Grid to spend £19bn 'to rewire Britain for net zero' Daily Telegraph Business Fri 10th Nov

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Chrysalis said:

Well you have from talking about grid costs to standing charges

You were the one who brought up standing charges. 

Chrysalis said:

the WHD comes out of the standing charge, but you originally said it comes out of the grid costs, this is why its important to use correct terminology, as the two are separate things

You were talking about "revenue collected for the grid" whist at the same time talking about standing charges, it is important to use the correct terminology, I will be very careful of this in the future with you.

Chrysalis said:

it may make it look like you was right all along after using my information to correct yourself, but you stated you think the WHD comes out of grid costs and its a multi billion pound expenditure.

You were switching between standing charges and grid costs, that is generally fine as most of the standing charge goes to the National Grid, but they also get a small amount of the per kWh cost. As we are talking about an investment over the next 27 years the cost of the WHD would be approximately £9 billion if kept in something similar to it's current form, that is only slightly less than the half of the entire grid investment budget, so highly significant. 

Chrysalis said:

In terms of the government taking on the cost of energy infrastructure, what is your problem with it? 

The government can only spend taxpayers money, or borrow money which means that taxpayers have to carry not only the original cost but also the cost of interest. Where there is a viable private alternatives that can make sense, the grid would be one of those, in general, healthcare and education are not, there are various economic and social reasons for those differences. 

Chrysalis said:

please give a reason, its a bit vague to say they basically shouldnt be doing it.

If the government were to fund it directly that is less money to be spent on education, policing, healthcare, disability benefits, road repairs etc. There are far higher priorities for government funding than something that can be done privately with little ultimate difference to the public based on who funds it.

Chrysalis said:

Energy is part of essential infrastructure, and as such a responsible government would be making its generation as good value as possible for its population, the problem with using commercial companies is they take a slice to pay for profits which they want in return for investment, this in turn increases costs to consumers.

Energy is part of essential infrastructure, but that does not mean that it has to be provisioned directly by the government. The profits from energy suppliers are capped at 1.9%, in 2022 they ended up being -38%, profits in generation can be wider depending on energy source, in gas they typically do not exceed 6% at point of generation, but are lower once capital costs are accounted for. For renewables before the energy price rises these typically operated on around 3% before the 2022 price rises, although some older installations are now making huge profits because their large upfront costs have been repaid and they have low operating costs, they took the hit early and now are benefitting. In reality, if the government had created a nationalised energy supply we might see energy costs around 5% lower than we have now, so not a significant benefit, I cannot get myself worked up about that.

Chrysalis said:

They also clearly want more than 5% profit if the government is having to offer £70 based on your 15% loss figures, a 5% profit would only require around £54. 

The 12% figure was below cost before the cost of finance, as stated previously, finance is not free. That means the break even point was £50 per MWh before finance, however the per MWh prices quoted are in 2012 pounds (they are set as that reference point because there is a complicated metric behind them that is inflation based, although does not rise as fast as inflation), that means that accounting for the additional year's inflation that then would need to rise to around £53 for break even before finance. Due to the huge upfront capital costs of offshore wind the finance costs are significant, also unfortunately construction costs (global steel and rare earth metals prices are up significantly) were already increasing and are getting worse so another year on will have further increased that figure. 

Turbines are built with a 25-30 year lifespan, 27 years is the figure used for expected lifespan. The annual OPEX is £76,000 per MW installed, the total CAPEX is £2,370,000 per installed MW and they are expected to generate 4,471 MWh per year per MW installed, WACC is currently around 6.1%, that means that it would take 25.65 years of the 27 year expected lifespan to reach break even if projected in a straight line, or around a 5% net pre tax margin. It does mean that if there were ant potential lifespan extension then that would make significant profit, or any shortened lifespan would result in significant loss. 

Chrysalis said:

I think nuclear investment should be done as well of course, we shouldnt just rely on one technology

Nuclear is different due to insurance, the UK government has to underwrite the insurance for nuclear plants even if they do not build them, they would also be better of built by the UKAEA because we could scale them dramatically. Nuclear would be more than capable of providing all of our energy needs on an ongoing basis at below current costs even with CAPEX factored in. It also has the benefit of being carbon neutral as well as not being reliant on international markets or supplies (we have enough nuclear fuels to generate the UK's entire energy requirements for the next 200+ years and could easily buy more from Australia if we wanted to only use Uranium.

Chrysalis said:

but again the problem there is they only investing as a part owner rather than doing it entirely in house.  Its as if they trying to do minimal capital expenditure possible.

The government (and all previous governments) have tried to minimise capital expenditure because that adds to the government's already huge debt, that would also increase the interest rate that the government pays on all debts due to increased overall debt burdens factoring into the government's credit rating on the international markets. If any government plans on being economically competent we are already going to have to see further tax increases on everyone (not just one specific part/group that pays tax) just to stay where we currently are, let alone improve things and begin repaying the huge debt we have.

Chrysalis said:

Also in all honesty, I think Ofgem has the credibility of willy wonka right now.  So yes auditing that doesnt involve them.

You seem to have an issue with Ofgem and from your previous comments that seems mostly because they redeem the fixed costs via a fixed method, the standing charge. I think Ofgem are far from perfect, but they are also constrained by the legislation and direction from the government that they are required to follow. Ofgem have visibility of the auditing, but it is actually done by large financial firms, in the case of National Grid Group PLC the auditors are Deloitte, they also publish most of their operating costs and these have been looked at by the media and research organisations, if there were any major issues then these would have been headlines.