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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

#31

Post by zingar »

tialaramex wrote: post #12
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…

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)

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

#32

Post by benj111 »

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.

You're kind of missing the point. Renewables use contracts for difference. The article we are discussing is the level of that CFD. So what ever the market price, renewables either give or receive money in line with the CFD.

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

#33

Post by QuantumGood »

bryanlarsen wrote: post #8
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.

That's also how a pure commodity market works. The price is the marginal cost. That's how commodity producers like farmers can be profitable. The marginal producer makes no profit, but every producer who can get their costs below the marginal producer makes a profit. If farmers didn't make any money, they'd stop farming and we'd have no food.

"Make any money" is not clear enough. Providers of input and purchasers of output have each become monopolies and have squeezed the profit out of smaller providers. They borrow to survive, government pays those that loaned the money, then the cycle continues. Farmer suicide has become a very popular way out of the cycle, which is one indicator that the money isn't really there any more.

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

#34

Post by mekdoonggi »

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.

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

#36

Post by _fizz_buzz_ »

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.

It is exactly why the market is the best approach for electricity. Everyone is incentivized to produce electricity as cheap as they can. Otherwise it doesn’t pay off to produce cheaper because one gets punished by having to sell for less anyway.

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

#38

Post by bryanlarsen »

QuantumGood wrote: post #33
bryanlarsen wrote: post #8

Earlier quoted context omitted.

That's also how a pure commodity market works. The price is the marginal cost. That's how commodity producers like farmers can be profitable. The marginal producer makes no profit, but every producer who can get their costs below the marginal producer makes a profit. If farmers didn't make any money, they'd stop farming and we'd have no food.

"Make any money" is not clear enough. Providers of input and purchasers of output have each become monopolies and have squeezed the profit out of smaller providers. They borrow to survive, government pays those that loaned the money, then the cycle continues. Farmer suicide has become a very popular way out of the cycle, which is one indicator that the money isn't really there any more.

Saskatchewan farmers have done very well since ~2000 or so. The 80's and 90's were very rough.

Yes, costs have skyrocketed -- combine harvesters start at about a million now. But wheat prices and yields have been high enough to more than compensate.

But Saskatchewan farmers are a great example of a low cost producer. A Saskatchewan farm usually runs about 10,000 acres per operator. UK farms with a couple hundred acres can't compete.

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

#39

Post by [deleted] »

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…

[deleted]

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

#40

Post by _fizz_buzz_ »

zingar wrote: post #21
cbmuser wrote: post #15

Earlier quoted context omitted.

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.

But that is exactly what is happening. Each seller can offer their price and each bidder can also offer their price. And since running a gas turbine is more expensive than wind power they are forced by the market to turn their gas turbines off when there is wind. However when there is only a little wind they can power up their gas turbines and sell to the highest bidder. But since there is also a little bit wind, the wind power people can also sell to that highest bidder. That is how it happens that suddenly wind power is just as expensive as the gas turbines, because there is simply not as much wind power to go around for all the people that need electricity.
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