Rebecca McQuillan: Renewable power costs pennies. Why are we being ripped off?

Of course, our lights and devices are not powered exclusively by wind or solar – roughly 52 per cent of the electricity we actually consume in Scotland comes from renewables, with 33 per cent from nuclear and 14 per cent from fossil fuels, because we export so much of the clean green power we make.

Nevertheless, Scotland is a renewables powerhouse.

It’s great for the environment and the climate, of course, but right now, interest is focusing on the other great advantage of renewables: the low cost. Renewable power – once vehemently denounced as the expensive option – is now almost ridiculously cheap to generate, and a fraction of the cost of gas-generated electricity.

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The gap between what it costs to make and what we pay for it, is becoming what energy economist Prof Michael Grubb of University College London (UCL), former senior adviser to the government on reforming electricity markets, calls “unconscionable”. He notes that the latest government contracts offered for offshore wind energy generation in Britain (not even the cheapest kind of renewable) were for under 5p per kWh.

That’s less than a fifth of what many householders are getting charged on their bills.

That consumer price is dictated by an energy market which effectively pegs household electricity tariffs to the wholesale price of gas. All electricity is charged for at the price of the most expensive type, which is gas-generated power (gas power stations won’t switch on unless they get a price that covers their costs). So if gas prices are high, that means electricity prices rise too. Wholesale gas prices are baked into bills.

But with all that cheap power being made on our hillsides and in our seas, why does it have to be this way? Can’t we find a way of selling renewable electricity directly to consumers without the cost of gas coming into it?

Yes we can. Everyone, up to and including the Chancellor Rishi Sunak, has conceded that the current market isn’t working and needs to be reformed, and a review setting out options for reform is due out this summer.

One of the more radical ideas currently gaining traction is the so-called “green power pool”, developed by Prof Grubb and colleagues at UCL.

The idea is that you create a second, separate electricity market in which renewables generators pool together to offer long-term contracts directly to groups of customers (low-income households, for example, or industrial consumers). The price would reflect what it really costs for generators to invest in and produce renewable electricity, rather than being set by the wholesale price of gas. They could offer reduced rates to those customers able to use power at off peak times, when supply was plentiful but overall demand low.

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On days when renewables weren’t generating enough to meet demand, the generator pool could buy electricity from the wholesale market, but it would only be for limited periods.

It’s one of those ideas that sounds so simple and obvious, you have to wonder why we don’t already do it.

Last week’s gift of £400 to every household to help with energy bills is helpful but a bodge job when full renovation is required. Coming down the line towards us like a vicious Halloween joke, is another energy price cap increase, followed soon after by winter. Some families will be looking forward to Christmas principally because the oven being on for the roast tatties means there will at least be one warm room in the house.

This period of record-breaking energy prices will eventually pass – we have to hope – but unless we fix the way electricity is priced, we’ll be susceptible to further vertiginous prices in future.

Renewables projects themselves are sometimes attacked as contributing to high energy costs. Right-wing politicians attack what they call “green levies” on energy bills, saying they are used to subsidise the building of wind and solar farms.

“Environmental and social obligation costs” make up around eight per cent of household energy bills, and the amount is dropping in real terms. Part of the levy cash does incentivise the building of new renewables projects, something that has helped ensure we now have so much renewable power generation, but that’s only one of the things it funds. The levies also go towards critical social measures to cut bills, like improving the energy efficiency of homes and funding the Warm Homes Discount, offering rebates on energy bills to low-income customers.

Renewables generators are also now paying the government back hundreds of millions of pounds in excess profits because of high energy prices.

Renewables really do have the potential to solve a lot of problems. An energy economist remarked to me recently that the so-called energy trilemma was once thought to be insoluble. Decarbonising our energy system while maintain energy security and cutting energy costs couldn’t be done, so the received wisdom went.

They don’t say that any more. Renewables have performed even better than many dared to hope.

We weren’t just wrong about the cost of renewables; we also assumed we would need a lot of gas to provide so-called “baseline” energy needs to make up for times when wind and solar farms weren’t producing power.

What we have discovered is that when you have enough renewables dotted around the UK, they cover for each other rather well: if the wind isn’t blowing in the Western Isles, it probably will be in Norfolk, and vice versa, so we need ever less gas to make up the difference. The Committee on Climate Change suggests renewables could make up 75 to 90 per cent of electricity generation by 2050. If nuclear – controversial for other reasons – is added into the mix, it’s conceivable that even more of the UK’s electricity needs could come from non-carbon sources. In Denmark, it’s not unusual for more than 100 per cent of the nation’s electricity needs to be met with wind power.

We need as much renewable power as we can get – but we also need to be able to benefit from how cheap it is.

The question inevitably arises: could an independent Scotland offer consumers cheaper energy, by creating a different energy market to the rest of the UK?

In theory, perhaps, but it’s in Scotland’s interests to remain integrated with the GB energy grid, to even out that variability of supply. Splendid isolation is a risky concept when it comes to power.

But politicians in Scotland could throw their weight behind a radical reform of the current system.

“There are two seasons in Scotland. June and winter,” says Billy Connolly. This week it’s summer but only last week the padded coats were out and that powerful wind was blowing – our not-so-secret secret weapon in the war against high bills.