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Capital Investment in the UK Energy and Electricity Sectors

Dr John Constable: GWPF Energy Editor

New data published by the UK’s Department of Business Energy and Industrial Strategy allows us to estimate that 36% of total energy sector capital formation since 2010 has been devoted to renewables. Nearly all of that has been in the electricity sector, where 83% of the capital invested (£52 billion) has been in renewable generation. This does not appear to be a balanced distribution of risk across technologies.

In the 3rd of April this year the United Kingdom’s Department of Business, Energy and Industrial Strategy (BEIS) revealed in a press release that they estimated capital investment in renewable electricity since 2010 at approximately £52 billion (“£290 million boost for clean energy in Britain”. I wrote about this subject, noting that capital expenditure figures such as this were hard to find and very welcome [“The Opportunity Cost of Renewables Investment”. Data published by BEIS this week, in its useful UK Energy in Brief allows us to put this figure into context, and see it as a fraction of total energy and electricity sector.

Using data from Table 3 of the BEIS data set we can draw the following figure:

Figure 1: Investment in the energy industries 2000 to 2016 (£bn, current prices). Drawn from Office of National Statistics data published by the Department of Business Energy and Industrial Strategy.

Summing the figures for the years 2010 to 2016 we find that investment in the energy sector as a whole came to £144 billion. Thus, the £52 billion reported by BEIS in April as invested in renewable energy generation during this period is 36% of the total energy sector investment.

Performing the same calculation for the electricity sector we find that total investment in the period 2010 to 2016 amounted to £62.4 billion, and therefore that renewables comprised 84% of total electricity sector investment. In effect there is little else occurring in the electricity sector except investment in subsidised renewable generation.

These are remarkable figures, however one interprets them. But how should one interpret them? To some they will seem a clear and welcome sign of the unstoppable green transition underway, while to others, who take a less sanguine view of the intrinsic merits of current renewable technologies this will seem extremely premature, unbalanced and hazardous. Perhaps the following calculation helps one to choose between these options.

Renewable generation capacity at the end of 2009 came to 9.3 GW, and by in 2016 amounted to about 33 GW. Thus the £52 billion investment reported by BEIS delivered about 24 GW of capacity over the period 2010 to 2016. This was mostly solar (9 GW), and onshore wind (6 GW) and offshore wind (3 GW). With substantial quantities of other technologies, such as dedicated biomass (1 GW) and hydro (2 GW). Applying  generic load factors to all these capacities we can estimate the probable generation from the additional plant constructed as very roughly 51 TWh of electrical energy. That is not a small quantity of energy, but it is not in the scheme of things a very large one, amounting to about 18% of final consumption of electricity, and only 3% of total Final Energy Consumption in the UK. The £52 billion does not appear to be a productive investment.

Furthermore, there is a clear and substantial transition risk. If this investment fails, with early plant closures, or has economic consequences that are unacceptable, both likely outcomes in my view, the misallocation of capital will constitute a problem on a national scale, and its correction in distressed circumstances will be both difficult and costly. But it is still, probably, just manageable, if there are no competing demands on resources, and there is thus every reason for government to act now to limit any further additions to the stake placed on green electricity.