Energy news in general

Chrysalis

MattMattMattUK said:

Chrysalis said:

On the other hand I can see the benefits for his company, he could choose e.g. to not lower the costs in places like GB1 proportionate to the wholesale gains to increase margins for Octopus energy.

The prices would still be set by Ofgem...

I know you like to mention a lot Ofgem sets the prices, but you conveniently dont mention that only SVR is regulated pricing.

Regarding unfairness that is used to justify a lot of policy decisions in the country, now I need to be careful here, because of course anything Ofgem related is political, but generally speaking its not born of emotions, but of giving everyone equal burden or at least close to equal burden and not having large differentials across the country on things like living costs when it is within regulatory control to do so.

Its basically an argument at this point of a survival of the fittest model vs a social model.

Not to mention another point that just popped up in my head, the existing renewable infrastructure has subsidies which are funded nationally.  How does that work when the benefits become localised?

A better tool to use (if we are obsessed with the idea of not adding transmission capacity) would be to remove subsidies from areas with more renewables, apply them to areas with less renewables, and change the law around planning permissions so nimbys can be ignored like they get ignored in france e.g. 

Chrysalis

Doc_N said:

Isn’t this essentially just a lever to use to ‘persuade’ otherwise reluctant areas to take on wind and solar installations they’d otherwise be objecting to? This is happening already.

Thats how it is been sold if you accept Octopus Energy marketing speak.  But of course life isnt that simple, building wind farms in a not very windy area isnt as economical as building it in windy areas, you need a lot more of them to generate the same amount of energy.  Better to max them out in the most economical areas and just move the energy.
I am curious what other countries are using the model in these proposals.
Its an idea born from the colossal failure in National Grid to keep up with demand and supply.
The vast majority of people affected also wont be the nimbys living local to fields.

debitcardmayhem

Chrysalis said:

MattMattMattUK said:

Chrysalis said:

On the other hand I can see the benefits for his company, he could choose e.g. to not lower the costs in places like GB1 proportionate to the wholesale gains to increase margins for Octopus energy.

The prices would still be set by Ofgem...

I know you like to mention a lot Ofgem sets the prices, but you conveniently dont mention that only SVR is regulated pricing.

Regarding unfairness that is used to justify a lot of policy decisions in the country, now I need to be careful here, because of course anything Ofgem related is political, but generally speaking its not born of emotions, but of giving everyone equal burden or at least close to equal burden and not having large differentials across the country on things like living costs when it is within regulatory control to do so.

Its basically an argument at this point of a survival of the fittest model vs a social model.

It’s not just SVR, they regulate amongst other things the amount of profit energy suppliers can make

Chrysalis

debitcardmayhem said:

Chrysalis said:

MattMattMattUK said:

Chrysalis said:

On the other hand I can see the benefits for his company, he could choose e.g. to not lower the costs in places like GB1 proportionate to the wholesale gains to increase margins for Octopus energy.

The prices would still be set by Ofgem...

I know you like to mention a lot Ofgem sets the prices, but you conveniently dont mention that only SVR is regulated pricing.

Regarding unfairness that is used to justify a lot of policy decisions in the country, now I need to be careful here, because of course anything Ofgem related is political, but generally speaking its not born of emotions, but of giving everyone equal burden or at least close to equal burden and not having large differentials across the country on things like living costs when it is within regulatory control to do so.

Its basically an argument at this point of a survival of the fittest model vs a social model.

It’s not just SVR, they regulate amongst other things the amount of profit energy suppliers can make

The tariff profit is only regulated on SVR tariffs.  Unless that has changed very recently since I last checked. You can link me to a tariff cap for non SVR tariffs?

This will be my last post on this particular news item, as I think its leaning into political territory.

But the concerns I have are poverty and unrest related to large differential, funding would need to be reformed for subsidies, so national funding would become localised with adjustments for wealth in the region (if funded via taxation), or if its funded via SC, SC would effectively increase in GB1 and other renewable affluent areas to reflect they have taken excess subsidies and it needs clawing back to fund renewables in areas like GB5, the renewables in those regions would lose some existing ongoing subsidies as well which would raise the unit price, again to rebalance the system from national to localised, and there would need to be some kind of obligation set by Ofcom to force renewable companies to build in specific areas until its balanced.  Just relying on market forces as we have seen with previous regulations will inevitably fail.
On the industry side energy costs are a big factor, if energy is 1/5 the price in one region over another, we going to see economical wastelands where the only GDP is from leasing, hospitality, retail and public services.  Manufacturing and other high energy users will swamp up in specific regions.
I think where I fundamentally differ, is that many on here just look at the end result and ignore the practicalities and the pain getting there, the ideal end goal, whilst I always try to look at whats happening in real life, and the affect on people, and I also look at how things have worked historically and from that I know our approach to relying on market conditions so often ends in failure.  I think Ofgem already know what they want to do, given their most recent statement it suggests they leaning towards OE's utopia, and are begging the other suppliers to come on board with the idea.

mmmmikey

Doc_N said:

Isn’t this essentially just a lever to use to ‘persuade’ otherwise reluctant areas to take on wind and solar installations they’d otherwise be objecting to? This is happening already.

Hi @Doc_N the straightforward answer to your question is not really, no, there's a lot more to it than that.

You will no doubt recall from all the publicity at the height of the energy price spike that even though we have lots of wind and solar energy generated domestically we still buy electricity based on the cost of gas. The effect of this is that as prices of gas go up so does the price of electricity and the wind generators profits.

The current pricing mechanism is such that if one person anywhere in the country is forced to use gas because the grid isn't currently big enough in the right places to get energy from the wind farm to them, then we all end up paying for the price of gas generated electricity and the wind generators make big profits.

If zonal pricing is implemented then this problem is significantly reduced with customers seeing reduced prices paid for by reducing the excess profits that some generators make (which is why there's so much resistance to this from some corners of the industry). 

Zonal pricing works by looking at all the grid interconnections and work out what is connected to what. The first stage is to define a set of zones based on this. If you look at a map these zones look fairly bizarre - for example South Wales and London are in the same zone. The reason for this is that much of the grid infrastructure was put in to connect coal and nuclear power stations to their customers. It makes sense to put a coal powered generator close to a coal mine and there are only so many suitable locations for nuclear power stations. So taking the South Wales/ London example, one of the reasons that they are in the same zone is that there used to be nuclear power stations on the Severn estuary which had big cables going to both South Wales and London, effectively creating a great big link between them.

Anyway, back to how zonal pricing works. Once the zones have been identified, the price for the zone is based on the most expensive form of generation in that zone. So, if you live in the north of Scotland surrounded by wind farms most of the time all your electricity will be based on the cost of wind and you won't pay a higher price just because someone in the South West of England or wherever is having to pay for gas generated electricity. 

The absolutely crucial point here that I think is throwing this discussion off track is that just because in this example Scotland is saving it doesn't mean England is losing. Scotland is saving at the expense of wind generators profits and not at the expense of poor and needy English folk. Yes, it creates the inequality that @Chrysalis is expressing concern about, but only by virtue of the fact that not everyone saves the same amount.

Putting it another way, it's a bit like your Scottish cousin visiting you and asking you to agree to a change in the rules that you all work to. The change they are proposing will save them money and not cost you anything. It would be a pretty mean spirited person that wailed about how unfair it all is and refused to agree.

( @Chrysalis I don't think you are mean spirited at all so I'm guessing that your concern is founded on the misunderstanding that, in this example, it would be energy companies that paid for the customer savings, not other customers. Or is there something I'm missing? )

A very long answer to a short question. In summary, it's complicated......

Chrysalis

@mmmmikey I accept my expectations may prove to be false as I am an open minded person, so I am now sitting waiting for the decision, then whatever it is we see how the future goes, thanks for taking me seriously.  But I am going to leave my opinions alone now and leave it to others to discuss.

mmmmikey

Chrysalis said:

@mmmmikey I accept my expectations may prove to be false as I am an open minded person, so I am now sitting waiting for the decision, then whatever it is we see how the future goes, thanks for taking me seriously.  But I am going to leave my opinions alone now and leave it to others to discuss.

Fair enough, one (of many) things I'm sure we agree on is that things don't always go to plan and anything could happen :-) 

mmmmikey

masonic said:

Chrysalis said:

mmmmikey said:

Chrysalis said:

HillStreetBlues said:

The_Green_Hornet said:

Ofgem boss calls for truce in row over electricity market overhaul

Jonathan Brearley wants polarisation to be replaced with an ‘honest conversation’ about zonal pricing

The head of Britain’s energy regulator has called for an industry truce in the deepening row over plans to overhaul the electricity market.

A decision on whether to replace the country’s single electricity market with several market zones, each with their own price, is expected within weeks.

It could mean that homes in areas where there is an abundance of electricity generation will pay lower prices than those in areas of high demand and low generation capacity.

Ofgem boss calls for truce in row over electricity market overhaul | Energy industry | The Guardian

So those in Mid to South Wales will be subsidising those in London based on GB6  Who on earth cane up with those zones?

GB5 is horrific a tiny portion of coastline.  East midlands "might" be saved as its part of Norfolk region, GB5 is west midlands by look of it.

GB3 should be merged with GB4, and GB 5,6,7 should all be one region.

Octopus are wrong to push for this in my opinion.
It seems an attempt to shortcut the real problem which is lack of national transmission capacity.

Not entirely sure on east midlands, Leicester and derby might be in the cursed GB5.

Was there a public consultation on this, or just suppliers only?

Don't the zones just reflect the grid infrastructure - i.e. there's no political element to their identification, they just reflect what we've got? So merging zones would involve substantial investment in pylons etc. and splitting them makes no sense in the context of the proposal for zonal prices. Also, the numbers given are the predicted 2025 numbers so presumably don't effect the massive investment in solar that's going on in much of the GB5 area (and I guess elsewhere?), and zonal pricing would certainly be a tool that could be used to stem some of the blatant NIMBYism that's hampering progress.

I have to say that my initial reaction is to not like the idea, but having seen and understood the argument in favour of zonal pricing I've changed my mind and haven't seen a compelling argument against it.

Yes it needs investment in pylons, something that wasnt a problem when the grid was built.   Thats what they trying to sidestep as a shortcut.  The argument against is the inequality of energy cost and the distorted affect on industry, maybe you dont think things like that are wrong.  At the very least they need to make the Zones more fair, GB5 is ridiculous.

It seems like they need would need to implement with protections on consumer tariffs in place. Price cap should start out at the status quo, and progressively over years be lowered to be based on the cheaper zones with a requirement for the market to invest in levelling the playing field.

But I cannot see the logic in the GB4-6 sandwich in the east. Surely energy from the cheaper regions can flow into those few miles between them without inordinate costs.

Hi @masonic I think the logic you can't see is lost in the mists of time and relates to the location of power stations that have since been decommissioned. The illogical layout of the grid in relation to current generation and consumption is one of the things that causes the problem that zonal prices seeks to alleviate.

As far as the work that is needed between the Humber estuary the Wash is concerned, that is well understood and in the final stages of planning and consultation. Even if the Secretary of State for Energy overrules the local objections it's still going to be years before it happens.

As I understand it, zonal pricing isn't considered to be an alternative to the investment the grid so desperately needs. It's more a question of being something that can be done quickly with legislative changes that will start reducing energy costs whilst the grid improvements happen.

Scot_39

Chrysalis said:

Doc_N said:

Isn’t this essentially just a lever to use to ‘persuade’ otherwise reluctant areas to take on wind and solar installations they’d otherwise be objecting to? This is happening already.

Thats how it is been sold if you accept Octopus Energy marketing speak.  But of course life isnt that simple, building wind farms in a not very windy area isnt as economical as building it in windy areas, you need a lot more of them to generate the same amount of energy.  Better to max them out in the most economical areas and just move the energy.
I am curious what other countries are using the model in these proposals.
Its an idea born from the colossal failure in National Grid to keep up with demand and supply.
The vast majority of people affected also wont be the nimbys living local to fields.

In the long term maybe - but right now building renewables 100s of miles from markets is amassing literally £bns in grid spending - and until thats done - £bns pa forecast in contraint payments - like ESO forecast for grid thermal constraint limits.

The later alone - the last ESO forecast I read was to peak at £3bn pa - thats nearly £100 / connection (and I hope wont get linearly applied per user - but could be ) - by 2030.

When UK hit 30GW installed wind capacity - 48% of that was in Scotland - for just 8% of the population.

With at the time another iirc 6GW planned / licensed for next c5 years - so again about the same proportion.

And a lot of that is still 100s of miles away from well over 50% of Scotlands population - let alone England's market place - which WGL1 already feeds, EGL1 and 2 already Ofgem approved to do so and EGL3 and 4 (another 2x2GW from Fife / around Peterhead area as EGL2 - will perhaps feed if approved)

And that 2030 £3bn peak was contingent on the £bns to be spent on grid - including the EGL1 and 2 HVDC - and assumed onstream by 2029.   IIRC the ESO report said missing that date on both would add maintain around £400m pa beyond their forecasts after 2029.

Which the 2 year argument on funding and costs for EGL2  - which saw the project price increase by depending on which industry press estimate used £1-1.3bn - really doesn't help.

And one way to stop that cost - is to rewrite renewables contracts - to stop curtailment payments or arguably better still to enforce a mininum local storage facility on those supplies (even a day would be better than nothing - but many of our still periods last 7-10 days.) 

So for instance if choose the day - if you want to install 1MW of wind or solar - you build a store to take 24MWh first before being paid a penny in curtailment - and get it back because you can supply that MW for a day when their is demand - if the wind isn't blowing or the sun isnt shining etc).

Or delay the license and build - until the grid is ready - not have one chasing after the other - creating that £3bn curtailment type level (wonder what that is in terms of average £ / MW some will claim / receive).

masonic

mmmmikey said:

masonic said:

Chrysalis said:

mmmmikey said:

Chrysalis said:

HillStreetBlues said:

The_Green_Hornet said:

Ofgem boss calls for truce in row over electricity market overhaul

Jonathan Brearley wants polarisation to be replaced with an ‘honest conversation’ about zonal pricing

The head of Britain’s energy regulator has called for an industry truce in the deepening row over plans to overhaul the electricity market.

A decision on whether to replace the country’s single electricity market with several market zones, each with their own price, is expected within weeks.

It could mean that homes in areas where there is an abundance of electricity generation will pay lower prices than those in areas of high demand and low generation capacity.

Ofgem boss calls for truce in row over electricity market overhaul | Energy industry | The Guardian

So those in Mid to South Wales will be subsidising those in London based on GB6  Who on earth cane up with those zones?

GB5 is horrific a tiny portion of coastline.  East midlands "might" be saved as its part of Norfolk region, GB5 is west midlands by look of it.

GB3 should be merged with GB4, and GB 5,6,7 should all be one region.

Octopus are wrong to push for this in my opinion.
It seems an attempt to shortcut the real problem which is lack of national transmission capacity.

Not entirely sure on east midlands, Leicester and derby might be in the cursed GB5.

Was there a public consultation on this, or just suppliers only?

Don't the zones just reflect the grid infrastructure - i.e. there's no political element to their identification, they just reflect what we've got? So merging zones would involve substantial investment in pylons etc. and splitting them makes no sense in the context of the proposal for zonal prices. Also, the numbers given are the predicted 2025 numbers so presumably don't effect the massive investment in solar that's going on in much of the GB5 area (and I guess elsewhere?), and zonal pricing would certainly be a tool that could be used to stem some of the blatant NIMBYism that's hampering progress.

I have to say that my initial reaction is to not like the idea, but having seen and understood the argument in favour of zonal pricing I've changed my mind and haven't seen a compelling argument against it.

Yes it needs investment in pylons, something that wasnt a problem when the grid was built.   Thats what they trying to sidestep as a shortcut.  The argument against is the inequality of energy cost and the distorted affect on industry, maybe you dont think things like that are wrong.  At the very least they need to make the Zones more fair, GB5 is ridiculous.

It seems like they need would need to implement with protections on consumer tariffs in place. Price cap should start out at the status quo, and progressively over years be lowered to be based on the cheaper zones with a requirement for the market to invest in levelling the playing field.

But I cannot see the logic in the GB4-6 sandwich in the east. Surely energy from the cheaper regions can flow into those few miles between them without inordinate costs.

Hi @masonic I think the logic you can't see is lost in the mists of time and relates to the location of power stations that have since been decommissioned. The illogical layout of the grid in relation to current generation and consumption is one of the things that causes the problem that zonal prices seeks to alleviate.
As far as the work that is needed between the Humber estuary the Wash is concerned, that is well understood and in the final stages of planning and consultation. Even if the Secretary of State for Energy overrules the local objections it's still going to be years before it happens.
As I understand it, zonal pricing isn't considered to be an alternative to the investment the grid so desperately needs. It's more a question of being something that can be done quickly with legislative changes that will start reducing energy costs whilst the grid improvements happen.

It seems like the source of my misunderstanding is that I originally thought that energy generated by wind turbines in one zone could be utilised in a different zone through the grid. But if I am understanding correctly, that connectivity actually doesn't exist and it is actually only generation within the zone that can be used to deliver energy to properties within the zone. So we don't in fact have a "national" grid in the way that I thought? It is not a simple case of routing the energy via pylon to where it is needed from anywhere nationally (albeit with some transmission loss).

If that's right, then I can see the sense in it. I think there would need to be some protections, perhaps in the form of a revamped EPG so that we don't end up with end users being penalised by postcode. This is more about controlling the price energy suppliers can buy energy and sell it on to customers. The customers themselves could all have a gain in the savings through some sort of rebalancing mechanism. If energy costs in one region of the UK are much higher, say 50% more expensive, than another region, then that could be very harmful at a local level and the residents of affected regions may have no capacity to make things any better. It may make sense to leave some differential to counter NIMBYism, but unmanaged, the differences could be quite stark and wounding.

Taking the East Midlands example, there used to be a lot of generation from coal, but the last power station in Ratcliffe-on-Soar shut down last year. There were initially plans to use the site for nuclear (albeit experimental "fusion" IIRC), but that's been mothballed and now I think it's going to be incinerating rubbish. Why not stick a couple of GW of nuclear there, albeit that will probably take 20 years. There seems little chance of the region building capacity up to the levels possible in GB1-2.