Energy sources fall into one of two categories: free or inexpensive fuels that must be harnessed using quite costly technology, or costly fuels that can be harnessed at relatively little expense.
The first category includes nuclear power, and renewable energy sources like wind, sunlight and flowing water. The second includes fossil fuels such as coal, oil and natural gas.
To tackle impending climate change, the world needs urgently to shift to low-carbon energy sources such as nuclear and wind power. By 2020, these are expected to be among the most affordable electricity-generating technologies.
High-carbon energy sources such as fossil fuels could become more costly due to an increase in global demand, shortage of supply, or taxes on greenhouse gas emissions. Carbon Capture and Storage (CCS) might reduce emissions from power stations and limit the effects of these taxes – but CCS technology itself is expected to increase the cost of generating electricity using these energy sources.
Low-carbon technologies that might present a solution to climate change, e.g. offshore wind farms or solar photovoltaic (PV) panels, are relatively recent developments.
What's being done?
The cost of new electricity-generating technologies tends to fall over time.
Designs can be improved and made more efficient. Construction processes will be streamlined and the volume of labour reduced as the industry gains experience. Operators learn to run their equipment in the most efficient way – minimising costs and maximising income.
What it means for the UK
In 2009, about 60% of UK electricity was generated from fossil fuels – mainly coal and gas (calculated from data presented here). But to achieve our 2050 greenhouse gas emissions targets, almost all UK electricity will need to be generated from a mix of nuclear power, renewable energy, and fossil fuels equipped with Carbon Capture and Storage (CCS) technology.
CCS traps greenhouse gases and stores them underground, but is expected to increase both the upfront and operating costs of fossil fuel-burning power stations.
This shift to an energy mix will require major investment in new electricity-generating capacity: from microgeneration projects such as household solar panels to large power stations. The UK Government estimates that as much as £110 billion of investment in generating and transmission equipment could be required by 2020.
How the UK is responding
Using a mix of energy sources and technologies to generate electricity should enable the UK to maintain its supply of affordable and low-carbon electricity. Nuclear power is expected to play a major role in this, and is already cost-competitive with other low-carbon generating technologies (and with higher-carbon generating technologies once the true cost of emissions is counted).
Onshore wind will also be a major player, although how much energy can be harnessed in this way is limited by social and geographical factors.
Offshore wind capacity will also increase and its costs are expected to fall over time.
Newer and more expensive technologies – such as Carbon Capture and Storage (CCS) – may become more affordable as the industry gains experience of using them.
Each energy source brings different costs of harnessing power and transforming it into clean and reliable electricity. When we consider affordability, we must take all of these costs into account.