Wednesday, 18 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

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
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.....


  1. Excellent analysis, as always. With regards to capacity mechanism payments - do battery systems (and new pumped hydro) qualify for this support? If so, is there a "risk" to the governments gas expansion plans that battery systems take all the subsidy, especially as battery systems are falling in price and with ever increasing wind and solar penetration there will be larger "swings" in wholesale electricity prices for such systems to take advantage of.

  2. Storage is allowed in the capacity mechanism, but because storage only gets income from the currently low capacity payments available under the first auction new storage is not incentivised. This is by comparison with the arrangements for existing generators which can bid in low prices because they are economic through their energy generation. As a result storage providers are at a relative disadvantage compared to energy generators. It is the sort of outcome you expect from policy consultations that are dominated by energy generators!