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The UK Is Using An Inflated Carbon Price To Inform Its Energy Policy

The UK government has used inflated carbon price assumptions to show that solar and wind projects would be much cheaper compared to fossil-fuel-powered electricity generation in the coming years, analysts have told the Financial Times after the cabinet published a cost estimate for power generation.

Last week, the UK’s Department for Energy Security and Net Zero published a paper, Electricity Generation Costs 2023, which suggests that solar and wind power plants would have lower costs over their lifetime compared to new natural gas-fired capacity.  

However, the carbon price assumption for the fossil fuel plants – not published in the paper – is estimated to be more than three times higher compared to the current carbon price in the UK, analysts, who have used the available assumptions of costs per MW of electricity from new gas stations this decade, told FT.

“For fossil fuel plants, the total carbon price up until 2030/31 includes illustrative estimates for the UK ETS price. Carbon prices are significantly higher than assumed in the previous 2020 report, which has resulted in an increase in LCOE for fossil fuel plants,” the UK government said in the paper.

The department, when shown analyst estimates of an inflated carbon price of nearly $190 (£150) per ton for new gas-fired stations in 2025, told FT that these were “illustrative assumptions and not government projections” and that the analyst estimates were “based on crude and simplified assumptions.”

Meanwhile, the UK government last week announced a $35.5 million (£22 million) increase in government backing for renewables through the flagship Contracts for Difference scheme – taking the total budget to $288 million (£227 million) for this auction.

BP plans to build two offshore wind farms in the Irish Sea without entering government schemes for support, The Times reported last week, in what could be the first subsidy-free offshore wind projects ever.

By Tsvetana Paraskova for Oilprice.com

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