While the premium for average wind over market did decline during the price spikes last year, it was never eliminated. Since April, a fresh round of large indexation increases on ROC and CFD strike prices has widened the premium, which is further increased because the average CFD yields more than market price again, rather than less as was the case during the price spikes.
then the financial year information allows me to calculate the average number of ROCs per MWh for various technologies. It's 1.0 for onshore wind, 1.9 for offshore wind, and about 1.45 for solar. The value of an ROC is boosted above the cashout price because the cashout pool is redistributed to those who submit genuine ROCs. Whilst real ROCs can be held over from a previous year to help meet the required ration - a speculation that may make sense in the high inflation environment, since the cost is the cashout value of the year hoarded, plus the recycle income forgone in that year, which may be less than the indexed price plus indexed recycle value less interest cost of the differential cashflow, giving a profit - it's a good starting point to assume that there will be a similar recycle value this year compared with last. With the current cashout price being £59.01/ROC we're looking at £65-66/ROC as overall value.
Add on the market price - even discounting it a little to allow for the fact that wind tends not to capture high prices when wind is scarce - and we get say £75/MWh base value, plus £65 for onshore wind, to make £140/MWh; plus £123.5/MWh for offshore wind making £198.5/MWh, and plus £94.25/MWh for solar making £169.25/MWh.
Logic is a bit difficult to follow so excuse my slowness but are you simply arguing that the price paid for renewables will go up by inflation, or by more than inflation?
That's a good question. But impossible to answer because we don't know the future cost of new installations. In general, the existing base will go up with inflation. If new installations are cheaper than existing, then overall prices will rise a bit more slowly
than inflation. But the point I am making is that the claim of cheaper bills through more renewables is not true.
Thanks, that helps clarify. I’m afraid I don’t share your alarm that CFD payments are inflation linked. You would expect this in a long term contract with high capital costs to take away the inflation risk which should then reduce the cost of capital and feed into lower prices. From the buyer’s perspective, it’s flat in real terms so an inflation adjustment is acceptable.
The carbon brief chart does say underneath that prices have been deflated to 2023 values so they have taken inflation into account. I guess by cheaper they mean in real terms, cheaper in nominal terms in a high inflation environment being almost impossible to achieve in any area of business.
Since capital costs are up front and hedgeable they are not subject to much inflation risk. Really, only O&M and decommissioning costs have any inflation risk once the plant becomes operational. The Irish ORESS auction recognises this, by for example offering some indexation related to steel prices prior to commissioning (but not beyond target commissioning date), which helps de-risk construction cost. Excessive inflation indexation has allowed several wind farms to sell off the value of the excess to pension funds (who need indexed assets) to provide an early dividend to shareholders. This has been the model of Orsted operations, with large stakes sold to pension funds shortly after a wind farm is commissioned, booking substantial profits. Others sell off the excess indexation value to banks. Consumers are not the beneficiaries, because of the excess value converted for shareholder benefit.
As others have pointed out, the real costs of wind are teh costs of integrating it into the supply system. This include more pylons, extra backup and stabilisation, and rising curtailment as capacity increases. These are factors that LCOE nominal calculations fail to pick up.
More than avg inflation, that is inevitable due to their huge material inputs, ~50X that of nuclear per unit energy. But moreso the argument is the REAL cost of wind & solar is many times, likely 5-10x, the simplistic LCOE generation cost that ignores grid integration effects of an intermittent energy source. An argument can be made the real cost of wind & solar is infinite in a $/MWh generated. This is due to the total system full lifecycle net generation of wind & solar is <zero, so any amount spent reduces overall generation.
Renewables only look cheap, while they are relying on gas as a backup for their unreliability. It is like saying diamonds are cheap - without factoring in the costs of cutting and setting.
To get a true cost for renewables, you need to factor in energy storage - ie: backing up 70% of the renewable output for about 20 days. That is a lot of storage, and will cost a huge amount of money. But renewables cannot operate as a complete system, without it.
Cost storage into renewables, and suddenly they will triple in price.
In reality, very little storage is going to be profitable, because it will not turn over fast enough to earn a margin to pay its costs, especially given low round trip efficiency schemes like power to hydrogen. So it works out that curtailment is cheaper, but that is a rapidly escalating cost, especially if you look at it on a marginal basis. So even before we add on the other costs for extra grid capacity and stabilisation, inefficiently operated backup, etc. we are soon looking at a marginal cost of wind that is a multiple of the number they first thought of.
Plus, as David says, 'the eye-watering costs of grid balancing and adding extra transmission lines'. The reality is that no one knows the true costs of renewables. All we know is that they will be absurdly expensive - if we're foolish enough to press ahead with them.
There are limited supplies of Uranium, of the 235 variety (if we do not have fast breeders). But a million years of easily available Thorium. And Thorium does not have the 30 kyr waste products of Uranium.
They each have their advantages. Utilizing thorium is very similar to utilizing natural uranium or depleted uranium (U-238). Should be no problem doing both simultaneously. A lot easier than using both Wind & Solar.
They run best with reactor grade Plutonium as a startup fuel, in fact they need it if you don't have U233 which there isn't nearly enough. That's why SNF is a precious resource that should be cherished and processed with molten salt tech to produce thorium/Pu fuel salt, while selling the DU & valuable isotopes, the rest can be dropped down a borehole. Only dangerous for 300yrs. There you have it, the Nuclear Waste issue is resolved, no need to spend 100's $billions on deep geological repositories. Dumbasses, no common sense.
It should be abolishing absurd net zero legislation and stabilising the economy and cost of living via the exploitation of cheap, locally abundant, energy dense fossil fuels plus development of nuclear. No further expansion of costly, inefficient, intermittent, destabilising and high environmental impact 'renewables' which INCREASE energy insecurity and increase the cost of energy, whilst they also require rationing of energy.
Not many nations have sufficient, economical "cheap, locally abundant, energy dense fossil fuels" to supply even a substantial fraction of their needs. Every nation on Earth has all the Uranium & Thorium under their feet to supply their energy needs for at least a million years.
I don't have anything against highly efficient nuclear power, just as I don't have anything against a meat free diet to mitigate the suffering of animals caught up in the meat industry. What irritates me in the extreme is the proposition that we must go carbon free nuclear or all go veggie post haste in order to prevent an imaginary 'climate crisis' from getting even worse, a proposition which, even if it were true, would still be of zero practical importance, because much of the rest of the world will still continue to farm animals and expand their economies using fossil fuels. Idiocracies are just not my thing but I am forced to live in one.
That's not the problem. The problem is we need to increase total World primary energy 5X in order to supply the energy Developing Nations will want, similar to what we have in the West. There is no way we can do that with Fossil or even Fossil + Renewables. Only energy supply capable of that is Nuclear. And it can supply that level of energy until the Sun burns the Earth. If we don't move to Nuclear soon, price inflation, driven by demand in the Developing World, will cause fossil to be too expensive.
Nuclear, obviously. And I get it, they were forced by the criminally corrupt EU dictatorship to build the worst choice = French EPR, but they supposedly are now Brexited. So, get a brain Sunak, and switch to APR1400s at 1/3rd the cost and 3X faster, or Moltex SSRs and tell the corrupt Bankster Toadie French gov't to jump into the channel with their EPRs.
Here's a chart showing production weighted wind prices by segment, with the overall average compared with day ahead market prices.
https://uploads.disquscdn.com/images/8255dfeccc15c7d1ea7f6fb2adfe6d6cae99f32f1a2e3d7d7a3d686d96a50abd.png
While the premium for average wind over market did decline during the price spikes last year, it was never eliminated. Since April, a fresh round of large indexation increases on ROC and CFD strike prices has widened the premium, which is further increased because the average CFD yields more than market price again, rather than less as was the case during the price spikes.
I think you are underestimating costs for renewables financed by ROCs. If I look at the data from here:
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1184074/ROCs_Sep_2023.ods
then the financial year information allows me to calculate the average number of ROCs per MWh for various technologies. It's 1.0 for onshore wind, 1.9 for offshore wind, and about 1.45 for solar. The value of an ROC is boosted above the cashout price because the cashout pool is redistributed to those who submit genuine ROCs. Whilst real ROCs can be held over from a previous year to help meet the required ration - a speculation that may make sense in the high inflation environment, since the cost is the cashout value of the year hoarded, plus the recycle income forgone in that year, which may be less than the indexed price plus indexed recycle value less interest cost of the differential cashflow, giving a profit - it's a good starting point to assume that there will be a similar recycle value this year compared with last. With the current cashout price being £59.01/ROC we're looking at £65-66/ROC as overall value.
Add on the market price - even discounting it a little to allow for the fact that wind tends not to capture high prices when wind is scarce - and we get say £75/MWh base value, plus £65 for onshore wind, to make £140/MWh; plus £123.5/MWh for offshore wind making £198.5/MWh, and plus £94.25/MWh for solar making £169.25/MWh.
Logic is a bit difficult to follow so excuse my slowness but are you simply arguing that the price paid for renewables will go up by inflation, or by more than inflation?
That's a good question. But impossible to answer because we don't know the future cost of new installations. In general, the existing base will go up with inflation. If new installations are cheaper than existing, then overall prices will rise a bit more slowly
than inflation. But the point I am making is that the claim of cheaper bills through more renewables is not true.
Thanks, that helps clarify. I’m afraid I don’t share your alarm that CFD payments are inflation linked. You would expect this in a long term contract with high capital costs to take away the inflation risk which should then reduce the cost of capital and feed into lower prices. From the buyer’s perspective, it’s flat in real terms so an inflation adjustment is acceptable.
The carbon brief chart does say underneath that prices have been deflated to 2023 values so they have taken inflation into account. I guess by cheaper they mean in real terms, cheaper in nominal terms in a high inflation environment being almost impossible to achieve in any area of business.
Since capital costs are up front and hedgeable they are not subject to much inflation risk. Really, only O&M and decommissioning costs have any inflation risk once the plant becomes operational. The Irish ORESS auction recognises this, by for example offering some indexation related to steel prices prior to commissioning (but not beyond target commissioning date), which helps de-risk construction cost. Excessive inflation indexation has allowed several wind farms to sell off the value of the excess to pension funds (who need indexed assets) to provide an early dividend to shareholders. This has been the model of Orsted operations, with large stakes sold to pension funds shortly after a wind farm is commissioned, booking substantial profits. Others sell off the excess indexation value to banks. Consumers are not the beneficiaries, because of the excess value converted for shareholder benefit.
As others have pointed out, the real costs of wind are teh costs of integrating it into the supply system. This include more pylons, extra backup and stabilisation, and rising curtailment as capacity increases. These are factors that LCOE nominal calculations fail to pick up.
More than avg inflation, that is inevitable due to their huge material inputs, ~50X that of nuclear per unit energy. But moreso the argument is the REAL cost of wind & solar is many times, likely 5-10x, the simplistic LCOE generation cost that ignores grid integration effects of an intermittent energy source. An argument can be made the real cost of wind & solar is infinite in a $/MWh generated. This is due to the total system full lifecycle net generation of wind & solar is <zero, so any amount spent reduces overall generation.
Renewables only look cheap, while they are relying on gas as a backup for their unreliability. It is like saying diamonds are cheap - without factoring in the costs of cutting and setting.
To get a true cost for renewables, you need to factor in energy storage - ie: backing up 70% of the renewable output for about 20 days. That is a lot of storage, and will cost a huge amount of money. But renewables cannot operate as a complete system, without it.
Cost storage into renewables, and suddenly they will triple in price.
Ralph Ellis
In reality, very little storage is going to be profitable, because it will not turn over fast enough to earn a margin to pay its costs, especially given low round trip efficiency schemes like power to hydrogen. So it works out that curtailment is cheaper, but that is a rapidly escalating cost, especially if you look at it on a marginal basis. So even before we add on the other costs for extra grid capacity and stabilisation, inefficiently operated backup, etc. we are soon looking at a marginal cost of wind that is a multiple of the number they first thought of.
Plus, as David says, 'the eye-watering costs of grid balancing and adding extra transmission lines'. The reality is that no one knows the true costs of renewables. All we know is that they will be absurdly expensive - if we're foolish enough to press ahead with them.
Especially if the Greens insist on underground HVDC lines.
The Suedlink in Germany will cost €10 billion, just for one cable.
R
I get that you don’t like wind and solar. What should the UK be doing instead?
We need Thorium power.
There are limited supplies of Uranium, of the 235 variety (if we do not have fast breeders). But a million years of easily available Thorium. And Thorium does not have the 30 kyr waste products of Uranium.
R
They each have their advantages. Utilizing thorium is very similar to utilizing natural uranium or depleted uranium (U-238). Should be no problem doing both simultaneously. A lot easier than using both Wind & Solar.
There is much more thorium available.
The waste products are short half-life - far less transurenics.
Plus it is very difficult to make nuclear weapons with thorium.
And it it is compatable with molten salt reactors.
R
They run best with reactor grade Plutonium as a startup fuel, in fact they need it if you don't have U233 which there isn't nearly enough. That's why SNF is a precious resource that should be cherished and processed with molten salt tech to produce thorium/Pu fuel salt, while selling the DU & valuable isotopes, the rest can be dropped down a borehole. Only dangerous for 300yrs. There you have it, the Nuclear Waste issue is resolved, no need to spend 100's $billions on deep geological repositories. Dumbasses, no common sense.
It should be abolishing absurd net zero legislation and stabilising the economy and cost of living via the exploitation of cheap, locally abundant, energy dense fossil fuels plus development of nuclear. No further expansion of costly, inefficient, intermittent, destabilising and high environmental impact 'renewables' which INCREASE energy insecurity and increase the cost of energy, whilst they also require rationing of energy.
Not many nations have sufficient, economical "cheap, locally abundant, energy dense fossil fuels" to supply even a substantial fraction of their needs. Every nation on Earth has all the Uranium & Thorium under their feet to supply their energy needs for at least a million years.
I wrote about that on the here. Basically lots more nuclear.
https://davidturver.substack.com/p/nuclear-power-everywhere-all-at-once
Here's why:
https://davidturver.substack.com/p/why-eroei-matters
And here's how to bring the cost of nuclear down:
https://davidturver.substack.com/p/how-to-make-nuclear-power-cheaper
I don't have anything against highly efficient nuclear power, just as I don't have anything against a meat free diet to mitigate the suffering of animals caught up in the meat industry. What irritates me in the extreme is the proposition that we must go carbon free nuclear or all go veggie post haste in order to prevent an imaginary 'climate crisis' from getting even worse, a proposition which, even if it were true, would still be of zero practical importance, because much of the rest of the world will still continue to farm animals and expand their economies using fossil fuels. Idiocracies are just not my thing but I am forced to live in one.
That's not the problem. The problem is we need to increase total World primary energy 5X in order to supply the energy Developing Nations will want, similar to what we have in the West. There is no way we can do that with Fossil or even Fossil + Renewables. Only energy supply capable of that is Nuclear. And it can supply that level of energy until the Sun burns the Earth. If we don't move to Nuclear soon, price inflation, driven by demand in the Developing World, will cause fossil to be too expensive.
Nuclear, obviously. And I get it, they were forced by the criminally corrupt EU dictatorship to build the worst choice = French EPR, but they supposedly are now Brexited. So, get a brain Sunak, and switch to APR1400s at 1/3rd the cost and 3X faster, or Moltex SSRs and tell the corrupt Bankster Toadie French gov't to jump into the channel with their EPRs.