Reduction Task Force concluded in its final report that the cost of early CCS projects would be in the region of £150-£200/MWh.
However, it is important to understand that this includes the full costs of providing the initial transport (pipelines) and storage infrastructure that will support a number of CCS projects (power and industrial) and that once this initial infrastructure has been created, the costs of CCS will come down rapidly.
More importantly, the creation of CCS transport and storage infrastructure will signal the birth of CCS ‘clusters’ where both power and industrial emitters (such as the steel and cement sectors) can link up to an existing network and thereby reduce emissions at very low cost.
There are a number of challenges regarding the strike price that need to be ironed out if all low-carbon technologies are to compete on a truly level-playing field.
So how does one compare apples with oranges? The answer is simple: don’t.
Judith Shapiro is policy and communications manager at the Carbon Capture and Storage Association