Renewable Energy

Wednesday 8th December, 2010
windfarm.jpg
Do you drink bottled water?

"I think bottled water is the most revealing substance for showing us how the global capitalist market works today," says Richard Wilk, professor of anthropology at Indiana University. "In a sense we're buying choice, we're buying freedom. That's the only thing that can explain why you would pay money for a bottle of something that you can otherwise get for free."

Whether you're buying Highland Spring from Scotland or Evian sourced in the French Alps, essentially you're paying through the nose for a free, natural, resource.

"We cannot lose sight of the ultimate absurdity of the bottle water industry," says Mr Wilk. "Here we have a world where people are dying of thirst, where people lack… the clean water to feed their children and we're spending billions of dollars and huge amounts of energy moving water from… people who already have it to other people who already have it."

Enter renewable energy - which is generated, with minimal environmental impact, from sources of energy such as the wind or the sun. Whilst traditional power stations run on increasingly expensive fossil fuels, like coal, oil or natural gas, the raw material for renewable energy is free. It doesn't need to be dug, pumped, piped or transported...it's just there, provided by nature.

So how much do "green" consumers pay for the privilege? Oddly enough, despite being made for free, renewable energy tariffs can cost, on average, around 10% more. Energy companies prey on ignorant consumers and, like car insurance providers, rely on the fact that most customers cannot be bothered to shop around. A couple in their 50s who have been signed up with British Gas for 30yrs, paying monthly by cheque, may one day decide to go eco and switch to a renewable energy tariff. For sure, a 10% increase for them may be about right. An eco advocate who has low energy light bulbs in every socket, a geothermal pump for hot water, solar panels on the roof and only needs an external supply for a top-up? Again, 10% may be about right but - for heavy consumers - the costs can be tremendously more. But why?

I contacted Green energy suppliers Good Energy and Ecotricity for an explanation. Ecotricity, despite promising feedback, changed their mind and decided not to send any - your guess is as good as mine - Good Energy did respond, however. Their PR, Sophy Fearnley-Whittingstall, told me - "We are often asked why it costs more to supply electricity from purely renewable sources (around £1 a week more for the average household). The answer is due to intrinsic differences between the way renewables are traded compared with fuel from conventional sources". Essentially, unlike a coal-fired power station that can just be run on demand, renewables are more complicated as it may not be windy or the sun may not be shining. This week, for example, snow may be covering solar panels on the roofs of many buildings - this reduces the amount of available "clean" energy, supply & demand then pushes up the prices.

But why does it cost more than electricity generated from fossil fuels? Is it the bottled water factor? Charging extra to consumers for what they feel is a better product. Does it really matter if it's only £1 extra a week? The problem is, it's a lot more than that.

I did some calculations using my latest energy bill, a combined Gas/Electricity tariff from E.On. Its total, for the 90 days to the end of September, was £197.23 - not cheap, by any means, but we do own a large four bedroom detached home. I took the unit calculations from the bill and applied these to the latest tariff from Good Energy. The result was a whopping 62% more, an increase of £123.79 for the renewable energy tariff. That's not £1/week more, that's £1.38/day. Basically, to switch from my E.On tariff to Good Energy is going to cost me around £40 per month extra. This was just based around the months July-September too. Once we'd changed the clocks and winter set in, we're going to use more energy which will cost even more on renewables.

We're in a world where energy costs are spiralling upwards, so badly that the Energy regulator, Ofgem, has had to conduct a price review. Energy companies blame the increase in wholesale energy charges for the price changes but the regulator claims that energy companies are now making £90 profit for each typical customer, compared with £65 just 3 months earlier - a 38% increase. Of course, these wholesale prices are based upon the increasing cost of oil, coal and natural gas, used for power generation - these don't apply to renewable energy tariffs.

I asked Good Energy for further explanation of why the renewable tariffs are so expensive. They carefully explained all the measures they take to ensure that they only ensure their customers are supplied with renewable energy. Other providers may "double count" their renewable energy which basically consists of exploiting a loophole in the system to sell the renewable energy units twice - once to households and once to businesses. Other energy companies may also subsidise their renewable schemes using profits from their "dirty" energy tariffs, making their prices look cheaper than those from Good Energy.

Ultimately, nobody answered my question. The price of fossil fuels keeps rising, passing on an equivalent increase to our gas and electric prices yet, despite massive price hikes in recent times, the price of renewable energy - made from free solar, wind or hydro sources - keeps staying ahead. Nobody can really explain how energy that appears to come from a cheaper source ends up costing more. In my opinion, it's because none of these providers are in this for the environment, it's all about money and paying the shareholders. If an energy company can sell its dirty energy units on the open market for 6 pence a unit, then those selling nice, clean, feel good energy are going to always command a premium for those units and sell them for maybe 8 or 9 pence. It doesn't matter what the true costs are, if they make a "better" product, they're going to charge a higher price for it.

With UK energy bills likely to rise again in the near future, do we expect renewables to finally become cheaper than their dirty equivalents? Not whilst people are still paying £1.14 for a 750ml bottle of "natural" water they won't.

  1. 1) TeamBoA Said: (08/12/2010 20:13:12 GMT) Gravatar Image
    Renewable Energy

    Some of the difference is the generating kit itself. A recent offshore windfarm generating 180Mw from 60 turbines was about £400-500k (not sure on the final figure). A 3 unit F class Combined cycle GT is about £600-700k but that will generate 1275Mw. So even will fuel costs, the economics say build GT

  2. 2) Ben Rose Said: (08/12/2010 20:57:36 GMT) Gravatar Image
    Renewable Energy

    A fair comment and I'm sure you're right, but does it truly apply to the cost of energy argument?

    This article from The Times in 2008 - { Link } - explains just how quickly you can get a return on investment from a windfarm. Indeed, it's like making money from thin air.

    Secondly, the energy company never really suggested that capital investment was a major factor in the pricing. Only once pushed was the cost of the infrastucture even mentioned - although I think perhaps that is largely down to them buying in the fuel and not generating it in house.

  3. 3) TeamBoA Said: (08/12/2010 22:08:15 GMT) Gravatar Image
    Renewable Energy

    The more I think about it, the more the price gap does feel like buying bottled water. Wind turbines do need a bit of TLC but not on the scale of fossil fired. Challenging article as always

  4. 4) Paul Sergeant Said: (10/12/2010 14:00:16 GMT) Gravatar Image
    Renewable Energy

    Hiya Ben,

    We thought we would wait for you to publish - and then comment ;-)

    If you wanted to do some research before you published your article - you could have headed over to our website:

    { Link }

    or

    { Link }

    Here's some words from Dale that he posted to a customer who queried our recent price rise that may also help clarify:

    "We price match the big guys because most people in the UK are still with them and that means for most peop...le it doesn't cost any more to be with Ecotricity. In a very confusing market place (on price at least) this makes for a simple message.

    And price matching doesn't mean profit matching (or rip off matching) - we don't have their economies of scale, we know we make less than the big guys when we charge the same price. One key difference is that what we do make (profit wise) we spend on our work, building new sources of green energy - we don't pay shareholders.

    We're supplying almost 50% self built green energy, a figure that continually grows (national average more like 5%) - we invest more per capita on new build than any other supplier in the UK (most years more than all of them put together), we've got awesome customer service (we answer the phones ourselves) - and we do that at the same price as the big guys.

    I think it's quite an achievement. It would be very hard to do all of this and be cheaper than the big guys, something would have to give."

    Cheers

    Paul

  5. 5) Ben Rose Said: (10/12/2010 14:33:36 GMT) Gravatar Image
    Renewable Energy

    Paul,

    Thanks for the response. Hope the office move went OK?

    I've fed my postcode into your "Fair Price Promise" page a number of times, but you only seem to match standard tariffs - not the actuall ones customers who shop around will actually be on. You appear to negate dual fuel and discounts for Direct Debits etc.

    Based on my postcode (it's a NATIONAL grid, why does my address make any difference?), you're quoting me:

    For electric:

    17.68p/unit for first 900 units

    12.29p/unit for over 900 units per year.

    I'm currently paying (with E.On):

    18.25p/unit for first 900 units

    6.96p/unit for over 900 units per year

    For gas you're quoting:

    7.45p/unit for first 2680 units

    3.46/unit for over 2680 unit per year

    I'm currently paying (with E.On):

    4.96p/unit for first 2680 units

    2.40p/unit for over 2680 units per year.

    You estimate my electricity prices with Ecotricity to be £1012.91 for the next year. With E.On, that estimate is £636 - £31.40/mth more expensive with Ecotricity.

    You estimate my gas costs with Ecotricity to be £724.59 (the same as BG standard tariff) with E.ON, I expect to pay £498 - £18.88/mth more expensive with Ecotricity.

    So:

    Total energy costs with E.On = £1134 = £94.50/mth

    Total energy costs with Ecotricity = £1737.5 = £144.79/mth

    So, switching to Ecotricity would cost me £50/mth extra or 53.2% more.

    You promise, on the page you linked that "switching to Ecotricity won’t cost a penny more", but clearly it will - significantly more.

    If you will live up to your promise, and match the price of my current supplier, I will switch. If it won't cost me a penny more, I will switch.

    Will you live up to that promise?

  6. 6) Paul Sergeant Said: (10/12/2010 15:12:51 GMT) Gravatar Image
    Renewable Energy

    Hiya Ben,

    Thanks for the reply... on that Price Promise page I sent you it does say:

    "Our policy (and our promise) is to price match the Big Six for their standard ‘brown’ electricity. Most people are still with the regional supplier (one of the Big Six) and so switching to Ecotricity won’t cost a penny more on our new energy tariff.

    Our gas tariff is price matched to the standard British Gas tariff, so switching to our Green Gas won't cost you any more.

    <strong>If you’ve already switched to a cheaper deal though, we will cost a little more - we can’t price match the price cutters and keep building.</strong>"

    If Eon is your regional supplier, and you *are* on their standard 'brown' tariff - then yes - I will have a word with our team here and see if we can match it. Our price checker should be accurate... if we do 'live up to it' will you switch? :)

    BTW (& I am no expert in this stuff I can find one though!) - we still have DNOs in this country - kind of like the rail network - it's a national rail network, but regional suppliers with different pricing:

    { Link }

    We can't match everything for the reasons Dale states. But at some point in the next few years we are aiming to not have to price match, but to be cheaper.

    This will be made easier for us as your finite fossil fuel based bills sky rocket...

    Cheers

    Paul

  7. 7) Ben Rose Said: (10/12/2010 15:21:24 GMT) Gravatar Image
    Renewable Energy

    Just because there are DNOs, why does it mean you need to charge different people, in different areas, different prices? Why can't you charge all your customers the same price?

    If you can, then it doesn't matter where I live? If you will price match E.ON for somebody else, why not me? If E.On can supply me at that price, why can't you?

    Doesn't your price promise effectively state, and I paraphrase here, "we promise to match your current price, unless your current price is already lower than ours?"

  8. 8) Kevin Sharpe Said: (10/12/2010 15:29:58 GMT) Gravatar Image
    Renewable Energy

    Sometimes you have to invest in the future. If you focus on the monies leaving your wallet then you are ignoring the bigger picture and the true cost of the energy we consume today. Like many tens of thousands of customers I'm happy to support the renewable energy industry by paying a premium. I love the fact that I can drive an EV powered by UK produced renewable electricity. I love the fact that I'm part of the future not the past.

    I know you "didn't have time" to read the Zero Carbon Britain 2030 report a few weeks ago... maybe you could try and find the time because I think it would help you;

    { Link }

  9. 9) Ben Rose Said: (10/12/2010 17:04:38 GMT) Gravatar Image
    Renewable Energy

    Kevin, I'm also happy to pay a small premium, but 60% or £40/mth - I'm sorry, I just can't afford that on my current budget. Even if I could, I wouldn't...that's just an excessive margin.

    I see promises like those from Good Energy of price freezing on their renewable tariffs for the Winter. Why shouldn't they do that? Might the wind cost more money next week? Will the sun need a new hat? I fully understand the volatile market for organic fuels, but why is there price variation for what is, ultimately, a free raw material?

    Until I understand the reason for "free" electricity costing more money, I just won't buy in. These may be eco focussed energy companies but they still have shareholders and they do turn a profit. If I thing those profits are excessive, as I did with British Gas, I'm entitled to take my business elsewhere.

    I'm glad you enjoy your EV, I personally don't see the big win by now. Obviously the Tesla is a nice car but, being a 2 seater, it's not exactly the kind of vehicle I need for transporting my family around. More practical EVs, like those with more than 2 seats and a proper boot, aren't really that appropriate either - with poor range, too high a price and an unacceptable (for me) driving experience. Additionally, due to power generation, they still have the carbon footprint that many are trying to avoid.

    I will endeavour to read some of that report but a 384 page pdf is quite something for somebody who has never particularly enjoyed reading.

    Hopefully Paul @ecotricity will agree to price match my current tariff and I'll make the switch. Until then, whatever I do, I'm still part of the future.

  10. 10) Kevin Sharpe Said: (10/12/2010 21:31:58 GMT) Gravatar Image
    Renewable Energy

    Ben, you have to trust in someone and have faith. I've met many of the people in Ecotricity and Good Energy and they strike me as honest, hard working, and passionate people, who want to make a difference.

    Can you honestly say that about your current energy supplier? Will they debate with you in public forums such as this blog and twitter? Or are you just a 'customer' that they don't really give a damn about so long as you keep paying your bill?

    I believe in the bright, clean, and energy independent UK, that a commitment to renewables and energy efficiency can deliver. I'm sorry that you just can't see the beautiful vista that lies beyond oil dependancy...

  11. 11) Paul Sergeant Said: (15/12/2010 11:46:58 GMT) Gravatar Image
    Renewable Energy

    Thanks for the support Kevin - you certainly nailed one of the main differences between us and Ben's current supplier - E.On.

    We do care, deeply - I hope that comes across in all the ways we communicate.

    Also we don't have loads of shareholders telling us that profit should be our only/main objective.

    As a nation, we have targets regarding renewables - which feed into our legal obligations to reduce carbon dioxide emissions { Link } and so far we are failing miserably...

    Mr Huhne recently said of our nation's attempts to meet our targets "We have been playing as amateurs when we should have been in the Premiership" { Link }

    If the rest of the suppliers in the UK were putting in the same level of investment (not to mention passion & dedication!) as Ecotricity - we would not be failing amateurs - it's as simple as that.

    Ecotricity are top of the league regarding renewables investment per captita { Link }

    Like this { Link } recent CiF artical says:

    "At the heart of the problem is a seasonally appropriate difficulty: asking turkeys to vote for Christmas. It is simply not in the interests of the handful of dominant energy companies and their shareholders to dramatically transform the energy system, whether on the supply or demand side." True dat, as the kids say.

    And as Dale states in the original quote I posted - we can't compete with *everything* the Big 6 do, something would have to give.

    We have a great track record - 51 large scale turbines built with more in planning { Link } , best customer service in the sector { Link } , solar { Link } , wave { Link } & biogas { Link } projects in the pipeline... all this takes money, quite a lot of it. We are even innovating the way we fund even *more* rapid roll out (see our recently closed bonds issue - more news on that coming soon!).

    We price match the regional supplier's standard brown tariff because many people haven't switched away yet, so to lots of people we *are* competitively priced. { Link } They will get green energy for the price of brown, and help change the way energy is made in the UK as a result.

    With regards to your E.On tariff Ben - are they your regional supplier and are you on their standard brown tariff? If not - we can't price match sorry.

    It looks like you have already switched around based on the figures you posted, and presumably you made your selection based on price rather than investment levels in renewables, fuel mix, patriotism or any other criteria? I am just guessing - you tell me :)

    In that case you would have to make that decision to switch to us and pay a bit extra to be part of the green energy solution - part of the team that brings the UK to 'Premiership level'.

    You started your article talking about water - if we were to be compared to a bottled water company - we like to think we would be closer to OneWater { Link } than to Evian.

    Cheers

    Paul

  12. 12) Ben Rose Said: (15/12/2010 12:03:47 GMT) Gravatar Image
    Renewable Energy

    Paul,

    I see why you referred to politicians. You're beginning to sound like one yourself. Can you please answer my questions from point 7? I'll repeat them again:

    1) Just because there are DNOs, why does it mean you need to charge different people, in different areas, different prices? Why can't you charge all your customers the same price?

    2) If you can, then it doesn't matter where I live? If you will price match E.ON for somebody else, why not me? If E.On (who aren't my regional provider) can supply me at that price, why can't you?

    3) Doesn't your price promise effectively state, and I paraphrase here, "we promise to match your current price, unless your current price is already lower than ours?"

  13. 13) Paul Sergeant Said: (15/12/2010 13:00:10 GMT) Gravatar Image
    Renewable Energy

    Haha - nope - that's me done. I've got other things to do now sorry. Someone else from the company might want to come over a weigh in - we'll see.

    I am Online Community Manager - I have a background in Art & Design and Multimedia, Event Production & renewables. Maybe I should give up my day job & run for P.M?

    FWIW - all your answers are above - you just have to look for them. I also asked you lots of questions that you don't answer - I reckon we're about equal :P

  14. 14) Ben Rose Said: (15/12/2010 14:16:08 GMT) Gravatar Image
    Renewable Energy

    Well, thanks for your input, Paul - hopefully somebody will be along shortly to explain in a little more detail. There are still numerous unanswered questions for me - like I don't want to know that you won't match pricing of other energy providers, I want to know why? Maybe they could also point me towards any specific questions they'd like me to answer - I have nothing to hide here.

    Thanks again for your input.

    Cheers,

    Ben

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