Looking at costs

As mentioned in the section on producing a village or small town scale zero carbon energy plan, on the surface it may be too easy to dismiss or feel that the technologies and measures required for a zero carbon energy system are too costly or ambitious, however this would miss the bigger picture of how much we spend on energy anyway, a quick back of the envelope calculation helps to put the costs in some context. Assuming the current average UK household energy expenditure of £2500/year for electricity, gas and petrol/diesel as worked out in Appendix 1: UK Energy 2015. A small town or village of 1000 households will spend £62.5 million on energy over 25 years even if no changes were made and assuming no rise or fall in energy prices.

This page explores the costs of some of the key zero carbon energy technologies first on their own and then as a supply mix including the cost of providing backup power when the wind and solar output is low attempting to arrive at a rough estimate of what the unit cost of zero carbon electricity could be including network, supplier and policy related costs.

Wind Power

Capacity Turbine Project Cost Maintenance 20y Cost £/kW £/kW/y Unit Cost @35%
55 kW Endurance E-3120 £320k £72k 7127 356 £0.116
1 kW Hugh Piggot V3 £4,645 £800 5445 272 £0.089
100kW GHREPOWER £285k £90k 3750 188 £0.061
900 Kw Enercon E44 £1.87m £820k 3363 168 £0.055
800 kW Enercon E53/48/44 £1.4 million £820k 2775 139 £0.045
1.5 MW GE 1.5sle £2.7 million £1.4m 2733 137 £0.045
900 kW EWT DW61 £1.4 million £820k 2467 123 £0.040
1 kW Hugh Piggot V3 (DIY) £1,845 £600 2445 122 £0.040
2 – 3 MW Enercon E82 £3.1 million £2.0m 1700 85 £0.028

Maintenance costs are based on annual O&M cost estimates available on renewablesfirst.co.uk, with costs for turbines where this information is not available estimated at £40/kW/year.

The costs above do not include business rates, wind turbine insurance, financing or network costs which increase the final cost of the delivered electricity. Some of these costs are explored in more detail below.

The cost of wind generated electricity has fallen significantly over the last 40 years, the following graphic on the left illustrates the extent of these cost reductions for wind power in the US with a fall of 10x from $0.55/kWh to $0.05/kWh. With these cost reductions installation rates have rocketed with over 63 GW of wind having been installed in the US between 2001 and 2015. Total global wind capacity in 2015 reached 432.4 GW.

Wind cost reductions and capacity growth

Source: http://sites.psu.edu/math033fa15/2015/10/16/assignment-2-wind-turbines-final-paper

Source: https://en.wikipedia.org/wiki/Wind_power_by_country

Wind costs Contracts for Difference

The 2015 Contracts for Difference auction secured onshore wind generation at a cost of between £79.23-£82.50/MWh, and offshore wind at a cost of between £114.39-119.89/MWh. £80/MWh is equivalent to 8 p/kWh which is almost 3 times the cost price indicated for a 3MW Enercon E82 or roughly twice the cost of the 800-900 kW turbine examples. These strike prices are an indication of the current total cost of delivering wind projects in the UK including financing costs and a profit for the generator.

Contracts for Difference (CFD) Allocation Round One Outcome

Solar PV

Capacity Estimated Cost (£) Cost £/kW £/kW/y Unit Cost @10%
1kW 2500-3000 £2,750.00 £110.00 £0.126
2kW 3000-5000 £2,000.00 £80.00 £0.091
3kW 5000-6000 £1,833.00 £73.32 £0.084
4kW 6000-7000 £1,625.00 £65.00 £0.074

Overview of Solar PV costs in the UK 2016:

Typical retail costs for the Solar PV panels themselves in the UK late 2016 is around £600/kW which is around 30% of the total installation cost estimates above:

Solar cost reductions and capacity growth

As in the case of wind, the cost of solar has also fallen significantly over the last 40 years.

Source: Wikimedia Commons

Source: https://charlieonenergy.wordpress.com/2015/12/07/solar-and-moores-law

Solar costs Contracts for Difference

The 2015 Contracts for Difference auction secured large scale solar generation at a cost of £79.23/MWh. It is notable that the strike price achieved suggests that the installation cost for large scale solar in the UK is significantly below those quoted for 3-4kW of domestic solar as this strike price would need to cover at least project financing in addition to the construction cost. Two projects put forward bids at £50/MWh however these have not gone ahead - while not currently viable at this price these project may well indicate the direction that costs are heading.

Anaerobic Digestion

Anaerobic digestion plants with gas turbine generators with or without heat recovery could potentially be used as a dis-patchable backup supply. In ZeroCarbonBritain biogas from AD is combined with hydrogen from electrolysis via the sabatier process in order to produce more methane from a given amount of input biomass. The AD system costs below are for the direct AD plant with power generation.

Capacity Name Total Cost £/kW
75kW Case Study 1 £506,921.00 £6,758.95
499kW Case Study 2 £1,364,085.00 £2,733.64
190kW Case Study 3 £953,176.00 £5,016.72
105kW Case Study 4 £480,054.00 £4,571.94
250kW Case Study 5 £822,122.00 £3,288.49
250kW Case Study 6 £876,590.00 £3,506.36
75kW Case Study 7 £464,489.00 £6,193.19
861kW Case Study 8 £3,157,036.00 £3,666.71

Source: Cornwall Agri-food Council

£4000-7000/kW: renewableenergyonfarms.co.uk AD Fact sheet

Example gas engine The GE Jenbacher type 2 is a typical gas engine used in AD plants. It achieves an electrical efficiency when powered with biogas of 38.70%. The Jenbacher type 2 supports heat recovery for Combined Heat and Power with a thermal efficiency of 48.50%. Bringing the total efficiency to 87.30%. The cost of reciprocating engines are in the order of £400-600/kW [1] [2]


The following example hydro costings are for three exemplar community hydro schemes in North Wales, each of which included successful community share issues to raise part of the project costs. The examples also provide an insight into loan and share interest payments which increase the project cost to 150% of the project construction cost alone. The operational cost also include costs such as land lease payments and other administration costs in addition to the strict O&M costs.

Ynni Padarn Peris Ynni Ogwen Anafon Hydro
Capacity 55kW 100kW 271KW
Annual generation 182 MWh (38%) 500 MWh 957 MWh
Construction Cost £246,126 £476,499 £1,100,000
Operational Cost £279/kW/y £199/kW/y £100/kW/y *
Lifespan 40-100 years 40-100 years 40-100 years
Cost £/kW £4,475 £4,765 £4,059
Paid unit price 27.4 p/kWh 13.4 p/kWh 20.96 p/kWh *
Cost unit price 40y (@ 0% interest) 13.3 (11.6) 7.5 (6.4)
Cost unit price 100y (@ 0% interest) 10.3 (9.6) 5.4 (5.0)
20 Year Profit & Loss
Gross revenue £997,690 £1,548,130 £4,011,744 *
Operational Costs £306,945 £398,785 £540,000
Depreciation £246,126 £476,499 £1,100,000
Loan interest £69,165 £156,410 -
Shareholder interest £52,270 £68,459 -
Bank interest £0 £250 -
Capital grant £0 £10,000 -
Net Profit £323,185 £457,726 -

It is worth noting that the operational cost sets a lower bound on the unit cost over the longer term periods. For 40 years the operational cost of the Ynni Padarn Peris hydro is 2.5x the construction cost, over 100 years the operational cost is 6.2x the construction cost. For Ynni Padarn Peris the operational cost is 1.7x at 40 years and 4.2x at 100 years. We can see that even if the original construction cost is covered with a 0% interest loan the longer term lower bound on the unit price is not affected that much (10.3p/kWh vs 9.6p/kWh, 5.4p/kWh vs 5.0p/kWh).


Wood pellets

Source: What is the price of biomass fuel such as pellets or wood chip?

Source: Forest Fuels

CCGT cost

The capital cost of CCGT power plants is around £500-700/kW. http://www.timera-energy.com/the-uk-ccgt-new-build-challenge/

A simple model of the additional costs of grid electricity

The analysis above has so far focused on the cost of generating electricity but the cost of purchasing electricity from the grid via an electricity supplier is higher than this as further costs are incurred. A typical electricity bill breaks down as following:

Typical cost £476 for 3100 kWh [REF]

% Cost Unit Cost
Wholesale cost 32% £152 4.9 p/kWh
Operational cost 16% £76 2.5 p/kWh
Environmental and social policy costs 20% £95 3.1 p/kWh
Network costs 27% £129 4.1 p/kWh
VAT 5% £24 0.8 p/kWh
Total £476 15.4 p/kWh

Source: Energy UK, Energy bill breakdown 2016-2017

We can see that even if the wholesale cost is 4.9 p/kWh, the cost of the electricity to the customer is three times this cost. Some of the Environmental and social policy costs are subsidies for renewable power generation and so we could re-allocate these to the wholesale cost in order to get a more accurate average cost of generation.

Environmental and social policy costs break down roughly as 57% CERT and CESP, 22% ROCs, 3% FIT’s, 10% warm home discount. Although 22% for ROC’s out of £95 = £21 does not add up to the estimate based on current ROC of 0.29 or £41.15. This could reflect recent changes in policy and the increase in renewable obligation year on year.

Assuming that half of the environmental and social policy costs are subsidies for generation and including this in the wholesale cost would increase the wholesale cost to 6.5 p/kWh.

Network cost reflect the cost of operating and maintaining our transmission and distribution networks. These costs cover the costs of the transmission network via the National Grid and the local DNO’s. An estimate of the unit cost of the national grid is calculated here as between 0.2-0.71 p/kWh, which suggests that most of the network charge is for the DNO.

The operational cost depends to a degree on the efficiency of the operations of the energy supplier, this operational cost includes the suppliers profit.

The network cost is to a degree going to reflect the requirements on the network if larger network capacities are needed to deal with large renewable energy generation capacities this part of the cost could increase.

We could make a rough cost model based on 6.5 p/kWh wholesale, 4.1 p/kWh network, 1.6p/kWh efficiency & social obligation, 2.5 p/kWh operational costs and 0.8p/kWh VAT. Here the final cost of electricity will add 9 p/kWh to whatever the wholesale cost of electricity is.

A worked example calculation of final cost of zero carbon electricity

The following example is a rough attempt at calculating a cost for zero carbon electricity from renewable sources using many of the costs as outlined above.

The Enercon E82 is used for the wind cost at £1033/kW and an O&M cost of £33/kW/year. Assuming perhaps generous low interest finance at 2.5% (simple interest) over 20 years. The actual cost is £1313/kW. Multiplied by 1.5 kW per household is £1970.

For Solar a low domestic installation cost of £1625/kW is assumed, again paid for with low interest finance at 2.5% over a service lifetime of 30 years. The actual cost is £311/kW. Multiplied by 1.5 kW per household is £3,467. Solar PV is likely to last at least 30 years, a maintenance cost of £20/kW/y is included to cover inverter maintenance. Large scale solar is likely much cheaper than this as recent Contracts For Difference auctions have resulted in MWh prices that are similar to Onshore wind.

The CCGT cost is assumed to be £600/kW, paid for with low interest finance at 2.5% over 35 years. The actual cost is £901/kW. Multiplied by 1.6 kW per household is £1441. Maintenance costs are assumed to be £40/kW/year and plant lifetime 35 years which may be a high estimate.

Bulk refined biomethane costs of £0.03/kWh are assumed.

The onshore wind, solar and CCGT backup capacities used here are based on the results of the 10 year hourly zero carbon energy model providing 100% of demand from the zero carbon energy sources listed. The additional biomass and renewable electricity required for producing aviation fuel is not included in the capacities below.

Capacity kWh/d Capital cost / year O&M/year
Onshore wind 1.5 kW 10.9 £1,970 £99 £50
Solar PV 1.5 kW 3.2 £3,467 £116 £30
CCGT 1.6 kW 3.1 £1,441 £41 £64
Biomass 10.4 £114
Biomass unit cost 0.03 £/kWh
Network cost £129
Supplier operational cost £76
Efficiency & Social costs £48
Total annual capital cost £255
Total annual O&M £510
Total annual cost ex VAT £766
Total annual cost inc VAT £804
Supplied electric 14.5 kWh/d
Final unit cost of electric £0.152 /kWh

The resultant unit cost compares very well with current electricity prices. Key to achieving this price is being able to both source low interest long term finance and to run the generating facilities at near cost. This could perhaps be achieved if ownership of the wind and CCGT backup are vertically integrated as part of the energy supplier. The operational cost, maintenance, interest payments of the generating facilities are covered and the supplier still makes a profit as part of their operational cost.

The following worked examples show how the final electricity cost changes at different rates of interest and generator profit, illustrating the importance of striking the right balance between the profits of each stakeholder in the supply chain and the final cost of energy delivered.

Including a generator profit:

We can also put different supply scenarios through the same cost estimator:

Reference scenario above

Onshore wind + backup biomass

Solar PV only + backup biomass

If the solar price used here was based on what is possible at scale it is likely that the cost would be lower given that large scale solar and onshore wind can generate energy at a similar cost per MWh

“Cheap and clean” – new BEIS report confirms that renewable energy will be cheaper than fossil fuels

In this Chapter:

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