This week’s chapter in what tweeters are calling the #EnergyShambles was indeed just like an episode of The Thick of It. What happened was this: at PMQs on Wednesday Cameron said that “we will be legislating so that energy companies have to give the lowest tariff to their customers.” But the announcement took the Department of Energy and Climate Change by surprise – apparently No 10 phoned someone at the Department at the weekend and had been advised that the policy would not work. Neverthless Mr C went ahead: one energy industry source described the announcement as “Number 10 freelancing”.
Of course the announcement makes no sense. If everyone is on the cheapest tariff, then that tariff would have to rise- it would immediately become the mediocre tariff instead of the cheapest. As price comparison provider USwitch said, “it had to be a slip of the tongue as it could be the death of competition.” If everyone is on the same tariff, you have no market – you might as well nationalise the whole system so politicans can do exactly what they want with it.
On Thursday, new energy minister John Hayes had to defend the announcement in Parliament, and earned laughter with the verve that he brought to the role. The new rules would help consumers “get the best deal” he said, while he failed to confirm that it would be the lowest price. Was DECC aware that the PM was planning this announcement, he was asked? “The Prime Minister comes to this House weekly to be scrutinised by this House. Does he give me notice of every answer, does he get notice of every question? The answer is no. But if he asks me whether the Department was considering these matters… the answer is a definitive yes.” In other words, No. There was laughter as he claimed that the PMs comments had been crystal clear, and he went on in a classic piece of political doublethink to say that: “The fundamental objective of the strategy I outlined is to bring clarity. Clarity is the prerequisite of certainty, certainty is the prerequisite of confidence and confidence is the prerequisite of investment…”
Meanwhile across town DECC Secretary of State Ed Davey was making a speech to the CBI on energy policy, and completely failed to mention Mr Cameron’s pledge. He did however get the chance to comment on politics, saying in response to a question, “Believe me when I say that no one would be happier to see the politics taken out of energy policy. What could make life easier for the Energy and Climate Change Secretary than political consensus?”
The terrible irony is, of course, that clarity is exactly the opposite of what the current government is providing to the energy industry. “Government-induced policy risk is the single biggest deterrent to investment” as Nick Stern wrote in the Financial Times on Monday, and as we have also been hearing from the CBI, from big energy hardware and nuclear companies including Alstom and Mitsubishi, and from big company members of the Aldersgate Group recently.
On Tuesday Downing Street said that the “quad” – Cameron, Osborne, Clegg and Danny Alexander – were meeting with Ed Davey in an attempt to broker peace between Osborne’s anti-clean energy Treasury and DECC – but one senior source warned that it would be an “unholy war”, according to Fiona Harvey in the Guardian. “The PM wants to bring the Treasury and DECc on to the same page,” another source told the Guardian, “the Treasury has to sign up to the renewable energy agenda, while DECC has to reassure on costs.”
A likely deal would “give the chancellor more leeway on limiting subsidies via the Levy Control Framework… in return, Davey would get a new carbon target – to virtually eliminate emissions from electricity generation by 2030.” If true, that is good news on the carbon target, though in practice the levy restriction may make it impossible to meet, and will drive up costs by increasing uncertainty!
“Perhaps it’s best David Cameron remains a hands-off PM”, said political commentator James Kirkup in the Telegraph. And the truth might be that we need a hands-off government. Just as the Monetary Policy Committee of the Bank of England was liberated to set interest rates, the only way to create policy consistency in energy might be to take it away from the politicians.
Ultimately that is probably where we will end up, though we would first need a complete reform of the energy markets – the so-called “Electricity Market Reform” package in the current bill is not really a reform, but instead is yet more tweaking, adding to the dozens of accretive policy measures which have been piled on over the past few years. In fact energy policy in the UK resembles a Heath Robinson machine strapped on top of a woolly mammoth, with complex devices made of twigs and string in order to poke the mammoth in the vain attempt to get it to move.
The current electricity market is designed for dirty energy, and instead of tweaking it we need to replace it, with one designed for clean energy. Mind you, we might need to give the dirty stuff a few subsidies to get it through in the interim, but so be it.
Robert,Here is some clarity regarding the UK’s wind energy program which cannot be financed with the UK economy growing at near zero procent and with household spendable incomes declining and with unemployment/underemployment rising. Thus far the costs of adding wind energy to the UK grid have been borne mostly by households. Politicians are scrambling to “explain” any future household rate increase will be minimal. Which, as everyone knows, is a lot of hooey. Excerpt from this article:http://theenergycollective.com/willem-post/98061/irelands-wind-energy-export-plan UK 2020 Wind Energy Targets: During an unfortunate moment of irrational exuberance fueled by ignorance and the prospect of loss of “face”, i.e., being totally outdone by the much richer Germans, the budget-deficit-ridden, cash-strapped UK government committed itself to meet various 2020 RE targets, including 28,000 MW of wind turbines by 2020, having no idea what it would cost and what it would lead to.Note: Many energy systems analysts had a fairly good idea, but were not heeded, or were derided and became afraid to speak up. Here are some examples of the consequences: In June 2011 several UK energy companies, including Centrica, advised the UK government 17 NEW gas-fired, OCGT/CCGT plants with a total capacity of about 10,000 MW, costing 13 billion euro, would be required by 2020 to perform wind energy balancing and act as back-up for wind energy. Depending on wind speeds, the output could be as low as about 560 MW (2% of 28,000 MW) and as high as about 19,600 MW (70% of 28,000 MW) at any time during a year.http://en.wikipedia.org/wiki/Wind_power_in_the_United_Kingdom Note: Low-cost OCGTs are used for quick-ramping. CCGTs cannot be quick-ramped as the thermal stresses will damage the steam turbine and HRSG. They also cannot be operated below 50% of rated output. They can be slow-ramped (i.e., following the daily demand curve), but their ramping range would be limited from about 75% to 95% and from 75% to 55% of rated output to minimize the damage that would shorten their useful service life. However, as the new UK OCGT/CCGT plants would be operating in part-load-ramping mode year-round, which is highly inefficient, they would require “capacity payments” to attract capital to build them and improve their LCOE economics. These “capacity payments” would be in addition to the existing subsidies to meet the 28,000 MW wind turbine target by 2020. In addition, as about 10,000 MW of EXISTING OCGT/CCGTs would also be operating in inefficient, part-load-ramping mode year-round, they would also require “payments” to improve their LCOE economics, because the more wind energy on the grid, the less these OCGT/CCGTs would be producing and that production would require more Btu/kWh and emit more CO2/kWh, thereby adversely affecting their LCOEs. http://theenergycollective.com/willem-post/89476/wind-energy-co2-emissions-are-overstated Germany’s Experience: As typical Atlantic Ocean low pressure weather systems move across Ireland, the UK, the Netherlands, Denmark and Germany, similar wind output MW variations occur in these lands, including in Northern Germany. Germany has began to deal with its variable, intermittent wind energy generated in the North. It appears, as a minimum, the following expensive build-outs to support wind energy are required: – new OCGT/CCGT plants (about 11,500 MW, 15 billion euro) for backup and balancing its onshore and offshore wind energy. – new transmission systems (about 15 billion euro) to connect its offshore wind turbines to the grid.- new, highly visible, North-South transmission systems; NIMBY is the major holdup.http://m.spiegel.de/wirtschaft/unternehmen/a-850500.html Other nations with wind energy, including the UK, should learn from Germany’s experience. Note:– Spain, a recent economic miracle turned, seemingly overnight, into a total basket case, has significantly reduced/eliminated subsidies for new RE projects, effective 1 January 2012, and is considering similar reductions for existing projects. – The Netherlands, because of budget constraints and public opposition to more and more wind turbines, has cut RE subsidies by about 65%. – Public and business opposition to the ENERGIEWENDE is rapidly building in Germany and subsidies for Germany’s expensive foray into PV solar have been drastically scaled back; about 200 billion euro for capital, subsidies and feed-in tariffs from 2000-2011 yielded about 3% of German annual production in 2011. Public Opposition to Wind Energy: In accordance with past UK practice, any extra costs would be added mostly to household electric bills. This causes the UK government having to deal with: – increasing opposition to the quality-of-life blight inflicted by onshore wind turbines – demands to increase/preserve funding of social programs which would likely mean decreased wind turbine subsidies – demands to slow rapidly increasing household electric rates. Capital and Energy Costs: The UK had about 6,000 MW of wind turbines installed at the end of 2011. A build-out to 28,000 MW, 60% offshore and 40% onshore, would cost about 22,000 MW x (0.6 x 4,000,000 euro/MW + 0.4 x 1,800,000 euro/MW) = 68.64 billion euro, plus grid modifications of at least 25 billion euro from 2012 – 2020. Despite claims by wind energy promoters about wind energy LCOE parity with grid prices being just a few years in the future (to keep the subsidies flowing), the reality is otherwise. Latest UK estimates indicate an UNSUBSIDIZED UK offshore LCOE of 16.9 pence/kWh, or 21.46 euro cent/kWh, or $0.264/kWh. This compares with US DOE estimates of UNSUBSIDIZED US offshore LCOEs of $0.191/kWh. The USDOE estimate includes transmission systems, but not the cost of wind energy balancing. etc. 
@willem PostWhy are you referencing an out of date LCOE image on Wikipedia? It seems like you are cherry picking to reach a conclusion that you pre-decided on. Why not link to the article which shows that onshore wind is cheaper than nukes? By the time a new nuke could come online offshore wind and solar PV will also be cheaper. https://en.wikipedia.org/wiki/Cost_of_electricity_by_sourceThe majority of your comment is filled with false, misleading or irrelevant facts and arguments. For example, you offer a cost for UK wind by simplistically multiplying MW by € / MW (who knows where you plucked the number from!) as though cost will remain constant and that clearly is not the case.But the huge mistake you make in common with almost everyone who opposes clean energy is that you look only at cost and ignore economic and environmental benefit. Only climate science deniers can possibly oppose renewable energy.P.S. I notice you are a climate science ‘sceptic’ and believe the Arctic is melting mainly because of soot, despite every national science academy on the planet confirming the science that tells us it is mainly fossil fuel GHG emissions which are dangerously heating the planet.You appear to be making up your own version of climate science and doing similar for energy so your commentary is really lacking credibility on both.
Hi Willemthanks for your comment. My last line about subsidies for fossil fuel was mainly a throwaway chuckle – although it is the case that Politicians are having a hard time owning up to the uncertainty about energy prices, and what influence they really have.The vast majority (80%) of energy price rises in the UK over the past ten years have been due to the increasing price of wholesale gas, not the subsidy for wind as you imply.The choice going forward is between a fossil fuel system and a clean energy system (and in the UK the latter will have a hefty chunk of wind). You seem to favour non-wind as you say the costs are high – but you provide no comparisons, and it is the total cost of the energy system which matters. One part of this is the subsidies to fossil fuels, totalling $500bn direct and $1000bn including indirect, compared to about $50bn which goes to renewable energy.Finally, you say “Despite claims by wind energy promoters about wind energy LCOE parity with grid prices being just a few years in the future (to keep the subsidies flowing), the reality is otherwise.” But for onshore wind parity does exist in an increasing number of locations, as Bloomberg New Energy Finance have pointed out.
“But for onshore wind parity does exist in an increasing number of locations, as Bloomberg New Energy Finance have pointed out.”It is better to get information from spreadsheets submitted by owners who propose projects than from Bloomberg. This parity is only possible with major subsidies.On a per MWh basis, wind and solar receive the highest subsidies.http://www.aei.org/outlook/energy-and-the-environment/alternative-energy…Here is a URL with a table, prepared by the DOE/EIA, that compares UNSUBSIDIZED sources of energy.
Wind and solar energy is of a lower quality, because it is variable and intermittent. Such energy is not equivalent to coal, gas, hydro and nuclear energy, as it has zero “On Demand/Dispatch” value to a grid operator.Here are some values for offshore energy from this articlehttp://theenergycollective.com/willem-post/61774/wind-energy-expensiveCape Wind: Cape Wind Associates, LLC, plans to build and operate a wind facility on the Outer Continental Shelf offshore of Massachusetts. The wind facility would have a rated capacity of 468 MW consisting of 130 Siemens AG turbines each 3.6 MW, maximum blade height 440 feet, to be arranged in a grid pattern in 25 square miles of Nantucket Sound in federal waters off Cape Cod, Martha’s Vineyard, and Nantucket Island; the lease is for 46 square miles which includes a buffer zone. The Massachusetts Department of Public Utilities approved a 15-yr power purchase agreement, PPA, between the utility National Grid and Cape Wind Associates, LLC. National Grid agreed to buy 50% of the wind facility’s power starting at $0.187/kWh in 2013 (base year), escalating at 3.5%/yr which means the 2028 price to the utility will be $0.313/kWh. The project is currently trying to sell the other 50% of its power so financing can proceed; so far no takers.A household using 618 kWh/month will see an average wind power surcharge of about $1.50 on its monthly electric bill over the 15 year life of the contract; if the other 50% of power is sold on the same basis, it may add another $1.50 to that monthly bill.Power production is estimated at 468 MW x 8,760 hr/yr x CF 0.39 = 1.6 GWh/yr. The capital cost is estimated at $2.0 billion, or $4,274/kW. Federal subsidies would be 30% as a grant.Block Island Offshore Wind Project: The 28.4 MW Block Island Offshore Wind Project has a 20-yr PPA starting at $0.235/kWh in 2007 (base year), escalating at 3.5%/yr which means the 2027 price to the utility will be $0.468/kWh. A State of Rhode Island suit is pending to overturn the contract; the aim is to negotiate to obtain a lower price.Power production is estimated at 28.4 MW x 8,760 hr/yr x CF 0.39 = 0.097 GWh/yr.Capital cost is estimated at $121 million, or $4,274/kW. Federal subsidies would be 30% as a grant. Delaware Offshore Wind Project: The 200 MW Delaware Offshore Wind Project has a 25-year PPA starting at $0.0999/kWh in 2007 (base year), escalating at 2.5%/yr which means the 2032 price to the utility will be $0.185/kWh.Power production is estimated at 200 MW x 8,760 hr/yr x CF 0.39 = 0.68 GWh/yr.Capital cost is estimated at $855 million, or $4,274/kW. Federal subsidies would be 30% as a grant.
Robert,”One part of this is the subsidies to fossil fuels, totalling $500bn direct and $1000bn including indirect, compared to about $50bn which goes to renewable energy.”Please read these URLs
http://www.aei.org/outlook/energy-and-the-environment/alternative-energy/wind-and-solar-power-part-ii-how-persuasive-are-the-rationales/ Note: They are official numbers put out by the EIA, a branch of the USDOE, i.e., not an RE promoting entity. You will see wind and solar are the most subsidized per kWh and that wind and solar, both intermittent, variable energy dependent on the weather and the sun, i.e., not reliable, not dispatachable, are the most expensive, especially offshore.http://theenergycollective.com/willem-post/89476/wind-energy-co2-emissions-are-overstated
Great title. Really.