1. Outline
This is a letter from Nigel Topping, Chair of the CCC, to Claire Coutinho, Shadow Secretary of State for Energy Security and Net Zero, in response to a letter requesting clarification on energy cost assumptions included in the Seventh Carbon Budget.
2. Key messages
- The levelised cost of energy (LCOE) for offshore wind in 2030, given in our Seventh Carbon Budget advice, and the Contract for Difference (CfD) strike prices from last year’s CfD auction are not the same measure. The LCOE reflects the underlying cost of generating electricity over a project’s full lifetime. The strike price is a policy-determined revenue guarantee for a contract period. The CCC publish estimates on an LCOE basis because this enables us to give comparisons between renewable, other low carbon, and fossil fuelled technologies.
- The Committee considers market conditions in our evidence. We adjust individual technology costs where appropriate to reflect these. In the Seventh Carbon Budget, we applied a temporary 25% uplift to our estimates for the real cost of offshore wind projects to reflect supply chain constraints in line with the best available evidence at the time.
- Making electricity cheaper, through the removal of levies and policy costs, is our primary recommendation to this Government. We have consistently expressed our concern that sufficient measures have not been taken to reduce electricity costs for people, and we welcome focus on this issue.
