How Sustainability by Numbers got Electricity Pricing Wrong
Why isn't this being shouted from the rooftops?
Alternatively why isn't it being reported by any journalist?
The Big Freeze awaits, as the lunatics in charge become ever more detached from life as we know it.
To date, the advice has been to wear more socks, hug your dog, jump around and buy another hotwater bottle.
British Gas has recently invited me to choose from 3 new tariff option, each of which has a slightly less than threefold increase in the standing charge, which Ofgem has approved.
We needed to get dirty coal off the system (we could have replaced it with more environmental friendly coal burning power stations but nobody was interested) and that was through gas. So we had considerably decarbonised our power generation compared to other countries but then we let the environmental evangelists take control of the agenda and they then moved onto all fossil fuels are bad (oh and if we ever eliminate them they will target renewables after!!). What this did was make us stupidly start adopting solar/wind before it was a mature technology and this has required vast subsidies (your CfD costs are bad enough but on to of this are the FiT and ROC costs as well) as well as giving us low capacity generation. Had we waited until technology had matured we could have built out more capacity for less environmental impact (yes i know some of the bigger wind units are suffering teething problems but history shows we humans resolve these issues) and at less cost. Also because gas generators have less certainty on their income streams many have moved away from long term supply contracts and using the spot market making is more vulnerable to price spikes.
So to support your view what we need to do now is setup some 10-15 year long term gas deals with US, M.East/Africa so we have cost and volume certainty, build alot more LNG storage and use the CCGTs as baseload and let the renewables displace it when its available. Oh and of course no more subsidised renewables if its cost effective it will find its own market like solar is on roofs of warehouses. Oh and get on with 3-4 more nukes they are the only viable route to net zero if thats what the majority want.
1. CO2 is currently 420 ppm, which is 0.042%. Humans are responsible for 3% of that, which is 0.00126%. Thus, 99.99874% of all CO2 is created naturally.
2. At under 150 ppm CO2, plant life dies, and everything else dies with it.
3. The atmosphere has had periods where CO2 was up to and higher than 4000 ppm. During the Triassic period 215 million years ago, both plant and animal life thrived and Alaska was a jungle.
4. When Mt. St Helens erupted in 1980, it released the same amount of pollution as 270 years of human industrial activity in 1970. That’s 270 x 1970 industrial activity - IN ONE DAY. -zFree
Please can you get this across to MSM including newspapers etc. The general public need to understand this situation.
How do we get this stuff into the heads of the climate nutjobs?
That seems to be the problem
Can you also add in the following:-
1. That gas generally sets the price paid to all, but its taxed for carbon emission per tonne which therefore pushes up the cost of all electricity artificially.
2. That with air heat pumps they are 4 times the price of a gas boiler, and in winter when the temperature falls below about -2C the heat generated is less than required to heat your house.
3. That at a COP of about 2.4 to 2.7 in winter 1KW of electricity would produce 2.4 or 2.7KW of heat. However a gas boiler produced 0.8KW of heat per KW of gas consumed.
However, electricity is 4 times the price of gas so taking price into account 1KW of gas = 3.2KW of heat but 1KW of electricity is at most 2.7KW of heat, so your heating bills will go up by 3.2/2.7 = 18%
You may get some of that back in the summer, but of course if you are like me I use virtually no gas between April and October.
4. If we have a protracted blocking high and temperatures never get above zero and can fall to -10C then your bills will not only go through the roof, but there still won't be enough heat to keep you warm. Great stuff for older people.
Frack, frack and frack some more!
Can we also add in that global warming does not mean the UK will get warmer, the UK has a temperate climate because of the Atlantic conveyor which is a warm water stream running from the equator past Europe and Ireland and runs into a sinking zone off Greenland.
The result of which means we get winter temperatures between 2C to 8C on average while Canada on the same latitude gets winter temperatures of -5C to -15C
The intensity of the Atlantic conveyor has reduced by 20% since the 1970's and at some point it will simply shut down, plummeting us into Canadian style winters.
That will mean icing of wind turbines, reducing their efficiency in moderate icing by 30% and air source heat pumps will be 100% useless, electricity demand will soar and solar panels will be covered in snow.
The point about excess renewables driving the wholesale price down to a level that is below the marginal cost of firm resources such as nuclear is a salient one that could be discussed further.
Everything else seems like more of a market structure problem than a renewables problem, for those of you operating in markets that include a FiT. If you were to recreate these charts for most U.S. RTOs, you’d see renewables bid in at zero or less and the market clearing at the marginal cost of gas, without the additional FiT cost.
Excellent read and handiwork on recreating the charts. I simply wanted your readership to realize this isn’t a problem inherent to the fact these resources are “renewable.” Policymakers creating this issue because they want to incentivize renewables is a policy problem, not a renewable problem.
If you think increasing domestic gas supply will bring down prices, then wouldn’t you also have to accept that reducing domestic gas demand (eg wind generation displacing gas generation) has also lowered prices? I’m sceptical of both claims but I don’t see how you can believe one without the other?
Could you explain a little bit more how CFD strike price works? Is it a flat fee for renewables that are paid by customers regardless of how much electricity is produced or consumed? Is this typical in Europe? Is this also used in USA?
I'm going to quibble about a couple of things in your article. The volume of electricity delivered via FiT payments is actually quite small, and the economics are not easy to calculate as the rules have changed over time. Suffice to say it's very costly for what it is, with some tariffs paying almost £600/MWh. I'm considering trying to delve into it all, which occasioned producing this mouseover map of the amount of domestic solar PV installed in each parliamentary constituency.
Just over half of wind generation is produced under the ROC regime. On average, across onshore and offshore, wind gets about 1.4ROCs per MWh. ROCs are inflation linked, and designed to cost a premium to the notional cashout price through creating an artificial shortage that forces cashout purchases that get redistributed to real ROCs. We can expect the current year may end up being worth ~£65/ROC. In addition REGOs (greenwash certificates) are now becoming economically rather more interesting, probably selling for around £6/MWh although some have been auctioned for as much as £10/MWh. Altogether it means that ROC wind gets close to £100/MWh premium to day ahead market prices on average, though the top whack goes to floating wind on 3.5ROCs per MWh - on its own worth £227.50/MWh assuming £65/ROC - on top of market price. The difference in pricing regime matters when it comes to curtailment.
CFDs do NOT pay out for curtailed production. The curtailment and negative market price rules do vary, however. All CFDs place a ceiling on payout of the current indexed strike price, so there is no additional compensation if prices go negative. But if the CFD is paying £180/MWh and the market drops to minus £50/MWh, the net income of £130/MWh is still pretty handy. For an onshore windfarm being paid just 1ROC/MWh the economics look rather different: net income drops to £15/MWh (plus the REGO which also only pays out if there is production). So it only has around £20/MWh at stake, and is therefore only second to a Moray East on market prices which will simply voluntarily curtail rather than pay £50/MWh for the privilege of bolstering its annual output figures.
Note that if Moray East had in fact sold some of its output a week earlier for say £60/MWh its rational choice is to curtail and buy in power from elsewhere at the market price of minus £50/MWh, and pocket the £110/MWh difference as pure profit - much better than just £60/MWh. Potentially a nice synergy with neighbouring Beatrice sitting on its £186/MWh CFD if it has unsold output.
We end up with a curtailment price merit order that depends on the size of the ROC or CFD subsidy and the level of market price. Curtailment is actually a function of the Balancing Mechanism. The Grid will be interested in ensuring that there is curtailment to avoid overloading transmission lines. Wind farms located upstream of inadequate transmission links are in a limited local competition for curtailment, and so they can extract a premium to their true economic loss - they can work out what the economic loss for other wind farms would be, and will have a good idea of how much curtailment is needed, so they can price their curtailment bids accordingly. The Grid will meekly accept what is necessary to avoid overloading the cables. Curtailment is paid for in the Balancing Mechanism as bid - not at a market clearing price, but the market behaves to bid close to the clearing price.
Of course, the larger the curtailment needed the greater the risk that much higher payments will be necessary. I've seen Hornsea1 being paid over £150/MWh for instance, while Kype Muir, South of Glasgow and near major transmission constraints regularly pops up at around £80/MWh.
Where curtailment gets trickier for CFDs is that some have a condition that there is no CFD payout at all if day ahead market prices are negative for 6 or more contiguous hours for any hour in the period of negative pricing. So with larger and longer surpluses there can suddenly be a large tranche of CFD generation that curtails voluntarily, creating a shortage to be exploited in the run up to Gate Closure and in the Balancing Mechanism. Mostly, the market is gamed so that there are 5 contiguous hours of negative prices, followed by one hour of marginally positive prices, followed by a relapse to negative prices again, meaning that subsidies apply throughout. Bear in mind these events for now happen overnight when demand is low.
The most recent conditions for CFDs are much tougher: there is no CFD payout for any hour when day ahead prices are negative. That means these wind farms will be first in line to curtail with no compensation. In turn it means they need higher prices from the production they do sell - just one of the reasons why the current AR5 CFD auction is deeply unattractive.
Rising capacity (and falling demand) means that instances of negative prices are much more likely. There have been some spectacular cases on the Continent, caused by (domestic) solar surpluses that can't be turned off or priced out, with prices going as high as €500/MWh and more to curtail. National Grid has been involved in bribing Dutch solar farms in a bid to try to avoid overloading the interconnectors.
Of course, it is consumers who get to pay for it all, including for subsidising exports at negative prices.
It’s the same story in the US. The LCOE is little more than Aladdin’s Genie Lamp, it’ll give you whatever you wish... sort of.
In the US, just like LOCE for the UK, relies on wild assumptions of increasing load factors, etc
Here’s a piece we on LOCE in the US. Same story, different place:
David, apologies for being very late to this discussion. I found this article extremely informative but was confused by one statement you made. You write:
'The wind generator might offer electricity to the market at a low price and receive the wholesale price for its power, but we pay the extra as a subsidy though our bills'.
Why would a wind generator offer electricty to the market at less than his strike price? Or have I misunderstood something