Biomass trade bodies call for UK government to adopt whole system cost approach to drive low-carbon economy

The UK government should use a whole system cost analysis to evaluate the costs of different energy projects, taking into account intermittency and system integration costs, according to trade associations Biomass UK and the US Industrial Pellet Association (USIPA).

The trade bodies have submitted a white paper entitled ‘Bigger picture, lower cost’ to Professor Dieter Helm, who has been commissioned by the Department for Business, Energy, and Industrial Strategy (BEIS) to undertake an independent review of costs of energy in the power sector.

These costings end up on consumers’ bills, but are all but ignored when subsidy levels are assessed, Biomass UK argued.

For years the government has compared the “affordability” of different technologies based on their Levelised Cost of Energy (LCOE) – a simple metric that considers the costs of building , financing, fuelling and maintaining an energy project over its lifespan.

However, Biomass UK and the USIPA state that this approach fails to consider the costs associated with maintaining a controllable and flexible energy grid, such as ensuring reliable back-up power, balancing fluctuations in energy demand, maintaining system stability and building new or upgraded transmission lines and cables.

“If we want to see lower prices, better competition is needed. But that requires a more open market in which a generator can put all their services forward and receive revenue based on those services. At the moment, only one or two services are factored in.

Benedict McAleenan, head of Biomass UK (part of the Renewable Energy Association), told Bioenergy Insight: “A new energy source doesn’t just work in isolation. It has an impact on how the grid operates. It might be very cheap to set up the new generation plant, but then it only produces when demand is low, which raises the cost of system management and consumers bear the cost. Other technologies, like biomass, can generate exactly when it’s needed, which smooths things out and lowers the cost for the system. We’re just calling for a market that recognises these different attributes.

“The current situation is a bit like buying a car based on the cost of the car and its miles per gallon, but then ignoring all the other running costs, like car insurance, servicing and tax. You need to factor them all in. That’s what a growing consensus is calling for as the energy system evolves and those hidden costs start to rise.

“We’re arguing for government to break down the barriers and let generators compete directly. When all costs are included, consumers will get a better deal as they won’t be paying over the odds for system management just because Ministers prefer this technology or that. We’d also like to see barriers removed from inside the CfD auctions framework to encourage competition. We’re confident that, given the chance to compete properly, biomass will be shown as one of the most cost-effective renewables available.”

This story was written by Liz Gyekye, editor at Bioenergy Insight.

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