Is offshore wind 9 times cheaper than fossil fuel?

Question

The claim: "Offshore Wind in the U.K. Is 9 Times Cheaper Than Fossil Fuels"

Yahoo news version

The source from the article: Carbon Brief: Record-low price for UK offshore wind is nine times cheaper than gas

It's not clear to me what's actually going on here. "Auctions"? Is this purely the result of what's going on with Russian natural gas supply in Europe?

Is offshore wind (presumably including all costs of construction, production and maintenance, without accounting for any government subsidies) actually 9x cheaper than fossil fuels?

[Edit for further investigation: the price of natural gas in the U.K. did spike massive, especially if you compare August 2022 prices with just about any time in 2020, though that spike quickly withdrew. Now my thinking is the article writers jumped on a temporary spike to make a fabulous claim when the truth is far more mundane: Russian gas supply, and fears thereof, drove a huge spike in natural gas prices. They could have written the same article claiming wood fired stoves are nine times cheaper than gas. Might be true if you pick the exact right time to make that comparison...]

Answer 1

Yes. The Yahoo News article is an accurate reflection of the claims in Carbon Brief, which has appropriate references, provisos and definitions to support its claim, including that it was only true at the time.

Let's look at the claim:

A UK government auction has secured a record 11 gigawatts (GW) of new renewable energy capacity that will generate electricity nine times more cheaply than current gas prices.

But first, let's get past the awkward phrasing that @DJohnM noted in a comment. "Nine times more cheaply" is more clearly written as "one-ninth the cost".

The claim is that the locked-in future price of electricity generated from renewable energy plants was one-ninth the price of the current (at time of writing) price of electricity generated from gas-fired plants.

The future price was set at an Contract For Difference auction - it isn't the price consumers will pay, but effectively the price the government guarantees the supplier. The renewable energy sources were largely, but not completely, off-shore wind (7 of 11 GW).

They gave sources comparing the two prices as £48/MWh (renewables) versus £446/MWh (gas-fired), which is over a ninefold difference.

It is a time-based claim. The Carbon Brief article was updated about two weeks after it was originally published because the current gas prices had soared in the meantime.

Their source for gas-fired prices updates automatically [be sure to set the currency to GBP]. It can be seen that the price peaked after the article £508/MWh but dropped down to around £159 in the five weeks that followed.

So the factor of 9 no longer holds - it is "only" a factor of 3 at the time I write this, and that may change again.

Answer 2

tl;dr: The original claim is a lot narrower than the Yahoo headline implies, and is making a comparison between future and current prices which may not be justified.

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The Yahoo article is reposted in its entirety from a sponsored blog which is using it as an excuse to advertise investments. The headline "Offshore Wind in the U.K. Is 9 Times Cheaper Than Fossil Fuels" comes from this summary, and implies a very general comparison which is not actually made in the text.

The article on Carbon Brief from which that sources its information has a more specific headline:

Analysis: Record-low price for UK offshore wind is nine times cheaper than gas

This is more clearly not comparing "offshore wind" as a general energy source to "fossil fuels"; it is comparing "record-low prices" to "gas". The first sentence then clarifies the context further that we are talking about electricity generation, not any other use of gas:

A UK government auction has secured a record 11 gigawatts (GW) of new renewable energy capacity that will generate electricity nine times more cheaply than current gas prices.

The article then explains in detail a process by which companies wishing to supply electricity to the UK's power grid compete to provide the lowest estimated costs in a reverse auction. The government then guarantees that they will be paid that amount, regardless of the market price:

Once projects have been built, the money they earn from generating electricity is compared with a market reference price. If this is lower than the strike price, the project receives a subsidy to make up the difference. When prices are higher, the project must pay back the extra money.

The headline is referring to two separate observations of the latest auction:

1. The agreed "strike prices" for offshore wind are lower than in previous rounds of the same auction process.
2. The agreed "strike prices" are significantly lower than the current price being charged by gas-fired power stations.

The latter point was originally published as "four times cheaper" - still reflected in the URL - but amended to "nine times cheaper" based on updated prices for gas. This was around the peak of the gas prices, so the point at which the comparison looked most dramatic.

Picking any current gas price is a bit of an apples-to-oranges comparison, since the wind projects whose prices are being agreed will take several years to build.

The article attempts to justify this with a prediction that gas prices "are expected to remain elevated for a number of years". They link to this World Bank blog which makes some predictions for 2023, but not beyond. The offshore wind projects being discussed are due to start operating in 2026/27, according to a figure showing the auction results.

They also quote some sources comparing the contracts against projections of the wider energy market, but none makes an explicit statement about what they expect gas prices to be at the time this projects come online.

Answer 3

No. This is a common trap when comparing the cost of energy from different sources: these costs are not directly comparable.

As explained in @IMSoP's answer, the actual claim is somewhat different: it compares prices (to be) paid for some amount of generated electricity (and even then, it's more complicated than that). But it is highly misleading to make a conclusion from this that "wind is X times cheaper than gas".

The primary issue here is reliability of supply. Wind (and solar) are volatile sources. At the time of low wind (or sun), the grid has to cover up the deficit in one way or another. Short-term (like overnight), some form of accumulation can be used (batteries etc.) Longer-term (on the scale of several days or weeks, and such periods happen every year), some form or replacement generation is inevitable.

Currently, gas is considered one of the most suitable forms of such spare generation capacity. But given that a major fraction of any power generation cost is the capital cost, using power stations for a fraction of time can easily make their power cost 100 times more.

Yet, in fairness, this enormous (even if short-term) cost, as well as the cost of accumulation solutions and the cost of the more complicated grid, is the cost of renewable energy. It must be factored in when comparing prices of energy per se. Only the cost from a complete grid and at the same level of reliability (and averaged over at least a year) is comparable as the "cost of energy".

It is not uncommon to have negative price of energy at certain moments. But at others, there will be no wind, and no amount of money will change that. You'll be happy to pay several £ per kWh to fire up gas stations on such occasions. But this is not an excuse to claim that gas is inherently so expensive. It is simply part of the cost of the solution, and it may still be cheaper overall. Just not 9 times as it may follow from naive calculations.

Answer 4

Not a direct answer, but interesting for the sake of context. I calculated the per-MWh mean strike price for each of the four rounds of the Contracts for Difference auctions for renewable energy here in the UK and you can see how prices have dropped massively in just a few years to the extent that Rounds 3 and 4 undercut the long-term average prices (about £50/MWh prior to the energy crisis) as given here and in the answer from @Oddthinking above.

• Round 1 (2015): £101.9/MWh
• Round 2 (2017): £62.62/MWh
• Round 3 (2019): £40.62/MWh
• Round 4 (2022): £40.75/MWh