MSE News: Guest Comment - Why are energy prices increasing?

magyar

Blimey, you two have some convoluted ways of saying 'the wind doesn't always blow', don't you?

grahamc2003

magyar wrote: »

Blimey, you two have some convoluted ways of saying 'the wind doesn't always blow', don't you?

And you have a very dismissive and innapropriate condascending attitude in all of your posts, most of which, when you try talking in areas outside your expertise, are incorrect.

We aren't saying 'the wind doesn't always blow'. Everyone knows it doesn't, however, few people understand the implications of that.

I am explaining the pretty dire physical, and therefore financial, implications of having wind in the grid because 'the wind doesn't always blow', and the unappreciated expense that causes, both directly, by direct subsidies, and indirectly, by causing problems for the grid which requires a high expenditure to ameliorate, which I have never seen in any cost analysis of wind power. Bills are rising faster than most expect. In part, this is due to the costs of the things we are discussing, which many, includng the decision makers, probably prefer to ignore when informed of them. A but like you really, simply rejecting the fact that wind enjoys many hidden subsidies, with the extra large costs they cause not being passed on to the windpower companies.

zeupater

magyar wrote: »

Blimey, you two have some convoluted ways of saying 'the wind doesn't always blow', don't you?

Hi

I think that the point in terms of this thread is actually .... because 'the wind doesn't always blow' there is a duplication of investment in redundant capacity which is a significant contribution to the increase in energy prices.....

Another reason for the increase is that, if the view posed on this thread about energy standard market pricing is correct, there is an obvious lack of competition between various generating technologies, which must be seen as favouring both the generating and supply sectors. Obviously, if there is a standard market price for generation, then generating capacity which is not directly effected by hydrocarbon price increases benefits from higher sales values, therefore there is no incentive for competitive practices .... conversely, due to there being no price competition from the renewables sector, there is no incentive for the hydrocarbon sector to remain competitive, because there is no price competition ..... Oh dear, have I just described an energy sector cartel ...... perhaps that's why prices are rising .... I wonder whether OFGEM should look at why the green energy supply tariffs are rising in line with hydrocarbon generation afterall ....

Z

magyar

grahamc2003 wrote: »

A but like you really, simply rejecting the fact that wind enjoys many hidden subsidies, with the extra large costs they cause not being passed on to the windpower companies.

I would happily accept the fact if you - after several threads of failing to do so - could prove it were true.

In any case, it could be very easily countered by saying that fossil-fuel generators are not charged the full cost of emitting CO2: it you believe the Stern report this is trillions of GDP. If this cost were passed on in the form of a true carbon price, then renewables could probably be economic with no subsidy.

But since this is hard to quantify, I wouldn't propose to labour the point.

grahamc2003

zeupater wrote: »

Hi

Agree ..... The issue is that if demand is adjusted to reflect an adjustment for non-schedulable generation then capacity must also be treated the same way, else the capacity/demand equation doesn't balance, which, as you mention, doesn't really matter at the current level of renewable generation .... it's probably currently no more significant than a simple rounding error. Logic should stand when tested to extremes, so applying the 50% and 100% unschedulable increases to the TotalCapacity demonstrates that either capacity is calculated that way, or the logic behind the calculation is wrong.

Perhaps I've got it all wrong and the sun will shine and the wind will blow all day, every day, but then the demand calculation would be wrong and .........

Oh well, back to the subject at hand .... for a given annual mileage, if I suddenly decided to replace my current car with two, one which would work every day and one which only worked one day in three I'd be paying a lot more in depreciation, therefore wouldn't I expect my overall cost per mile to increase ?

HTH
Z

I suspect it's just me and you left reading this! But still, it's quite interesting how the grid works (and how complex the problem is), so I'll continue.

Para 1 - I think what you're saying is that capacity for wind has totally different characteristics as capacity for conventional generation - in which case you're correct. The problem is the perception that all 'capacities' are the same. If you have say 50% of the total capacity as wind, and there's a 25% margin of capacity over maximum period demand, then we simply wouldn't have an operational grid. Yes, things don't make sense at the moment - that's why the simple measure of 'capacity' for all generation will have to be addressed, and why it only appears to work atm because wind penetration is currently low.

Perhaps I've got it all wrong and the sun will shine and the wind will blow all day, every day, but then the demand calculation would be wrong and .........

I think this refers to the half hourly demand estimate, and the consequent scheduling of that amount of generation for that period, when a few MW of that demand is effectively negative windpower, which will vary. Yep, there's no expectaion that the scheduled generation will exaclty meet the forecast demand. The difference (on a second by second basis) is met by 'reserve' built inot the system (in fact reserve too is scheduled). Some stations will hold power in reserve, and this power will be released automatically to correct for the mismatch between predicted and actual demand. Holding this primary resevre is very expensive, and attracts high payments in compensation. You can see that if the demand comprises of -500MW of predicted wind, then this is likely to vary greatly from the day-ahead estimate - it may be 0mw or 1500MW. It also simply follows that the factor which corrects for mismatches (i.e. the very expensive reserve power) has to be increased since the probably mismatch is much larger). Just one of the extra costs wind causes, yetr doesn't pay for (we all pay for that as the whole system effectively works at a lower efficiency level).

Oh well, back to the subject at hand .... for a given annual mileage, if I suddenly decided to replace my current car with two, one which would work every day and one which only worked one day in three I'd be paying a lot more in depreciation, therefore wouldn't I expect my overall cost per mile to increase ?

You would indeed. To make it more analogous to wind, your cars would each cost a great amount to buy, and have very low running costs. Car A (the wind analogy) would go where it wanted when it wanted, and wouldn't go at all sometimes when you rerally wanted to go somewhere and Car B (the conventional analogy) would sit therre doing nothing much until CAR A was refusing to start when you wanted to go somewhere, or CAR A was doing 100mph when you wanted to go at 30mph. You then would question why you had car A at all.

In terms of the grid, if you spend £20bn on windmills, the you have to spend (very close) to £20bn on scedulable, dispatchable capacity too. And if you have £20bn of dispatchable capacity, then there's no real need for spending another £20bn on any other capacity. But we do!, and are planning on doing much more of it in the future!

magyar

zeupater wrote: »

Hi

I think that the point in terms of this thread is actually .... because 'the wind doesn't always blow' there is a duplication of investment in redundant capacity which is a significant contribution to the increase in energy prices.....

Another reason for the increase is that, if the view posed on this thread about energy standard market pricing is correct, there is an obvious lack of competition between various generating technologies, which must be seen as favouring both the generating and supply sectors. Obviously, if there is a standard market price for generation, then generating capacity which is not directly effected by hydrocarbon price increases benefits from higher sales values, therefore there is no incentive for competitive practices .... conversely, due to there being no price competition from the renewables sector, there is no incentive for the hydrocarbon sector to remain competitive, because there is no price competition ..... Oh dear, have I just described an energy sector cartel ...... perhaps that's why prices are rising .... I wonder whether OFGEM should look at why the green energy supply tariffs are rising in line with hydrocarbon generation afterall ....

Z

You've hit on an interesting point, although it's nothing to do with there being a cartel.

The majority of new generation coming in the next 10-15 years will be under some sort of support mechanism, be it a contract for difference or the RO. Therefore there will be huge opportunities for gaming of these contracts, especially by generators with a blended portfolio.

This is certainly something Decc need to consider in the long run.

magyar

grahamc2003 wrote: »

In terms of the grid, if you spend £20bn on windmills, the you have to spend (very close) to £20bn on scedulable, dispatchable capacity too. And if you have £20bn of dispatchable capacity, then there's no real need for spending another £20bn on any other capacity. But we do!, and are planning on doing much more of it in the future!

That is of course only true if you are unconcerned about meeting our climate change targets. We would go wildly off topic if we started to debate that point - and I have no idea whether we agree or disagree - but if you wish to hit climate charge targets then you either have to build new nuclear or renewables. Replacing coal with gas will of course help, and in the medium term is probably the best option.

zeupater

magyar wrote: »

.... You've hit on an interesting point, although it's nothing to do with there being a cartel. ...

Hi

In the strictest meaning of the term 'cartel', I agree. However, this would only be due to the fact that there is no explicit agreement between the parties involved .....

It would be quite possible to construct an argument revolving around the past & present level of direct influence of the sector on the agencies involved in market regulation, particularly in the drawing-up of the operating & regulation policies. Perhaps this could be construed as being the formulation of an explicit agreement, if so everything seems to be in place .... a limited number of suppliers, commodity product, common agencies (ERA, AES ....), reduced competition to increase profit (Standard market pricing) etc .....

It talks, it walks and it quacks ....... cozy relationships seem to be quite high profile at the moment and with issues such as MPs & the Enquiries & Advice Team on expenses, the press & the police, Banking & the FSA and many more examples all providing massive political embarrassment, perhaps it's time that someone thinks about calling it by it's real name, a duck, before this one becomes a hot potato too :exclamati

HTH
Z

magyar

I was making a different point, which is that if you have 50+% of your generation not getting a market price, then you don't have a very efficient market.

zeupater

magyar wrote: »

I was making a different point, which is that if you have 50+% of your generation not getting a market price, then you don't have a very efficient market.

Hi

Which 50%+ of generation would that be, or are you relating to capacity ? .... if so, shouldn't the remark be - if you have 50%+ of your generating capacity idle at any one time, then you don't have a very efficient generating strategy ....

Z