Is offshore wind really 40% cheaper than gas?

We need a better energy debate

“The price of wind we’ve secured is 40% LOWER than the cost of building and operating a new gas power plant.”

This is Energy Minister Michael Shanks MP’s defence of the Government’s decision to lock in 20-year contracts for 8.4GW of wind power at £91 per MWh. DESNZ’s data (published yesterday) estimates that the levelised cost of energy for a new gas plant built in 2030 is £147 per MWh.

In essence, he’s arguing that even if £91 per MWh is more expensive than energy is at the moment, it isn’t more expensive than building more gas plants in the years to come. Comparing new wind with old gas plants fast approaching decommissioning.

Shanks is right to look forward (and not at current prices). Britain’s existing gas fleet is old and in need of investment. Nearly a quarter of the existing capacity was built in the 90s. Gas appears cheaper than it is because we are sweating a fleet that won’t be there in a decade. And it has become more expensive to build new gas plants due to the surge in demand from AI hyperscalers like Microsoft.

Shanks’ argument has elements of truth, but I think it is ultimately misleading.

First, the high cost of new gas is partially a policy choice. Gas power emits CO2, which causes climate change. Britain imposes a carbon tax on gas so the polluter pays for the damage they cause. This represents around 30% of the cost of building and operating a new mid-merit gas plant on DESNZ’s assumptions. If this carbon price was scrapped, as Reform and the Conservatives now advocate, then the LCOE for new gas would fall to a £105 per MWh.

I am in favour of carbon pricing, but when advocates talk about ‘gas being expensive’ without making clear that we deliberately make it more expensive in order to tackle climate change, they are, deliberately or not, muddying the waters to create the impression that decarbonisation is without trade-off.

Second, high carbon prices and more wind on the grid also push down gas load factors. In the past, gas plants ran most of the time. In the future, they may go weeks without switching on. With lower carbon prices (and less wind on the grid), we would also sweat our gas assets to a much greater extent. The £147 figure is based on a gas plant running at 30% capacity.

Run it at 93% and costs fall to £109 (and £69 excluding carbon prices). At low capacity factors, there’s less generation to spread fixed costs like construction across.

Sidenote: It is more than a little frustrating that they modelled 93%, which no one expects to be reached, rather than 70% which was average capacity hit between 2014 and 2024.

Third, LCOE is a flawed metric. While it can be helpful to track cost increases or decline for a given technology, it can mislead when you compare technologies. Nuclear runs 24/7 at a high capacity factor, wind is intermittent, and gas can fill the gaps. If you only look at the LCOE, you ignore the big benefits of baseload (nuclear) and dispatchable (gas and coal) forms of generation.

Fourth, even if we build loads of wind generation, Britain will still need new gas plants to fill the gaps when the wind isn’t blowing and the sun isn’t shining. And the Government is planning to order new gas plants. The debate then isn’t just whether or not to build new gas plants, but whether to run them at higher or lower capacity factors.

We deserve a better debate. Our current debate isn’t sustainable. What we have today is a legacy of a brief period after the gas crisis where wind and solar were indisputably cheap. Back then there was no energy trilemma. Energy security, decarbonisation, and affordability all pointed us in the same direction: a dash for clean power. Since then gas prices have come down and the cost of building wind farms has gone up.

We need to be able to engage with trade-offs. First, because the public cares about this and if bills don’t come down, then there will be a backlash. Second, the trade-offs matter for decarbonisation. There is no way to reach Net Zero without mass electrification. And electrification will only succeed if it is a good deal for consumers. There is no point in decarbonising the grid, if it stops us from decarbonising our heating, transport and industry.