Forecasters failed to anticipate rising electricity costs, study finds

Electricity cost forecasts tend to err on the side of optimism, according to analysis by the UK Energy Research Centre.

Historically, studies have predicted costs falling in a range of technologies when in reality fossil fuel prices, raw materials and building costs have risen since the mid 2000s, researchers found.

Recent studies have been better at taking account of inflationary pressures, they concluded, but some have still failed to anticipate cost rises. Accurate predictions are becoming more important as government’s Electricity Market Reforms introduce greater administrative price-setting.

Robert Gross, director at the UKERC, said: “Some of the uncertainties revealed by the case studies are inherently unpredictable and volatile, and can overwhelm cost projections even in the best of analytical worlds. Others, such as learning effects, ongoing innovations, scale effects and standardisation, lend themselves more readily for future projection. It’s also possible to anticipate and manage factors such as short-term bottlenecks and supply chain constraints. This has important implications for policy design such as time horizons and sequencing.

“We need to acknowledge, and communicate the assumptions and uncertainty inherent to cost projections; they are difficult and challenging, so analysts and policymakers should not be surprised if forecasts turn out to be wrong, and should understand that it is not always possible to seek certainty in an uncertain world.”

Solar PV has shown the “most resolutely downward” cost trend, albeit from the highest base, the authors said, helped by the technology’s modular nature and mass production.

In nuclear, they found “significant disparities between expectations and reality,” attributed in part to a lack of data due to commercial sensitivites.

Carbon capture and storage technology, which is at a much earlier stage of development, is getting more expensive as developers create more detailed plant design, they found.

Wind and combined cycle gas turbines (CCGTs) had seen “consistent and substantial” cost reductions but the trend reversed, for different reasons, in the mid and late 2000s.