How wind energy costs you less than €1 a year

Public service obligation levy more than offset by downward pressure on prices

The net cost of wind energy from 2000 to 2020 for Irish electricity consumers has been about €63 million.

The net cost of wind energy from 2000 to 2020 for Irish electricity consumers has been about €63 million.

 

Over the last 20 years wind has emerged as Ireland’s preferred choice for providing clean, zero-carbon energy and the true financial cost of wind energy is much lower than Irish consumers might realise.

Reports last month from the Environmental Protection Agency (EPA) and the Sustainable Energy Authority of Ireland (SEAI) show that wind is providing more than a quarter of Ireland’s electricity demand, reducing CO2 emissions by 2.7 million tonnes in 2017, and reducing the the carbon intensity of our electricity system to its lowest level on record.

But at what cost?

The key benefit to electricity consumers in Ireland is that wind energy lowers the wholesale price of electricity

Every electricity consumer in Ireland pays a public service obligation levy on their bills. This is calculated by the Commission for the Regulation of Utilities (CRU) and last October was set at €3.48 per month, excluding VAT, for domestic users, with a larger payment for businesses.

It is used to support a number of Irish power generators, including wind farms, hydro plants and peat generators in the midlands.

Setting aside the wider environmental benefits from wind energy, it is legitimate for electricity consumers to ask whether this money, and the amount invested over the last 20 years, represents good value, particularly when the cost of developing the electricity grid to support renewable energy is considered.

Cost-benefit analysis

Last year we at Baringa energy consultants were commissioned by the Irish Wind Energy Association to carry out a cost-benefit analysis of the impact of wind energy on household electricity bills in Ireland from 2000 to 2020.

Our research shows that wind energy cost an average of less than €1 per person per year over this 20-year period.

We included all the costs of support payments to wind energy, the cost of additional investment in the electricity network – even when it was not clear this was specifically for wind energy – and the additional technical costs of accommodating a variable energy source such as wind on the electricity grid.

Our analysis focuses on the direct financial costs and benefits of wind for end consumers. We have not included, for example, the benefits of increased income and corporation tax receipts from the wind industry, which would offset the cost of historical tax incentives.

Nor have we assigned a financial value to the benefits of decarbonisation, air quality improvements or job creation.

Wind might be getting cheaper, but gas is getting more expensive

The key benefit to electricity consumers in Ireland is that wind energy lowers the wholesale price of electricity in the electricity auctions between generators and suppliers that take place across Europe on a daily basis.

Once built, the production cost of wind energy is close to zero, so within the auction process it reduces the volume of demand left for fossil-fuel generators to the point where the most expensive ones are pushed out completely.

In simple terms, if there is 1,000MW of wind energy on the system this is not just displacing carbon-emitting fossil fuels, it is displacing the most expensive fossil fuels.

This means the electricity supplier that sells power to homes and businesses across Ireland is getting its electricity more cheaply because of the volume of wind on the Irish system.

EU fines

Along with these savings wind energy also reduces capacity payments made to fossil-fuel generators and the volume of wind on the system means we can calculate the European Union fines wind energy has enabled us to avoid for missing our 2020 renewable energy targets. Conservatively taking the midpoint of SEAI estimates gives a figure of about €664 million in a single year in costs avoided.

Setting 20 years of support costs and network investments against cheaper wholesale electricity and fines that Ireland has avoided leads us to the conclusion that the net cumulative cost of wind energy from 2000 to 2020 for the Irish electricity consumer has been about €63 million, or less than €1 per person per year.

Irish electricity customers – under pressure from rising prices – can legitimately ask why, if wind energy is reducing wholesale electricity prices, they have not seen their own bills fall?

But we must remember that while wind provides more than a quarter of our electricity much more of it comes from gas, the price for which has more than doubled in recent years. Wind might be getting cheaper, but gas is getting more expensive.

Wind isn’t just good for the environment, it costs less than you may think.

Dr Mark Turner is a director at Baringa energy consultants

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