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UK offshore wind prices come in 40% cheaper than gas in record auction

electrek.co

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Re: UK offshore wind prices come in 40% cheaper than gas in record auction

#21

Post by zingar »

cbmuser wrote: post #15
Havoc wrote: post #2

Now if only the UK didn't have an insane system where all electricity is purchased at the highest cost in the mix. i.e. if you're buy 99% cheap RE, 1% expensive gas then you're paying for 100% at the higher gas price.

Electricty is a homogeneous good which is traded at one price independent of origin. Why should an operator of wind turbine sell their kWh for less if the current price is high? That would be stupid.

The non renewable operator would be free to sell at a competitive price or not at all. Perhaps on nights when there’s no wind at sea they might be able to make their obsolete infrastructure pay for itself briefly.

Re: UK offshore wind prices come in 40% cheaper than gas in record auction

#22

Post by KptMarchewa »

_fizz_buzz_ wrote: post #20
Havoc wrote: post #2

Now if only the UK didn't have an insane system where all electricity is purchased at the highest cost in the mix. i.e. if you're buy 99% cheap RE, 1% expensive gas then you're paying for 100% at the higher gas price.

> Now if only the UK didn't have an insane system where all electricity is purchased at the highest cost in the mix. That isn’t a “system”. It’s just what happens. Why would the 99% RE be forced to sell at a lower price? They will sell at whatever the market value is. Which is determined by supply and demand. And the gas turbines will only turn on if it becomes profitable for them to turn on at that price. So the cau…

That's why "market" isn't a good approach for electricity.

Re: UK offshore wind prices come in 40% cheaper than gas in record auction

#23

Post by otherme123 »

cbmuser wrote: post #17
blibble wrote: post #10

Earlier quoted context omitted.

> Like if gas is $5 and RE is $1 the RE folks get $5 instead? yes if there's 1mW of gas in the grid then everyone gets paid the gas price this is called pay-as-clear, and has some positives (strongly encourages RE construction), and some disadvantages (zero long term planning, paying gas generators absurd rates if they can squeeze in at the top of the auction) UK government is consulting on changes to this system at…

There is no way of changing this. It’s how commodity markets work.

There are alternatives, like "pay as bid", which heavily incentives the best price guesser instead of the cheapest producers. And is a system more fragile against collusions in concentrated markets (i.e. a handful of big producers that agree on high bids).

Re: UK offshore wind prices come in 40% cheaper than gas in record auction

#24

Post by SoftTalker »

0cf8612b2e1e wrote: post #13
boothby wrote: post #4

Earlier quoted context omitted.

It still looks like a perverse incentive to me. If I were operating a gas plant and charging too much, and also building out renewables, it naively seems that I should be able to continue overcharging for gas, lining somebody's pocket to maintain the contract, and building out more renewables for ever more profit. I'm not in the UK so I'm only passingly familiar with the existence of this policy; I do hope that it's…

I wonder, what’s to stop an energy company with a mixture of RE and gas from disabling X% of their RE infrastructure, forcing gas to come online and the higher rate? Only the biggest producers control enough of the market to do it, but it seems plausible for the company to find specific demand scenarios where they could tip the price in their favor.

There's a big wind farm I drive by occasionally and sometimes most of the windmills are feathered. Some are turning, so there's clearly wind. I have assumed this is when the demand is low (or maybe negative).

Re: UK offshore wind prices come in 40% cheaper than gas in record auction

#25

Post by blibble »

cbmuser wrote: post #17
blibble wrote: post #10

Earlier quoted context omitted.

> Like if gas is $5 and RE is $1 the RE folks get $5 instead? yes if there's 1mW of gas in the grid then everyone gets paid the gas price this is called pay-as-clear, and has some positives (strongly encourages RE construction), and some disadvantages (zero long term planning, paying gas generators absurd rates if they can squeeze in at the top of the auction) UK government is consulting on changes to this system at…

There is no way of changing this. It’s how commodity markets work.

of course there is

this is not the global oil market

the UK electricity market is a government creation, highly regulated, and only accessible to limited participants

30 minutely, day ahead, pay-by-clear auction markets are not a property of the universe

Re: UK offshore wind prices come in 40% cheaper than gas in record auction

#26

Post by mr_00ff00 »

KptMarchewa wrote: post #22
_fizz_buzz_ wrote: post #20

Earlier quoted context omitted.

> Now if only the UK didn't have an insane system where all electricity is purchased at the highest cost in the mix. That isn’t a “system”. It’s just what happens. Why would the 99% RE be forced to sell at a lower price? They will sell at whatever the market value is. Which is determined by supply and demand. And the gas turbines will only turn on if it becomes profitable for them to turn on at that price. So the cau…

That's why "market" isn't a good approach for electricity.

Can you give an example of a better method?

The one that I can think of is the government sets the amount of electricity produced, and then it’s rationed. But I doubt the UK would be happy with rationed electricity where your power shuts off the second it’s over. That would be essentially mandatory blackouts all the time.

Not to mention the cost would be held by the government, so you end up paying it in taxes anyway.

Re: UK offshore wind prices come in 40% cheaper than gas in record auction

#27

Post by bryanlarsen »

cbeach wrote: post #16

This is poor reporting by Elektrek. The article compares wind and gas costs but completely fails to explain: * the gas price in the article includes the government’s self-imposed carbon tax. The actual cost of gas (£55) is FAR lower than the £91.20 strike price Milibad has set for wind. And Miliband has locked in this terrible pricing for 20 years! * there are huge extra costs for wind power that are not accounted fo…

> new power generation capability will need to be built to compensate for the intermittency of wind

The new wind power is mostly idling natural gas power plants, which can spin up on the rare occasions there's no wind in the North Sea. Then the UK only uses the expensive shipped LNG a few days a year. The much cheaper piped natural gas is already allocated.

Re: UK offshore wind prices come in 40% cheaper than gas in record auction

#28

Post by wcoenen »

The article talks about strike prices but doesn't provide much context.

The context: this is about bids from wind farm operators to win "contracts for difference" with the Low Carbon Contracts Company, an entity owned by the UK government. It's essentially a subsidy scheme where the wind farms can lock in a specific price per MWh for all the electricity they will produce over a certain period. But only if they bid low enough to be among the winners of the auction.

https://en.wikipedia.org/wiki/Contracts_for_Difference_(UK_e...

Re: UK offshore wind prices come in 40% cheaper than gas in record auction

#29

Post by gruez »

cbeach wrote: post #16

This is poor reporting by Elektrek. The article compares wind and gas costs but completely fails to explain: * the gas price in the article includes the government’s self-imposed carbon tax. The actual cost of gas (£55) is FAR lower than the £91.20 strike price Milibad has set for wind. And Miliband has locked in this terrible pricing for 20 years! * there are huge extra costs for wind power that are not accounted fo…

>* the gas price in the article includes the government’s self-imposed carbon tax. The actual cost of gas (£55) is FAR lower than the £91.20 strike price Milibad has set for wind.

Is that unreasonable? Carbon dioxide is an externality, and it needs to be accounted for accordingly. Suppose the government is tendering contracts for milk for school lunches. One farm runs a CAFO[1] that pollutes the local river. The other has cows on a pasture that doesn't. Is it that unreasonable for the government to be like "well hang on, the CAFO farm might be cheaper the grass fed farm, but it'll cost us money to clean up all the shit they're dumping into the river, so we're going to impose a tax on the CAFO farm for their pollution"?

[1] https://en.wikipedia.org/wiki/Concentrated_animal_feeding_op...

Re: UK offshore wind prices come in 40% cheaper than gas in record auction

#30

Post by breve »

cbeach wrote: post #16

This is poor reporting by Elektrek. The article compares wind and gas costs but completely fails to explain: * the gas price in the article includes the government’s self-imposed carbon tax. The actual cost of gas (£55) is FAR lower than the £91.20 strike price Milibad has set for wind. And Miliband has locked in this terrible pricing for 20 years! * there are huge extra costs for wind power that are not accounted fo…

> The actual cost of gas

The actual cost has to price in the impact of using it.

For example, it's cheaper for UK water companies to pump sewage into rivers and onto beaches:

https://www.bbc.com/news/articles/cz9kz8ydjpno

https://www.bbc.com/news/uk-england-london-67357566

https://www.bbc.com/news/articles/c5yprnd848ko

https://www.theguardian.com/environment/2025/sep/16/sewage-o...

But maybe it's a nice idea to force them to deal with sewage properly so you don't have to live in rivers of shit.

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