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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

#41

Post by cbeach »

mekdoonggi wrote: post #34
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…

Nothing you've said actually means anything. The self-imposed tax is there and isn't going anywhere, so it's included in the price. The other two points are accounted for in the strike price, because this capacity came into being and is now offering electricity at the strike price.

The government is literally comparing a raw price with a price+tax … and what makes this even more disingenuous is that the government themselves applied this tax. AND the tax is absurdly high!

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

#42

Post by chilmers »

linuxftw wrote: post #35

[flagged]

So RWE, the German multinational that won the largest share of this auction, with a yearly revenue of €29bn and an existing 153.2 TWh of power generation, is going to need a bailout from the British government, in the next four years, over a project to supply 7GW?

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

#43

Post by hnaccount_rng »

zingar wrote: post #31
tialaramex wrote: post #12

Earlier quoted context omitted.

So, what's auctioned here isn't power. What they're auctioning are what's called "Contracts for Difference". The contract has a "Strike price" which is in essence the price the government (via a for-purpose company) agrees you will be paid regardless of what happens for electricity sold to the system. Now as the word "difference" might suggest there will be a difference between the market price at any particular mome…

I’m missing something. Is the operator paying actual cash money if the market price goes up? It’s not just that they’re forced to produce electricity at a rate that’s possibly less than what it cost to buy fuel? (Or in the case of renewables: producing for less profit than they would if they made their contract later)

Think of it this way: as a windfarm operator you know your costs and you know your expected amount of energy produced. But you don’t know the precise timing and therefore the market value at generation time.

From the first two you can calculate what you need in terms of £/MWh (include whatever profit you want in there). Now you can go to the government and bid that price in the auction. If you win, you have a safe profit and all risk (and upside potential) now lies with the government. As GP said, in the case of 2022 you would have lost out on revenue. But that’s the price foe guaranteed margins

The CfD part is a technical detail. It ~ doesn’t matter whether you first sell the energy and then go to the government for reimbursement. Or whether you sell the energy to the government which then handles the follow up sale.

What I’m not sufficiently familiar with is whether you _have_ to go to such an auction (i.e. whether the auction also is the mechanism of capacity planning) or whether you are free to bypass this system and just hook up your wind park and carry the risk yourself. But functionally this is an insurance scheme for profits, with a market based pricing system

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

#44

Post by BJones12 »

gruez wrote: post #29
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 othe…

> Is that unreasonable? Carbon dioxide is an externality, and it needs to be accounted for accordingly.

Yes it is unreasonable. Spending money to reduce carbon is just a subsidy for other countries who DGAF and will emit both theirs and yours.

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

#45

Post by hnaccount_rng »

SoftTalker wrote: post #24
0cf8612b2e1e wrote: post #13

Earlier quoted context omitted.

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).

That’s not necessarily true. In general a single windmill is more efficient at pulling energy out of the wind than two are. And the marginal costs of windmills are not zero. I.e. their maintenance cadence (also) scales with active hours. So it might be a “at this price-wind point it’s not profitable for us to run a second mill”

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

#47

Post by roamerz »

gruez wrote: post #29
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 othe…

>>Is that unreasonable

It’s not unreasonable to report the facts and let the reader decide. The carbon tax is a readily available fact where in your example is subjective.

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

#48

Post by hkt »

tialaramex wrote: post #6
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.

We recognise that "I decided your kilo of gold is worth $50 so here's the $50 and now the gold is mine" isn't a purchase, that's theft. I'm going to assume you don't think it's insane for us to pay what the owner asked here (If I'm wrong, do let us know). So, OK, clearly this CCGT electricity here (made with gas) offered for £85 per MWh we're going to buy that, for £85 per MWh. Now, we also needed all this wind power…

I suspect GP actually wants an end to market pricing of energy and a move to a renewables-opex type of pricing, presumably with state financing and even operation. It isn't an insane idea: if it could be done cheaply enough and run well enough.

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

#49

Post by fuoqi »

1) Introduce a lot of intermittent generation into energy grid without sufficient amount of storage capacity.

2) Use marginal pricing model which effectively guarantees windfall profits for those sources.

3) Utilization of peaking power plants falls, but you still have to keep them because there is not enough storage capacity.

4) Peaking power plants rise generation costs to offset the lower utilization, further adding to the windfall profits.

5) You need more grid capacity to handle energy transfers from distributed generation sources.

5) ????

6) Act surprised when people loudly complain about electricity bills despite abundant "cheap" generation.

Intermittency of generation is an externality (same as CO2 emissions) and should be priced accordingly. People are willing to pay premium for supply stability, but the current pricing model does no account for that. Trying to change consumption habits (like smart grids, dynamic pricing, etc.) works poorly, especially for such vital resource as electricity.

I think there should be some kind of price penalty for intermittent sources dependent on total ratio of intermittent generation in the mix. At least until grid-scale energy storage technology will be advanced enough to store approximately week of total energy consumption.

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

#50

Post by Retric »

BJones12 wrote: post #44
gruez wrote: post #29

Earlier quoted context omitted.

>* 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 othe…

> Is that unreasonable? Carbon dioxide is an externality, and it needs to be accounted for accordingly. Yes it is unreasonable. Spending money to reduce carbon is just a subsidy for other countries who DGAF and will emit both theirs and yours.

When your country emits more CO2 there’s more CO2 in the atmosphere independent of what anyone else does.

So it’s true each individual country only receives a fraction of the negative impact of their own emissions, but that fraction isn’t zero and therefore should be taxed to maximize economic efficiency. Further joining international treaties to agree to collectively tax carbon at a higher rate representing the harm across all those countries is even more economically efficient.

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