Gas can produce enormous amounts of power at short notice 100% of the time and is cheaper per watt, nobody builds a 5MW twin cycle gas turbine power plant. There is a reason it sets the price at market. The CFDs are locked in at persistently high prices for decades. All these actions will increase costs to customers.
There is a reason our energy costs are the highest in the world, it is because our politicians persistently make choices like the ones described in this article.
These prices are a lot closer. You can play around with the assumptions in the government's LCOE calculator spreadsheet linked from the article. Removing the carbon price and using pre-wind load factor of 75% gives a LCOE of £67/MWh, which is similar in cost to solar at £65/MWh and onshore wind at £72/MWh, albeit lower than offshore wind at £91/MWh.
Assuming future costs of gas will go down is risky too. UK North Sea production is falling and recovery costs are likely to increase as we are left with only more marginal deposits.
It is important to realise that the current pricing mechanism is not an accident, and has some non-obvious benefits that need to be weighed against the obvious drawbacks. Clearly other mechanisms exist, which might solve the obvious drawbacks, but it is a choice of tradeoffs rather than a simple fix.
This is highly misleadling. Nobody is setting the price, it is determined by an open market. This naturally drives it towards the price of the cheapest energy source with available capacity (often natural gas). It would be irrational to sell electricity for cheaper than this. If more batteries get deployed, the price will more often get set by battery storage instead.
> In this model, the price of electricity is set by the most expensive source needed to meet demand at any given time. Often, this is gas-fired power plants. Even if cheaper renewable sources like wind and solar are supplying a significant portion of electricity, the overall market price is influenced by the cost of gas.
If you don't cover 100% of the current power usage from batteries, the price will be price of gas plants.
The gas plants could be 1% of given moment, yet still set price
That is exactly what I wrote. Gas plants being at 1% implies that there is no cheaper source with available capacity. Why should anyone sell electricity for less then?
So if I offer my services providing electricity through a bicycle transformer for the cheap cheap price of $1000 per kWh does that mean everyone has to pay that price.
But with power the final product it's the same, the production method is different.
So it's more like this: I make a product for 5 and sell it for 6. My production facility is maxed, but there is still much demand. So I (or someone else) sets up another factory, making them for 8 and selling for 9 (there is demand enough). Now, will I keep selling at 6? No, my prices will also increase (to maximise my profit), and the final price will be where the demand curve crosses the supply curve.
I am wind, the new one is gass. We both make the same product, we sell at the same price, but I make a larger profit.
Makes sense. But in a normally functioning market, production at 5 will rapidly ramp up to capture the excess profits to be made by selling at 8. Eventually this will drive everyone's prices to 6 and the ones stuck producing at 7 (natural gas) will be driven out of business.
According to this comment https://news.ycombinator.com/item?id=46982118 there's additional "treasury" (is that the tax authority in the UK?) weirdness that prevents renewables from capturing these profits.
Treasury is the name for the government's economic ministry, ie the people who "have the money" (except that of course all modern governments run a huge debt) if you're American your equivalent department is also named Treasury.
The UK's tax authority is HMRC, His Majesty's Revenue & Customs.
It takes a lot of time to build electrical generators, so "rapidly" here means what... decades? Years at least. I think wind farms generally you need to do a bunch of paperwork and then if you get an OK (after the paperwork) maybe 3-5 years to build.
The weirdness you're talking about is the other side of the Contracts for Difference subsidising the off shore (and historically onshore too) wind farms. A CfD works like this: You auction off the right to build generation and in the auction people can bid down for the price they'll be paid for say, 10 years of their electricity, this is called the Strike Price. Whatever they sell their electricity for, they always get that strike price. When the sale price was lower, the government is giving you free money - that's why this is obviously a subsidy. But when the sale price was higher the government (effectively the treasury, though actually via a for-purpose government owned company) takes every penny above your strike price, too bad.
This subsidy is cheap for governments because it's about certainty, something they have and which private investors lack. The British government knows it will have tax revenue in 2036, but a private investor would want a fat premium to cover that.
Now, CfDs run out. If you have 10 years of CfD obviously the wind turbine you bought doesn't magically explode after exactly 10 years, maybe maintenance prices get out of hand or the main blades reach end of life in 20 years and so it doesn't last forever, but eventually there's an unsubsidised generator, the situation today though is that there's a lot of very new generation, and so most of it is subsidised.
Another issue is that it makes sense to build off-shore wind farms in particular on the Scottish coast, whereas it didn't make sense to build e.g. coal generation there, so the UK isn't set up to move a huge amount of power made in Scotland to the south where much of it is needed. This results in a situation where there's say 15GW of almost free electricity, but 5GW of it is the far side of a 2GW transit point, you can only have 12GW of that electricity, even though you made 15GW. Fixing this will take years and political will.
It sounds like a crazy system. But wouldn't it also make deploying renewables there wildly profitable? Sunlight is free but you get paid like you burned natural gas.
Gas can produce enormous amounts of power at short notice 100% of the time and is cheaper per watt, nobody builds a 5MW twin cycle gas turbine power plant. There is a reason it sets the price at market. The CFDs are locked in at persistently high prices for decades. All these actions will increase costs to customers.
There is a reason our energy costs are the highest in the world, it is because our politicians persistently make choices like the ones described in this article.
These prices are a lot closer. You can play around with the assumptions in the government's LCOE calculator spreadsheet linked from the article. Removing the carbon price and using pre-wind load factor of 75% gives a LCOE of £67/MWh, which is similar in cost to solar at £65/MWh and onshore wind at £72/MWh, albeit lower than offshore wind at £91/MWh.
Assuming future costs of gas will go down is risky too. UK North Sea production is falling and recovery costs are likely to increase as we are left with only more marginal deposits.
Is it cheaper factoring in externalities?
Doesn’t gas generators set the market price 98% of the time in the UK?
They need to fix their market pricing mechanism before the public benefit from cheaper renewable energy sources.
It is important to realise that the current pricing mechanism is not an accident, and has some non-obvious benefits that need to be weighed against the obvious drawbacks. Clearly other mechanisms exist, which might solve the obvious drawbacks, but it is a choice of tradeoffs rather than a simple fix.
Not any more, according to this article you're commenting on, no.
If you are wondering why the air quotes around "50% cheaper", it's because the price of electricity is set based on the price of gas. Crazy, right ? https://www.greeniow.org.uk/why-uk-electricity-prices-are-ti...
This is highly misleadling. Nobody is setting the price, it is determined by an open market. This naturally drives it towards the price of the cheapest energy source with available capacity (often natural gas). It would be irrational to sell electricity for cheaper than this. If more batteries get deployed, the price will more often get set by battery storage instead.
Not how it works
> In this model, the price of electricity is set by the most expensive source needed to meet demand at any given time. Often, this is gas-fired power plants. Even if cheaper renewable sources like wind and solar are supplying a significant portion of electricity, the overall market price is influenced by the cost of gas.
If you don't cover 100% of the current power usage from batteries, the price will be price of gas plants.
The gas plants could be 1% of given moment, yet still set price
That is exactly what I wrote. Gas plants being at 1% implies that there is no cheaper source with available capacity. Why should anyone sell electricity for less then?
So if I offer my services providing electricity through a bicycle transformer for the cheap cheap price of $1000 per kWh does that mean everyone has to pay that price.
The quotes are because it's a quote. It was part of Energy secretary Ed Miliband's statement which is quoted in the article.
That's just marginal pricing, which is the pricing in many (most?) markets.
It just means that the price is determined by the price where the demand curve crosses the supply curve.
> That's just marginal pricing, which is the pricing in many (most?) markets.
I don't pay Johnnie Walker Blue Label prices for Jim Beam.
But with power the final product it's the same, the production method is different.
So it's more like this: I make a product for 5 and sell it for 6. My production facility is maxed, but there is still much demand. So I (or someone else) sets up another factory, making them for 8 and selling for 9 (there is demand enough). Now, will I keep selling at 6? No, my prices will also increase (to maximise my profit), and the final price will be where the demand curve crosses the supply curve.
I am wind, the new one is gass. We both make the same product, we sell at the same price, but I make a larger profit.
Makes sense. But in a normally functioning market, production at 5 will rapidly ramp up to capture the excess profits to be made by selling at 8. Eventually this will drive everyone's prices to 6 and the ones stuck producing at 7 (natural gas) will be driven out of business.
According to this comment https://news.ycombinator.com/item?id=46982118 there's additional "treasury" (is that the tax authority in the UK?) weirdness that prevents renewables from capturing these profits.
Treasury is the name for the government's economic ministry, ie the people who "have the money" (except that of course all modern governments run a huge debt) if you're American your equivalent department is also named Treasury.
The UK's tax authority is HMRC, His Majesty's Revenue & Customs.
It takes a lot of time to build electrical generators, so "rapidly" here means what... decades? Years at least. I think wind farms generally you need to do a bunch of paperwork and then if you get an OK (after the paperwork) maybe 3-5 years to build.
The weirdness you're talking about is the other side of the Contracts for Difference subsidising the off shore (and historically onshore too) wind farms. A CfD works like this: You auction off the right to build generation and in the auction people can bid down for the price they'll be paid for say, 10 years of their electricity, this is called the Strike Price. Whatever they sell their electricity for, they always get that strike price. When the sale price was lower, the government is giving you free money - that's why this is obviously a subsidy. But when the sale price was higher the government (effectively the treasury, though actually via a for-purpose government owned company) takes every penny above your strike price, too bad.
This subsidy is cheap for governments because it's about certainty, something they have and which private investors lack. The British government knows it will have tax revenue in 2036, but a private investor would want a fat premium to cover that.
Now, CfDs run out. If you have 10 years of CfD obviously the wind turbine you bought doesn't magically explode after exactly 10 years, maybe maintenance prices get out of hand or the main blades reach end of life in 20 years and so it doesn't last forever, but eventually there's an unsubsidised generator, the situation today though is that there's a lot of very new generation, and so most of it is subsidised.
Another issue is that it makes sense to build off-shore wind farms in particular on the Scottish coast, whereas it didn't make sense to build e.g. coal generation there, so the UK isn't set up to move a huge amount of power made in Scotland to the south where much of it is needed. This results in a situation where there's say 15GW of almost free electricity, but 5GW of it is the far side of a 2GW transit point, you can only have 12GW of that electricity, even though you made 15GW. Fixing this will take years and political will.
The Treasury is the finance ministry in charge of all public income and spending.
You get simple supply and demand with uniform prices in commodity markets but I'm doubtful that's most markets in general.
It sounds like a crazy system. But wouldn't it also make deploying renewables there wildly profitable? Sunlight is free but you get paid like you burned natural gas.
It does. It's basically scamming taxpayer into funding private companies renewable investments.
that is the idea
but under the cfd mechanism the treasury takes the excess over the strike price
Now add storage costs