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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

#91

Post by simplisticelk »

tialaramex wrote: post #89
simplisticelk wrote: post #80

Earlier quoted context omitted.

Absolutely, as long as a the energy of a wind farm displaces enough MWh of gas to cover its capital costs (incl. network costs) at the marginal price of gas it should reduce system costs. But wind energy output across an area the size of the UK is so highly correlated that additional wind capacity has diminishing returns. I suspect that the UK is already beyond the point by which additional wind is economically benef…

> I suspect that the UK is already beyond the point by which additional wind is economically beneficial, but I’m not certain about that. I don't buy it. Just before Xmas the grid managed to move about 23GW of wind and it was a record. 23GW is lots but there was peak demand at that time, about 14GW of gas was still running when they hit that record. How can it be of no benefit to expand beyond that ? I don't expect to…

You very well may be correct, but it’s really not about how much it displaces at demand peaks (BESS is more likely to displace gas peaking). It matters how much it displaces over years and how often the additional output is surplus to demand. Long past uneconomical wind expansion you’d expect to still be running CCGTs over winter.

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

#92

Post by simplisticelk »

actionfromafar wrote: post #86
simplisticelk wrote: post #80

Earlier quoted context omitted.

Absolutely, as long as a the energy of a wind farm displaces enough MWh of gas to cover its capital costs (incl. network costs) at the marginal price of gas it should reduce system costs. But wind energy output across an area the size of the UK is so highly correlated that additional wind capacity has diminishing returns. I suspect that the UK is already beyond the point by which additional wind is economically benef…

If electricity spot prices is cheap enough (when available), then people will eventually find uses for it. This will drive economic development.

Finding economically viable uses for intermittently cheap energy has proven to be quite difficult. Most energy intensive industries require high capacity factors to cover capital costs.

£90 wind energy does not make for a low cost energy environment. And if spot prices dropped substantially the UK government is going to be taking a massive loss on these contracts.

I’m coming across as very negative in this thread, but I do really want renewable energy to succeed. I just work in the industry so I’m very aware of how challenging it is to make the economics stack up, so I find these puff pieces a bit exasperating.

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

#93

Post by zingar »

hnaccount_rng wrote: post #43
zingar wrote: post #31

Earlier quoted context omitted.

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 pr…

> ~ 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

Still missing something in relation to a point above. Does one of these scenarios involve the operator “paying” or “giving back” actual money when the market price is higher than agreed? As opposed to just operating at a loss or less profit?

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

#94

Post by MakersF »

simplisticelk wrote: post #80
bryanlarsen wrote: post #74

Earlier quoted context omitted.

Operating costs dominate the cost of natural gas electricity, not the capital costs. An idled gas plant does save considerable money.

Absolutely, as long as a the energy of a wind farm displaces enough MWh of gas to cover its capital costs (incl. network costs) at the marginal price of gas it should reduce system costs. But wind energy output across an area the size of the UK is so highly correlated that additional wind capacity has diminishing returns. I suspect that the UK is already beyond the point by which additional wind is economically benef…

Capital costs starting to dominate doesn't mean that they increase.

If capital costs are 10 and operating costs are 90, but later operating costs become 1, the capital costs remain 10 and the price to recover the capital costs is the same.

Of course the capital costs need to be spread over less kwh, so the kwh will become more expensive, but what matters is the avg (and thus total) cost paid, and that would be lower.

E.g.

5B in capital cost for 25MW (amortized in 25 years), and 30 per MWh in gas cost.

If you produce 180TWh (20h daily of production) the average price cost will be (5'000'000'000/25 + 180'000'000*30)/180'000'000 = 31 per mwh.

If you produce 36TWh (5h a day) the average cost is 35, but the total cost is significantly lower.

At the limit, if the power plant produces 1MWh in the whole year, it will cost 200'000, but paying that MWh that high enabled the system to pay for all the rest of the year the electricity at less than 31. You need to look at the total cost paid in the end by users, not at the marginal costs in some situations.

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

#95

Post by cbeach »

Djeman wrote: post #73
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…

Are you maybe comparing cost of gas as fuel with total cost? We will have a short period of low gas prices because there is oversupply of LNG projects coming online but that can turnaround easily. Flips in geo politics and crisis are popping up all the time.

Would you choose a 5.5% tracker mortgage, or a mortgage fixed at 9.1% for 20 years?

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

#96

Post by bjourne »

simplisticelk wrote: post #80
bryanlarsen wrote: post #74

Earlier quoted context omitted.

Operating costs dominate the cost of natural gas electricity, not the capital costs. An idled gas plant does save considerable money.

Absolutely, as long as a the energy of a wind farm displaces enough MWh of gas to cover its capital costs (incl. network costs) at the marginal price of gas it should reduce system costs. But wind energy output across an area the size of the UK is so highly correlated that additional wind capacity has diminishing returns. I suspect that the UK is already beyond the point by which additional wind is economically benef…

Is that why corporations bid to build wind power in the UK EEZ at record-low prices? :)

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

#97

Post by hnaccount_rng »

zingar wrote: post #93
hnaccount_rng wrote: post #43

Earlier quoted context omitted.

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 pr…

> ~ 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 Still missing something in relation to a point above. Does one of these scenarios involve the operator “paying” or “giving back” actual money when the market price is higher than agreed? As opposed to just operating at a loss or le…

If you are willing to ignore the mechanics, then the result rounds to: The operator will receive the auctioned value of x £/MWh for each MWh delivered to the grid

If you are interested in the mechanics, then _I think_ (i.e. not first hand knowledge) the operator will join each auction (once per day for each 15 min interval of the next day) and offer his energy amount there. He will then receive the integral of (auction price) times (volume) from “the grid”. If that is too little money he then goes to the government and asks for a top up to (contract price) times (volume). If that was too much he has to pay the government the difference.

But again. That is purely mechanical. The end effect of the contracts is you will always receive say 80£ per MWh delivered. Independent of the MWh was worth 500£ in that 15 min interval or -50£. It’s “just” a risk transfer

Ah I’m seeing a possible confusion. There are two different auctions in the description. The first one is for the CfD price and happens (for each project) once. The second one is the daily-price-discovery one and happens daily

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

#98

Post by actionfromafar »

simplisticelk wrote: post #92
actionfromafar wrote: post #86

Earlier quoted context omitted.

If electricity spot prices is cheap enough (when available), then people will eventually find uses for it. This will drive economic development.

Finding economically viable uses for intermittently cheap energy has proven to be quite difficult. Most energy intensive industries require high capacity factors to cover capital costs. £90 wind energy does not make for a low cost energy environment. And if spot prices dropped substantially the UK government is going to be taking a massive loss on these contracts. I’m coming across as very negative in this thread, bu…

Life will find a way!

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

#99

Post by youngtaff »

fuoqi wrote: post #49

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 addi…

Do you understand how the CFDs for these wind farms work?

When the wholesale prices is about the CFD strike price then the excess funds are paid to the Low Carbon Company and used to reduce electricity bills

Storage capacity is being build out - it's one of the prime uses of old power station sites (because they already have grid connectivity)

Grid capacity is being built out e.g. the Eastern Green links to allow transfer of power from Scotland to England and reduce curtailment payments

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

#100

Post by youngtaff »

cbeach wrote: post #95
Djeman wrote: post #73

Earlier quoted context omitted.

Are you maybe comparing cost of gas as fuel with total cost? We will have a short period of low gas prices because there is oversupply of LNG projects coming online but that can turnaround easily. Flips in geo politics and crisis are popping up all the time.

Would you choose a 5.5% tracker mortgage, or a mortgage fixed at 9.1% for 20 years?

That's not the choice here though as the tracker mortgage (gas) is more expensive the the fixed on (Wind)
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