Hello Darkness My Old Friend
We are heading towards physical and spiritual darkness as the dark tetrad infiltrates DESNZ.
Introduction
Many readers will recognise the title as the opening line of The Sound of Silence by Simon and Garfunkel. One of the wonders of the English language is that words can have many meanings. Darkness can refer to literal physical darkness, or the absence of light. It can also mean a spiritual darkness, referring to the personality traits that make up the dark tetrad.
With that in mind, there are two pieces of news out this week that take us towards both meanings of darkness.
DUKES Data for 2023
The Digest of UK Energy Statistics annual data for 2023 was released earlier this week and it makes for depressing reading. Overall energy demand dropped to levels las seen in 1950s. Industrial and household use of energy dropped to the lowest levels in over 50 years (see Figure 1).
Of course, 50 years ago was the dark time of the Three-Day Week in 1973-74 caused by miners’ strikes and a shortage of electricity. Today in our own dark time, electricity is effectively rationed by what is euphemistically called Demand Side Response (DSR), where large users are paid to turn off their operations at times of high overall demand.
Net energy import dependency was 40.8%, up 3.8% from 2022 (see Figure 2). That’s right we had to import a higher proportion of a lower overall demand. Electricity imports reached a record high.
We can expect import dependency to rise for two reasons. First, more renewables probably means greater reliance on the kindness of strangers through interconnectors. Interconnectors are presented as a virtue, but in fact they are symptomatic of weakness as we use them to import high-priced electricity at times of highest demand and pay others to take it away when demand is low. As more countries rely upon renewables, there no guarantee that sufficient interconnector capacity will be available when we need it.
Second, as the impact of the windfall tax, North Sea drilling ban and the fracking ban take effect we will need to rely upon gas imports even more. The recent FES report from NG ESO has us using lots of gas even by 2050 and import dependence rising to above 90% in one of their scenarios.
There is a real risk of physical darkness as we rely more on imports of energy.
AR6 Budget Increased to £1.5bn (£2.1bn in 2024 prices)
Another pall of darkness has come in the form of an increased budget for Allocation Round 6 (AR6) renewables auction. Under the previous Government, the budget was set at just over £1bn in 2012 money and has been increased by 52% to £1.55bn or nearly £2.2bn in 2024 money (see Figure 3).
This is a stunning 585% more than was allocated to last year’s AR5. The budget figure represents the Government’s estimate of how much subsidy will be given each year to renewables developers who win projects. Of course, the actual level of subsidy will depend on the contract price and the market price of electricity when these projects come online. The £2.2bn compares to the £3.1bn in CfD subsidies that Ofgem has allowed for 2024/25 in its latest price cap (see Annex 2, Tab 7c).
The psychological darkness comes in the Government’s press release, where they make some extraordinary claims. They begin by claiming more renewables will boost energy security, secure cheap power for families and unlock economic growth and jobs. All three elements of this statement are false. Intermittent renewables cannot increase energy security because they rely on increased imports. As we see in Figure 4, all the renewable technologies are more expensive than current market rates of ~£65/MWh set by gas including carbon taxes.
In fact, some of the technologies such as tidal and wave energy cost many times gas-fired electricity. If renewables really were cheap, they would not need subsidies. Finally, high energy prices damage economic growth and as we discussed before, the “green jobs” in wind and solar cost us about £250K per job per year.
They go on to claim again that this funding will “accelerate the delivery of “clean, cheap, low carbon electricity” which is another lie. The press release then says:
“Families across the country have suffered during the cost of living crisis, as the UK’s over-reliance on fossil fuel markets was exploited by Putin. Investing in clean energy is part of the government’s plans to make Britain a clean energy superpower. This will boost the country’s energy independence, so that families and businesses are never left that vulnerable again.”
First, gas prices rose well before Putin invaded Ukraine, second our imports from Russia were only ever a tiny fraction of gas supply and finally, Miliband has pledged to stop more development of our own resources in the North Sea and will maintain the ban on fracking. At the same time as he recognises a risk to gas supply, he cuts off our own sources.
Ed Miliband is then quoted in the press release saying:
“These subsidies are paid back when wholesale electricity prices are higher than the agreed Contract for Difference price. This was seen over Winter 2022/2023, when Contracts for Difference payments reduced the amount needed to fund government energy support schemes by around £18 per typical household.”
It is true that CfDs did pay back during the energy crisis, but the part he has missed out is that since 2017, CfD subsidies have cost us a net £8.4bn even after the savings in 2022/23. Figure 5 shows that the trend is now up again too.
The only way these new subsidies will pay back is if a new gas supply crisis is deliberately engineered. Moreover, the CfD subsides do not include the £6-7bn each year in subsidies for Renewable Obligation Certificates and the £1.7bn spent each on Feed-In-Tariffs.
Conclusions
The tone of the press release is quasi-religious, almost as if they believe the words of the prophets are written on the DESNZ walls. In the dark tetrad, Machiavellians seek to use manipulation to further their own ends. Narcissists desire unearned status from others. The important thing for them is not status arising from competence, but seeking status for its own sake. As we saw before, the ministers and senior civil servants in DESNZ certainly have no competence in energy, so they must be driven by status for its own sake. Psychopaths are parasitic predators and sadists take positive delight in the suffering of others. Sadly, we can see all elements of the dark tetrad in this press release. They are manipulating the truth to satisfy their sadistic desire to impose high energy prices and suffering on everyone else by awarding contracts to parasitic predators and gain social status from doing it. The sound of silence from the factcheckers like BBC Verify and Full Fact is deafening and allowing the cancer to grow.
I fear we are heading to a very dark place, both physically and spiritually before we can alter course to a more sensible energy policy.
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With regard to AR6 I would note the following:
So far there has been some 33,448MW of capacity awarded CFDs, but of that capacity some 2,330MW has seen its CFDs terminated, dominated by these AR4 Projects:
Energy from Waste with CHP 30
Offshore Wind 1396 (Norfolk Boreas - now permitted to rebid in AR6)
Onshore Wind 221.46
Remote Island Wind 120
Solar PV 276.2
In addition, there have been susbstantial permitted reductions of capacity against the originally awarded capacity totalling some 1,680MW of which a small proportion are smaller adjustments because e.g. it was discovered that not all turbine sites in a project could be used when it came to building them, or the turbines slightly underperformed against manufacturer claims in strong winds. The main adjustments were to AR4 projects, many of which will have been allowed to re-bid the reduced capacity into AR6:
Capacity....Reduction
Offshore Wind 5598.34 1367.21
Onshore Wind 167.7 12.15
Solar PV 364.32 72.935
This means that we can think of AR6 as starting behind the curve by the AR4 terminations (2,045MW) and capacity reductions (1,452MW), or about 3.5GW. Only capacity procured above that will really be new.
The formal notification of the AR6 CFD budget revision is here:
https://assets.publishing.service.gov.uk/media/66a8f4ebce1fd0da7b592fc4/CFD-allocation-round-6-budget-revision-notice.pdf
By the time that Miliband was deciding on this he will have had data on the total volume of pre-qualified projects by technology, together with a forecast of how much budget they would consume if bid at the administrative maximum permitted bid price. It seems possible that in most categories there would have been a larger volume of bids that the original budget approved by Coutinho would have covered, which would have resulted in some element of competitive auction, and therefore perhaps slightly lower CFD prices.
For comparison, in AR5 all solar PV was awarded at the maximum price, with only onshore wind (1.3% discount to maximum) and tidal stream (2% discount to a very lavish maximum) showing any discount. Initially there was no public announcement that an auction was to be held at all, so it's hard to know exactly what went on behind the scenes. According to the timetable for AR6, the EMR Delivery Body is supposed to have issued a Notice of Auction on August 2nd. There is no announcement that they have done so on their website, or the AR6 CFD microsite that is supposed to carry all announcements. I am emailing EMR to ask whether there is an auction or not. If there is not, it means that the budget was increased sufficiently to mean that no auction was necessary, and all applications will be allotted in full at the maximum permitted bid price. It seems quite probable that Miliband opted for this to maximise the capacity awarded (since only pre-qualified capacity can bid).
The estimate is that for the main plank of offshore wind at the full price about 4.2GW would be procured, just 700MW above the lost 3.5GW from AR4. Given none was procured in AR5 there is going to have to be a big increase in budget and strike prices (and under the counter alternative subsidies) for AR7 if Miliband is ever going to attempt his silly dream. I will try to work up estimates for the other pots, but they are likely to be relatively small beer, even with the increases.
Meanwhile, the CFD budget in 2024 money of some £2.215bn according to DESNZ's press release is equivalent to £33bn of increase in consumer bills over the next 15 years, all sanctioned by Ed. It's worth another £75 plus VAT on household bills - and that is before we add in the other associated costs of extra grid capacity (NGESO's projected £18.4bn a year spend is worth £67/MWh alone on current demand levels) and associated balancing, backup and stabilisation costs.
As I understand it, Dave, the CfD price is the amount that vendors demand to ensure that their shareholders are made good against cost increases *over the economic life of the project*. It therefore acts as a proxy for the long term cost trajectory of "renewable energy". A 55% increase in CfD price demonstrates that those who are most competent to evaluate the cost trajectory of "renewable energy" believe it will rise. This contradicts the statements of those who are least competent - the government, and its rag tag posse of "Advisors" - that costs will decrease.
In terms of import vulnerability: we sit on our island at the end of a very long pipeline that crosses many territories. If, say, European LNG imports collapse in the New Year following the onset of rapid decline in US tight shale oil and gas, it would be an interesting essay to analyse who we would become beholden to for what.
Final point: energy growth is to the stability of an economy what forward motion is to the stability of a bike. Although the contraction here appears small, the effect it has on the financial system through the exponential divergence between things of value in the economy and the money units that we use to represent those things is devastating and what will create the collapse.