Payments to fossil fuel plant now being counted as 'environmental' by Treasury

In a move that will astonish many the Treasury have decided to count payments to existing fossil and nuclear power stations for providing capacity as 'environmental' levies'. Real environmental spending is, as a result of the Government's policies, falling, and is being replaced by payments for polluting power stations. This 'levy' money is collected as a levy on consumer energy bills. See the Table below complete with newly added budget line 'capacity market'.
The fear must be that as so-called environmental levies increasingly consist of payments to power stations to provide capacity, funding for renewables and energy efficiency will increasingly be crowded out by subsidies to fossil fuel power stations and nuclear power. Meanwhile spending on energy conservation has been slashed in this statement, and support for solar power and onshore wind cut to next to nothing in policy statements made earlier in the year. See some commentary on the latest cuts to energy efficiency spending at http://energydesk.greenpeace.org/2015/11/25/daily-dispatch-optimism-over-paris-tempered-by-calls-for-extra-money-for-worlds-poor/

The capacity mechanism has been introduced as a measure to encourage power station developers to bring new plant on line. You can see a description of the first auction at https://www.gov.uk/government/news/first-capacity-market-auction-guarantees-security-of-supply-at-low-cost
You can see comment by me on this at http://realfeed-intariffs.blogspot.co.uk/2015/10/government-heading-for-electricity.html and also in the context of Government plans energy plans at http://realfeed-intariffs.blogspot.co.uk/2015/11/amber-rudd-re-set-do-nothing-fantasy.html

So now we have a new policy - to extend a phrase used by the PM's office before the 2015 General election - 'cut the green crap'  - and spend it on brown crap instead! This is not a joke. The inclusion of the capacity mechanism under environmental levies is very serious indeed. This is because many believe that spending on the capacity mechanism will mushroom - and do so well beyond the figures mentioned in the Treasury below. The Government's policy is a very serious, perhaps mortal, blow for any UK programme to carry on reducing carbon emissions beyond 2020 or even 2018.
NOTE: I am corrected by Jon Ferris who points out that my original assertion (now deleted) that payments made through the capacity mechanism count towards the cap on low carbon spending is incorrect. Although the capacity mechanism is counted as being part of the 'levy Control Framework', The Government's energy statement, in 2014 at least, says that this is not included in caps on 'low carbon spending'. The extent to which this is a fine distinction may, in the light of the shifting emphasis of spending, be a matter of opinion! But I bow to John' in this case as a matter of form!
The Treasury figures........ 

2.7 Environmental levies
	£ billion
	Outturn	Forecast
	2014-15	2015-16	2016-17	2017-18	2018-19	2019-20	2020-21
Carbon reduction commitment	0.6	0.7	0.7	0.5	0.5	0.5	0.5
Warm homes discount1	0.0	0.3	0.3	0.3	0.3	0.3	0.3
Feed-in tariffs1,2	0.0	1.3	1.5	1.7	1.9	2.1	2.2
Renewables obligation2	3.1	3.9	4.6	5.4	5.9	6.0	6.2
Contracts for difference	0.0	0.0	0.2	0.5	1.1	2.2	2.8
Capacity market	0.0	0.0	0.0	0.0	0.6	1.0	1.1
Environmental levies	3.6	6.2	7.3	8.5	10.3	12.2	13.1
Note: This is consistent with the 'Environmental levies' line in Table 4.6 of the November 2015 Economic and fiscal outlook.
1 The ONS have yet to include Warm Homes Discount and Feed-in Tariffs in their outturn numbers.
2 Forecasts do not include the outcomes of the consulatations on feed-in-tariffs or renewables obligation that have yet to be decided.

source:

Chart 2.7, Economic and fiscal outlook supplementary fiscal tables – November 2015, http://budgetresponsibility.org.uk/economic-fiscal-outlook-november-2015/

Amber Rudd re-set: a do-nothing fantasy policy

Amber Rudd today compounded the fantasy that surrounds UK energy policy by declaring that the future would depend on new gas fired and nuclear power stations without any realistic policies of delivering such objectives. Meanwhile her Government is stopping support for renewable energy and energy efficiency even though (or perhaps precisely because) they are being delivered in substantial volumes.

New nuclear power, as discussed in previous blog posts are very unlikely to be deployed for the forseeable future, perhaps never. On the other hand the Government's capacity mechanism will serve, at best, to be a very expensive way of delivering gas fired power stations.

Nuclear Power - Hinkley C, as discussed earlier, seems only likely to be built in the context of the break up and bankruptcy of the French nuclear sector and EDF in particular  (see earlier posts) which hardly makes this likely. The other supposed nuclear projects have no realistic chances of investors given the high risk that surrounds the costs of such projects. See my earlier post http://realfeed-intariffs.blogspot.co.uk/2015/10/could-hinkley-c-spell-end-of-edf.html

Gas fired power stations - As discussed in an earlier blog post, no new gas fired power plant are currently set to be delivered. The capacity mechanism will 'spike' in its prices for new capacity in 2019 as the market is prepared for coal fired power stations to be finally phased out in 2023, that is if the Government do phase them out. See http://realfeed-intariffs.blogspot.co.uk/2015/10/government-heading-for-electricity.html
The capacity mechanism will prove to be a very expensive way of funding new combined cycle generating (CCGT) plant, none of which are likely to be deployed as a result of the first auction earlier this year.

The most cost-effective way of making CCGTs happen would be to organise auctions for contracts to be issued to them them broadly similar to that organised for renewable energy last year - what are called contract for difference (CfD) contracts to ensure that the power station operators got some certainty about electricity sales. But, they are unlikely to do this because then people would ask why contracts for the same price were not issued to onshore wind - which is a no-no for Tory Party political reasons.

An even better way to get more power plant capacity, as suggested also is the blog post about spiking capacity mechanism prices would be to incentivise lots of CHP plant and district heating which is the most flexible system available, as well as incentivising more energy efficiency to reduce demand.

A cheap way to provide new capacity is to incentivise the National Grid to install batteries and feed into them wind power which is otherwise constrained or worth zero on the wholesale market. That way wind can provide even more firm capacity than it does already (see last post on this). But that's far too imaginative for a Government who do not even realise that fracking and new nuclear power is just not going to happen.....


http://www.theguardian.com/environment/2015/nov/18/energy-policy-shift-climate-change-amber-rudd-backburner

The untold story of how windfarms help keep the lights on

The UK press has been full of stories implying that wind power is to blame for the National Grid having to call in expensive demand shedding measures recently to keep the lights on. What they will not tell you is how often wind power saves the UK consumer large amounts of money because the National Grid does not have to buy in expensive reserves of power. Also they do not tell you that wind power in fact has quite a substantial contribution to effective firm power station capacity.

It is all very well repeating over and over again that the wind sometimes doesn't blow very strongly, but that doesn't tell you how to keep the lights on. Put simply, the chances of there being challenges to keeping enough electricity generation to meet demand at any point in time depends on a combination of factors being present; not just there being not much wind, but also that there are unexpected failures in power stations, unexpected high demand and unavailability of other power or demand side reduction options at any given time. Usually wind power will be slaving away saving the the need to buy in more reserves of power or demand side management during those winter days and nights when our electricity system is challenged. But we don't hear about this.

It would be as ludicrous to dismiss wind power's contribution to providing firm capacity as it would to insist that a particular power station can be guaranteed to be online all of the time. Indeed, a difference is that low wind power production may be usually more predictable than power stations going offline through breakdowns.

In fact, buried deep inside regulatory reports there is official recognition that wind power does have substantial equivalent firm capacity. As can be seen in OFGEM's electricity capacity assessments. See the 2014 version at https://www.ofgem.gov.uk/ofgem-publications/88523/electricitycapacityassessment2014-fullreportfinalforpublication.pdf

OFGEM defines:'Equivalent Firm Capacity of wind (EFC): the average contribution of wind power to the de-rated margin. It is the quantity of firm capacity (ie always available) required to replace the wind generation in the system to give the same level of security of supply' (pages 26-27)

In fact OFGEM's models indicate that the 'wind equivalent firm capacity factor'  varies in its models from 14.8 per cent to some 25.9 per cent depending on the scenarios modeled for a range of years.

Now that is quite substantial (ie a mean of around 20 per cent). According to the UKWED database there are currently around 13.5 GWe of wind power installed in the UK. http://www.renewableuk.com/en/renewable-energy/wind-energy/uk-wind-energy-database/

Hence, in effect, averaging out the mean of the models assessments of equivalent firm capacity provided by wind, wind power adds the equivalent of  2.7 GWe of firm capacity to UK generating capacity. That, by the way, is rather more than the equivalent of around two and a half Sizewell B nuclear power stations.

We hear a lot about how the Government is throwing huge sums of money into something called a capacity mechanism to produce very inefficient outcomes. What I'd like to see, (among a lot of other things!) is a calculation of how much the electricity consumer is saving through the equivalent firm capacity that wind power is providing, which is likely to be quite large! That, of course, is apart from providing a lot of cheap clean energy.