Renewables – what incentive is there to build back-up capacity?

E.ON is arguing that Britain will need lots of fossil fuels for a long time in the future, even if we hit our 15 per cent renewable energy generation by 2020 target (which will mean 30 – 40 per cent renewable electricity generation). Gas is a particularly good partner for renewables because it can be switched on and off quickly and balance out the volatility of renewable generation.

E.ON has a fair question about this: what incentive is there to build back-up capacity?

“If we are to meet the European target, we need to back that up with fossil fuel generation that can be turned on quickly when the wind does not blow,” explained a spokesman for the company. “But the issue is who pays for that. If we spend half a billion pounds on a gas-fired power station that is not turned on very often, we need to look seriously at how that investment is rewarded.”

Renewables generally have low marginal generation costs, so fossil fuels will lose when there is lots of electricity being generated by the new wind farms (assuming they ever get built).

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