Why Britain's distorted electricity market means that 'subsidy free' renewable energy is a myth

The media is awash with stories of the imminent emergence of 'subsidy free' wind and solar power in the UK, but the reality is that the uncompetitive nature of the British electricity market mostly undermines that prospect. In theory onshore wind power and maybe some solar power projects would be able to generate power to sell at competitive prices on the British wholesale electricity market. In practice most of the potential buyers of energy from new renewable energy projects will not be interested in buying the energy even at cheap prices simply because it conflicts with their own generation portfolios.

True, there is a limited possibility for some very large corporate consumers who are interested in buying green electricity to fund new projects by issuing corporate power purchase agreements (PPAs). But in reality this market is small, and I have heard this estimated to be no larger than 100 MW a year. That means it would take around 20 years for not quite 1 per cent of electricity to be supplied this way.

PPAs are needed for new renewable energy projects that offer the generators the certainty that they can be paid a minimum amount for each MWh that they produce for the long term. The UK Government's PPAs, called contracts for differences (CfDs), last 15 years. However they are no longer available for onshore wind and solar.

The problem is that most of the market for offering PPAs that can fund new renewable energy projects comes from the big electricity suppliers, who have been known in the past as the 'Big Six'. Only PPAs offered by really large companies will be usually taken seriously enough by banks and and other institutions to enable renewable energy projects to obtain long term loans or equity. The trouble is that the Big Energy suppliers will usually have little interest in offering long term PPAs to new renewable energy projects. For a start they can buy in power at much the same price as the renewable energy generator can offer without needing to commit themselves to long term agreements. Crucially, the big electricity companies are struggling to keep their own power stations in business, and are not going to sign up competition from other people for their own business!

It is something of a trade secret that the only reason the Big Energy companies ever did offer long term PPAs to renewable energy companies under the Renewables Obligation was simply because they could make a lot of money out of doing so. In effect, they were compensated for the losses their power plant accrued through not being able to sell so much electricity. This goes a long way to explain how it is that renewable energy has, in the past, seemed so much more expensive in the UK compared to other European countries. But now those Government incentives are no longer on offer to new renewable energy projects.

Without financing renewable energy projects cannot be set up, and financial institutions will usually only invest/loan money to companies that they think have a pretty certain likelihood of being in business for the length of any PPA that they will issue. Various smaller electricity suppliers may have a very robust future. However, unfortunately, many financial institutions may not have a sufficiently positive attitude to smaller electricity suppliers to allow them to offer cheap financing to those potential renewable generators that have been offered PPAs.

There are, of course, various green electricity suppliers who offer renewable electricity, but of course these will invariably be existing projects that have been funded already through the Government's Renewables Obligation or maybe the feed-in tariff scheme. But these options are no longer available for new renewable energy projects.

At the end of the day there are a few independent big consumers - the Googles, Microsofts etc of this world - who will be interested in offering corporate PPAs to cheap new renewable energy projects. However such companies represent a very small segment of the electricity market.

At the end of the day, there may be lots of potential for generating electricity from renewable energy at prices that are no higher than that from new gas fired power stations. But the British electricity market is skewed against this happening. Renewable energy projects are capital intensive which means that investors have to take a long term risk to support them - so we need long term PPAs to be underpinned by the Government. But despite encouraging noises coming from Energy Minister Claire Perry on this subject, there seems little early prospect of such contracts (CfDs in government-speak) being made available for onshore wind and solar.

How Labour can really put the wind up the Tories

Labour is well placed to embarrass the Tories by attacking the Government’s war on the onshore wind industry in the UK. Despite onshore wind now being the cheapest widely available electricity source the Government is actively sabotaging the industry by refusing to allow long term contracts to be issued to wind developers. Meanwhile large subsidies are being offered to gas, coal and nuclear power stations.

Under the last Labour Government incentives were given to build up a large increase in onshore wind power, which now supplies around a tenth of UK’s electricity supply, with offshore wind and solar farms now supplying around another ten per cent of UK electricity. But right wing English Tory pressure has prevented any move towards enabling long term contracts to be issued so that new windfarms can be financed. Meanwhile the UK risks becoming increasingly dependent on supplies of gas from places like Russia and Qatar.

The Labour frontbench is beginning to realise that young people in particular want to see green energy being given a chance, and, for example, John McDonnell has recently attacked the Tories for failing  to doing anything to revive support for the feed-in tariff scheme that helped people install solar panels on their roofs. But attention ought also to be turned to promoting onshore windfamrs. Doing so would embarrass the Government and also sow division inside the Tory ranks. More practically, it would offer hope to people who are working in the industry that they might have a future. Places like Grimsby are benefitting from offshore wind projects which are still being built, but onshore wind factories are being closed down, the latest being the Glasgow based Gaia Wind.

Independent experts say that onshore wind can be built costing the consumer less than new large gas fired power stations. However  orders have dried up because the Government is refusing to organise long term guarantees of prices paid for electricity to be generated by the wind farms. Long term contracts are needed because the technology is capital intensive meaning that while the wind is free, the money for the equipment needs to be paid for at the start of the project. Hence effective (say 15 year) long term price guarantees are needed to persuade banks to offer loans to support windfarm construction.

The majority of the capacity of UK’s onshore windfarms have been installed in Scotland. Despite the fact that the Scottish Government is keen to have more windfarms, control over what contracts are issued for electricity supply rests with Westminster. Yet it is English Tory MPs, often allied to the climate-sceptic Nigel Lawson and his ‘Global Warming Policy Foundation’, that are preventing the Government from providing opportunities for onshore wind.

The Minister of State for Energy, Claire Perry, has, in recent months, been making some encouraging noises about providing some 'contracts for differences',  CFDs as they are know in trade-jargon, available for onshore wind. They were available for onshore wind when the CfD system was launched in early 2015 but since then, while some offshore wind contracts have been awarded, onshore wind has been carved out of bidding for such contracts. Yet Perry appears to lack the required political clout to do much that changes anything, especially to overcome the vocal hostility of the climate-and-wind sceptical group of Tory MPs.

Making  a priority of embarrassing the Government over this issue should be a win-win situation for Labour. Renewable energy, including wind power, is very popular among all voters, especially with young voters. On the other hand by supporting onshore wind Labour can proclaim it is promoting consumer interests of obtaining electricity - above all clean energy – from the cheapest possible source. Attacking the Government for its failure to support onshore wind is a very good way of taking votes from the Tories. Please, John McDonnell and Jeremy Corbyn, spend some time on this! Put some real wind up the Tories!

Future of Energy Conference at University of Aberdeen

Some of the conference presentations and also recordings of contributions can be seen at: https://www.abdn.ac.uk/energy/events/the-future-of-energy-222.php


Details of Conference:

The Future of Energy

A Conference presented by the MSc in Energy Politics and Law, University of Aberdeen on Wednesday March 28^th. Venue: Linklater Rooms, University of Aberdeen.

Itinerary 

9.45-10.15 Tea/Coffee and Registration 

10.15 A few words from Dr David Toke, Programme Co-ordinator of MSc in Energy Politics and Law 

10.20 Opening Address by John Scrimgeour, Director of the Energy Institute of Aberdeen University 

10.30 Rebecca Williams, Policy Manager for RenewableUK who will talk about onshore wind and other priorities for RenewableUK 

11.00 Morag McCorkindale from Aberdeen Renewable Energy Group who will talk about low carbon based transport policy in Aberdeen and the opportunities for existing oil and gas businesses in the new energy economy 

11.30 Dr David Toke, Programme Leader, MSc in Energy Politics and Law. ‘So why has offshore wind now become so much cheaper and easier to build than nuclear power?’ 

12.00 Sam Gomersall from Pale Blue Dot Energy will give a presentation about how Aberdeen is leading the hydrogen revolution  

12.30 – 1.15 LUNCH 

1.15 -1.45 Caroline Bragg from the Association of Decentralised Energy  who will talk about developing heat networks 

1.45-2.15  Professor Alex Kemp from the Economics Department at the University of Aberdeen who will talk about the issue of oil revenues. 

2.15- 2.45 David Ritchie, Head of Energy Industries in the Scottish Government’s Energy and Climate Directorate will talk about his work at the Scottish Government 

2.45-3.15 Thomas Mcmillan representing the Solar Trade Association (he is Director of Renewables at Savills) will talk about issues facing the solar pv industry 

3.15- 3.30 TEA and COFFEE 

3.30-4pm Professor John Patterson from the Law Dept at Aberdeen University who will talk about decommissioning of oil platforms 

4-4.30   Adam Ezzamel, the Project Director of the Aberdeen Offshore Windfarm (European Offshore Wind Demonstration Project) will talk about the project. 

4.30-5.15pm Expert Panel. Four experts will introduce themselves and a point of view and then answer questions raised  by the audience. These include Professor Peter Strachan, Aberdeen Business School, Robert Gordon University and Dr Daria Sharapolova, Aberdeen University Centre for Energy Law 

The Conference will be held in the Linklater Rooms of Aberdeen University https://www.abdn.ac.uk/confevents/venues/linklater-rooms-50.php, We would expect speakers to talk for 20 minutes leaving 10 minutes for discussion.

You can see an outline of the MSc degree at https://www.abdn.ac.uk/study/postgraduate-taught/degree-programmes/72/energy-politics-and-law/

EDF launch so-called 'cheap nuclear' plan that will ruin taxpayers

EDF are about to persuade the Government to sign a blank cheque for another one of their failing European Pressurised Reactors at Sizewell C.  The plan is to get taxpayers to pay for a large chunk of the the 'equity' financing of the plant and get the Government to guarantee the bulk of the rest of the costs. EDF will say at the start that the plant would be 'cheap', but, magically, the cost would gradually escalate over time. But meanwhile the Government would be committed to foot the bill. This will lead to the biggest black hole in the nation's finances since the financial crash.

However, this will get around the humiliation of EDF having to be paid the high price per MWh that Hinkley C is to be paid. A lower price might be agreed. But instead the taxpayers will foot a bill that is likely to rise to well over £10 billion pounds. The plant will not be any cheaper than Hinkley C, its just that the cost will be hidden on Treasury books. But this will have a catastrophic effect on public finances and deprive the Exchequer of many billions £s that could otherwise be spent on public services. This will be the subsidy to top all subsidies!

It is a gross distortion to claim that in this way nuclear power can be made cheaper than any sources. Of course if the Government takes out its chequebook and promises any power generator to pay whatever it likes then the power price will be much lower. With the Government effectively promising to pay for any and all cost overruns on such a project, what is to stop EDF from racking up virtually any bill it wants? 

One might think that such a transparently biased scheme (towards nuclear companies, away from the taxpayer and renewable energy) would be dismissed by any Government. Yet energy minister Tom Harrington has already signed up to a generally similar type of plan full of fantasies of how the costs of the projects would be kept under control (as usual). 

Hinkley C was supposed to be online now, yet even by EDF's projections it will not be working before 2027. Yet we are now to believe that the next power plant at Sizewell C will be built on time. Of course EDF can promise that this will be happening, because they will not have to pay for the consequences. The taxpayer will, in time, as the loans guaranteed by the Government have to be paid by the Government -as well as the equity stake - and no doubt extra to ensure that the plant is finally built.

EDF are claiming that Sizewell C will cost '£5bn less' than Hinkley C. Of course EDF hasn't even begun the serious construction of Hinkley C, so how do they know how much it will cost anyway!!

Of course, with rumours circulating that Boris Johnson could be appointed Business Secretary, the nuclear industry could have just the right person to front its raid on the nation's finances. Boris Johnson is not known for his attention to detail, but he's a breeze at giving rhetorical backing to all sorts of fanciful ideas. He's just the guy nuclear power needs!

You can read about EDF's latest cunning plan at https://www.thetimes.co.uk/edition/business/cut-price-nuclear-power-plant-possible-says-edf-cmq37xm8q

The National Audit report in the summer of 2017, in their annexes, effectively backed the 'Government pays' option (ie blank cheque). See https://www.nao.org.uk/wp-content/uploads/2017/06/Hinkley-Point-C.pdf

You can see the nuclear industry's general thrust at:

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/665473/The_Nuclear_Sector_Deal_171206.pdf

Four ways in which society is institutionally ageist

The revelation in today's paper that some UK companies have been manipulating Facebook to show job opportunities only to under 35s is just a iceberg-style manifestation of the ageism that permeates society and handicaps a lot of older people from getting an even break. Society is institutionally ageist in at least four ways.

First is that Government's way of presenting the data hides the immense level of unemployment of older people. The official records show that unemployment in the 50-64 year old age group is relatively low. But this is a construction based on the exclusion of nearly a third of people in this age-group as 'economically inactive'. In fact the unemployment among older people is massive, and much worse than younger age groups once this is taken into account. Indeed those older people that are classified as actively looking for a job find it much more difficult (they remain unemployed for much longer than average) than younger people.

Of course the figures then assume that people over 65 don't exist for unemployment purposes. They've got a pension, so they don't count. People in this age group who complain about age discrimination in employment are just laughed at. From an economic point of view, never mind individual rights angle, this is really stupid.

If we want a better economy, we need more people working - as opposed to more people living off their savings or state benefits, which should otherwise be invested in sustainable production (solar or wind power perhaps?). Ok, we shouldn't force people to work when they've had enough - but why make it difficult for older people to do stuff when they want?

The second way that society is institutionally ageist is the way that there is an incipient (sometimes overt) bias against older people in employment. When I was 31 (that was in 1983 by the way) I remember going to an IT training event put on by some government agency. Big affair. I got to see an adviser who then told me that I was too old. Apparently this age discrimination is a big thing in IT still. Of course these days it is against the law to overtly discriminate, but sometimes the veil falls off the implicit discrimination, as is the case with the Facebook story revealed today.

To many of course, the fact that the establishment, with all its many ills, is run largely by older people acts to obscure the suffering faced by the not-so-fortunate older people. But when you look at individual cases of how older people have got the top positions you realise that it didn't have anything to do with their age. I was certainly not appointed to my current job at the University of Aberdeen (at the age of 60) because I was old. Really. Neither, (going a long way further up the food chain!)  was Vince Cable, the Liberal Democrat Leader, or Jeremy Corbyn, the Leader of the Labour Party appointed to be leaders because they are retiree age. They got these jobs because of their reputation and respect among their relevant party members (or some of them!). Of course being around a long time helps you build up experience and achievements that impresses people, but that does not automatically follow just because you're old! But the fact that you are old can certainly detract from your appeal in many people's eyes.

The third way that society is institutionally ageist is a very obvious one. Calling somebody old is an insult (even though it shouldn't be). The very fact that it IS an insult and is routinely used, often without any reflection, is a mark of the institutionalisation of ageism in the very fabric of modern culture. If you want to insult a politician, call them 'old'. If you don't like the people who voted for Brexit, call them old - now that's really common these days. It's a way of avoiding the argument, of appealing to your base (mainly young people) - it's a reverse of what people attack Trump for doing in fact. I think leaving the EU is a bad move, but it's got nothing to do with the age of the people who tend to like the idea, and everything to do with the arguments about internationalism, peace, fraternity etc.

The fourth way that society is institutionally ageist is the notion that somehow old people are assumed to have a better deal than younger people. Well, some do, some don't. But on average they certainly don't have higher pay. Household income for the over 65s is, despite some improvements in recent years, still only three-quarters of the average younger people. What's so marvellous about that? There's also the not inconsequential fact that the oldies on average have rather fewer years of healthy life ahead of them than the younger people. Yes, there's a lot of problems facing younger people that need sorting ...housing, tuition fees etc etc. But don't take it out on the oldies please.





https://www.thetimes.co.uk/edition/news/job-ads-on-facebook-bar-over35s-hb7twnz89

 https://www.ageing-better.org.uk/publications/addressing-worklessness-and-job-insecurity-amongst-people-aged-50

https://www.cio.com/article/3198472/careers-staffing/the-hard-truths-of-navigating-ageism-in-it.html

http://www.telegraph.co.uk/news/politics/labour/11781155/Andy-Burnham-accused-of-ageism-by-Jeremy-Corbyn-supporters.html

https://www.theguardian.com/commentisfree/2017/jun/24/vince-cable-ageism-is-old-fool-worse-young-one

https://www.theguardian.com/money/2017/aug/08/pensioners-living-in-golden-era-as-income-rise-outstrips-workers

Why wind power costs are crashing and soon could plunge well below wholesale electricity prices

Wind power costs are plunging and it might not take too long before they get down to £40 per MWh, well below recent UK wholesale power prices which have been at £45 per MWh in recent times.

Offshore wind power costs have seen the sharpest decline, although falling prices for onshore wind should also be evident in the UK if only the UK Government were offering long term power purchase agreements (PPAs) for them as well as offshore windfarms. Anti-renewable commentators are still quoting costs for onshore wind power (£70-£80 per MWh) that are grossly out of date, relying on nothing more than than the fact that the Government have not offered any PPAs for them recently.

Recent offshore wind farm auctions in the UK, Germany, Denmark and The Netherlands have seen prices plunge to below £60 per MWh and predictions are being made that prices will carry on falling.  But why is this happening? This is a question that befuddles some anti-renewable energy think tanks and spokesperson who seem to think that some of the world's leading corporations are spoofing us all. But there's no spoof - it's happening.

But how can this be, given that until recently offshore windfarms have sometimes been costing £100 per MWh or more?

There are six reasons for this that I can see.

First, advancements in computer modelling techniques have led to better designs of wind turbine blades that can capture more energy whilst weighing much less than previously. This has allowed wind turbines to be built that are much bigger and thus whose blades can take in a much larger swept area without substantially increasing the cost of the materials involved.

Second, digital control over wind turbines also increases the amount of energy converted into electricity.

Together this means that, for example, a turbine can be built that produces twice as much as designs of machines previously installed whilst only modestly increasing the weight of materials involved. This on its own cuts the total costs by almost a half.

Third, the benefits of installing a much smaller number of turbines can be utilised because, for example,  there needs to be only half as much expense per output needed to install a machine that produces 2x MWh a year as opposed to installing 2 machines which each generate x MWh a year.

Fourth, fabrication and construction techniques for building the windfarms have been dramatically improved. For example, whereas it would previously have taken several weeks to install and commission a wind turbine in the sea (once the monopile or jacket has been emplaced), now it can be done in a single day. This saves very large sums of money in terms of hiring vessels alone.

Fifth, considerable reduction in 'supply chain' costs have been achieved. For example. wind turbine manufacturing companies in the past have out-sourced manufacturing of gearboxes, but now they are done 'in house'. The large production lines and very large sizes of offshore windfarms has made this more practical.

Sixth, the fact that some big multinational corporations are now seeing renewable energy as the central, rather than peripheral, aspect of their power generation business has meant that they will use their cheapest in-house financing means to support them. When it comes to the cost of servicing debts, guarantees made by the biggest companies will slash financial costs.

The most recent UK auctions saw PPAs issued at £57.50 per MWh for the Hornsea 2 and Moray Firth windfarms. But it has been suggested from inside the industry that the costs of such developments have already fallen to around £50 per MWh and that a further reduction of around 20 per cent is already on the cards.

Much concern has been expressed over the fact that it was said in the recent Budget statement that there would be no new money for renewable energy until 2025. Whilst this is very bad news for developing technologies such as tidal stream, this will not matter at all if wind power can be delivered for no more than the wholesale power price.

Of course this shouldn't be a signal for people to say the Government doesn't need to do anything to promote wind power anymore. That is because without long term guarantees of minimum levels of income industry will not build the projects. They are capital intensive meaning that investors need to know that they will get their money back, and for that they need income stability. In addition the UK is now running short of new windfarm sites simply because The Crown Estates have not issued any new licenses since 2009. Now The Crown Estates are poised to start as new round of licensing.

A further problem is a political one in that the Government has on its books a large capacity of almost undeliverable nuclear power projects on its hands which makes it look like (on paper) that the Government is meeting is non-fossil fuel construction targets, but in fact is not. Even if Hinkley C is built for example, it will soak up very large sums of money for a very long period of time that could be much more usefully deployed to support developing renewable energy technologies that do ha ve a chance of seeing their costs reduced.



https://www.bloomberg.com/news/articles/2017-09-11/u-k-offshore-wind-costs-fall-to-record-in-latest-auction
http://ieefa.org/ieefa-europe-offshore-wind-costs-maintain-falling-trend/

The Leave Campaign's monster lie about £350 million a week wasn't their biggest

The Leave campaign's claim that after Brexit the UK could simply divert the money we pay to the EU into the NHS was certainly a whopper, but in terms of the implications for the UK it wasn't even the biggest. Not close. 

The biggest lie was the implication that the UK could, whilst leaving, have a sensible discussion with the EU about trade and come to a trade agreement that suited us just fine.

As the Leave Campaign said: 'we will have a new UK-EU trading relationship. There is a European free trade zone from Iceland to the Russian border and we will be part of it. The heart of what we all want is the continuation of tariff-free trade with minimal bureaucracy.'

This would happen because, in effect, the EU had no other option, as they continued.....

'The government will explore how the other EU countries and the Commission want to proceed. We will be helped enormously by the fact that the EU Commission, Berlin, and Paris now have an official roadmap for another Intergovernmental Conference and another Treaty centralising many more powers including over taxes with the EU. They think they need this to save the euro. It provides a clear opportunity for a new deal based on us letting them plough ahead while we take back control.' 

But despite the fact that this just isn’t happening the Brexiter leaders simply shrug their shoulders and say the consequences of us leaving the EU without any deal just won’t be so bad.

Instead, it seems, the UK will reduce  its environmental and social standards to undercut the EU and we’ll have a jolly old trade war with them. Quite apart from the inanity of imagining that reducing our social and environmental standards could be regarded as anything but a national disaster this outcome would render the Leave campaign’s whole premise – that a smooth passage to a free trade agreement was in the offing – to be a monstrous lie. Indeed it is an even bigger one than the £350 million a week claim’.

The fatal flaw in the Leave Narrative is that the UK was leaving the EU for essentially identity reasons – to preserve self determination (‘take back control’) whilst expecting that the EU would behave according to economic rationality. You know, of wanting to smooth the flow of manufactured cars etc to and from the UK etc.

But of course the EU has reacted in much the same way as us, that is politically, to defend their identity. Defending Irish (border-free) interests is now at the top of their agenda. The apparent current expectation by Brexiters, that the (nationalist) Irish polity, united as it is behind the goal of not letting the border return, will simply roll over after their leader tells them that the UK Government cannot deliver this, is ridiculous. The Irish went through three long civil wars in the 20^th century over the border – a few patronising put downs by English politicians are not going to make the Irish give way!  Anything but! And, of course, Ireland has a veto over what is now looking like a wistful EU free trade agreement with the UK, even if the other 26 states weren’t prepared to back the Irish position, which they do of course.

Politics is full of unintended consequences, and an unintended consequence of the apparent refusal of the DUP to do what the Irish Govt wants (to guarantee that a hard(er) border will not return) is most likely to result in the UK remaining effectively in the EU.

Once Mrs May's effective acceptance of Northern Ireland being given a special status to remain in the Single Market and Customs Union is ruled out, there is  only one plausible way that a trade war and a semi-cold war between the UK and the EU will be avoided. That is for the UK to adopt not only the EU Customs Union but also the Single Market. That would give the same conditions for Northern Ireland and the rest of the UK, would remove the need for border changes, and would avoid the (DUP-hated) border in the Irish Sea that would result from the Special Status proposal for Northern Ireland agreed (for a brief couple of hours) between May and the EU negotiators.

Now if the UK remained in both the Single Market and the Customs Union, then we would actually be much closer to full membership of the EU than Norway! Norway is not a member of the customs union and can make trade agreements with other countries. But the UK would, as Labour’s Barry Gardner described it, become a ‘vassal state’ of the EU. We would have our trade and regulatory policy decided by the EU but have no direct say in making these policies.

This would be an absurd situation, a strange parody of the Leave slogan ‘take back control’. Full membership of the EU would surely be much preferable to being a vassal state!

See the Vote Leave statement from which the above quotes are taken.

http://www.voteleavetakecontrol.org/briefing_newdeal.html

See also Barry Gardner's dismissal of the 'remain in customs union and single market'  scenario (ironic now that Labour seems to be pointing in that direction)

See the EU's attitude to threats from the UK that we might start a trade war:

https://www.theguardian.com/politics/2017/dec/01/brussels-punishment-clause-uk-trade-deal-regulatory-standards-brexit