Powering the Nation - A Review of the Costs of Generating Electricity

In April 2004, The Royal Academy of Engineering published its report ‘The Costs of Generating Electricity’. The Academy felt that ‘in order to make sensible decisions about energy policy for the UK, policy makers need to be able to compare the costs and benefits of different types of electricity generating technologies on a like-for-like basis’.

PB Power was commissioned to undertake the underlying analytical work on technology costs, fuel prices, and other costs associated with the production of electrical energy from a wide range of electricity generating technologies. The terms of reference set by the Academy for the work were to prepare an analysis based on:

· Simple, soundly based indicators of cost performance for a range of different technologies and fuels;

· A focus on ‘bankable’ projects over the next 15-20 years which were compliant with existing and future environmental legislation;

· The impact of intermittency and carbon dioxide emissions;

· The cost of the plant itself (EPC cost) net of soft costs eg developer costs, financing charges etc.

Since the publication of that report, significant changes have occurred in relation to electricity production in the UK:

· Gas prices have risen considerably and long-term security of supply has become a major issue;

· There is increased interest in the so-called ‘advanced’ coal technologies;

· The rate of growth of renewables has continued to fall short of target;

· Nuclear power is now under significant scrutiny.

In January 2006, the Government launched its Energy Review to assess the progress made against the goals of the 2003 Energy White Paper and identify the options for further steps to achieve them.

A wide-ranging consultation with interested parties is now under way to inform the Review with the outcome to be presented to the Prime Minister in early summer 2006.

As a contribution to the Review, PB Power has re-examined the work it carried out for The Royal Academy of Engineering in 2004 and updated some of the assumptions it made at that time on capital costs of generating plant, fuel costs and discount rates.

This report has focused on the cost of generating electricity. While this is an important consideration in the choice of power generation technology it should be recognised that wider issues also contribute to the technology employed. This may, for example, include technology complementation, security of fuel supplies, and social and environmental factors.

The results of this new study are presented in summary form in this document; the basis on which the presented analysis has been conducted is set out in some detail and the results presented in pictorial form. A full version of the report, containing a comprehensive description of the methodology adopted and the rationale for the underlying assumptions, is available at a cost of £250 from www.pbworld.com/power.