Goldilocks and the Three (Carbon) Targets

I’ve been reported in one or two places allegedly fulminating about the decarbonisation target that may (or may not) go into the Energy Bill when it surfaces. The inclusion of any target in the Bill still looks a little uncertain, with the ‘quad’ meeting with Ed Davey (the ‘quint’?) today to ‘iron out’ the final detail of the Bill, which may or may not include a target, flexible or otherwise.  This should be a long meeting, bearing in mind the sketchy nature of the Draft Bill, but that’s another issue.

I’ve been just a little worried about my small area of reporting on the Bill.  I’m fully in favour of having a target of 50g per kwh of electricity placed on the face of the Bill – and I don’t really see the merit of a ‘flexible’ target as is, I understand, being floated by Ed Davey past the disapproving nose of George Osborne.  A flexible target of between 50 – 100gms doesn’t sound a big deal now, with emissions from electricity production running at about 490gms per kwh, but as emissions come down across other sectors would require a big effort from somewhere else to make up for what, by then, would look like the generating sector’s profligacy – and we’re still having trouble getting aircraft and shipping emissions into the ring in the first place.

The point of exception is the suggestion that all this might just be a ‘distraction’. I don’t think a firm target on the face of the Bill is a distraction, but campaigning noisily for a target and then just walking away from the consequences of the rest of the Bill certainly would be, and that is what I have been fulminating about.  If we end up with a target, flexible or otherwise in clause 1 of the Bill, whilst we let slip in the rest of the Bill measures that will institutionalise high carbon generation up to and beyond 2030, then I think we might have missed the point somewhere along the line.

The biggest thing we might let slip into the Bill, is of course the institutionalisation of gas as a preponderant part of the energy mix not just until 2030, but probably beyond that.  This would in part come about if we use among other things,  market-wide capacity payments to ‘incentivise the market’ to build enough gas to balance the system, a notion that I think has been given some wings by the recent Ofgem electricity capacity report.

Yes, of course we need sufficient reserve capacity in the system, and it needs to be robust in the face of higher penetration of variable power sources. But here’s the central problem with gas: it’s essentially a ‘goldilocks’ solution that we’ll be looking for. We need to have just enough on the system over the next twenty years to help it work optimally, and not so much that it swamps the purpose of putting renewables on the system in the first place. But one of the best ideas I know for delivering just that ‘swamping’ effect is the operation of a market-based incentive system which will be grabbed by gas developers, some of whom will be necessary to a balanced system and some of whom won’t, to oversupply the market with ‘incentivised’ gas, which will already have happily been ‘grandfathered’ as to its emissions by a Department worried about security of supply.  I think this is what the European Union are referring to in their recent communication on renewable energy when they warned against capacity payment systems that, if ‘poorly designed..could ’lock in’ solutions focussed on generation that frustrate the introduction of new forms of flexibility’.*

I couldn’t have described better what I think may well happen with the current design of capacity payment arrangements that may, almost as I write this be in the process of being signed off by the ‘quint’.  If you want the ‘goldilocks’ solution, you simply can’t rely on the market to produce it. What I think we need to be working towards, in tandem with a clear target on the face of the bill is the means to achieve it through the control of a strategic reserve OUTSIDE the market, whilst allowing the market to do what it does best, which is trading in supply and demand such that we get the best match between the two at the best price, within the overall rules.

That entails, almost literally, buying up mothballed plants to keep in reserve  at a far cheaper price that building new plants not to produce, and holding them ready to intervene when the market gets beyond itself.  That, and a ‘pool’ arrangement for trading would allow us to get much closer to the ‘goldilocks’ outcome that present instruments are likely to. So campaigners, get on with campaigning on the target, but just spare a thought for the three bears whilst you do.

* You can also read some of my previous analysis on problems with ‘gaming’ in such a system here

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7 thoughts on “Goldilocks and the Three (Carbon) Targets

  1. “Trading in demand”? But that is precisely the option which the draft electricity Bill ever so deliberately omits.
    Curious that, when for the past 30 years, every single energy minister has stressed that it is almost always cheaper to save than generate kilowatt hours….

  2. “buying up mothballed plants to keep in reserve” is a great idea, but that’s never going to help an incompetent wholesale market, or reduce the ‘variable’ renewables that need the reserve capacity.

    With Cameron’s tacit admission that the retail electricity market doesn’t work either, even with six companies in so-called ‘competition’, why don’t you advocate some radical reform of an evidently dysfunctional system? The EMR should aim to slash the bill for imported energy, surely?

    Demand side measures aren’t going to help. They’ll be a gold mine for the incumbent big six – a plethora of tariffs – playing games with supply and demand.

    So a change of emphasis would be a good start. i.e. Switch two of your tag headings; ‘Electricity Storage’ should read ‘Energy Storage’ and ‘Energy Efficiency’ should read ‘Electricity Efficiency’, and be focussed on the supply side. That’s where the problems lay.

    “The biggest thing” in EMR is “to ‘incentivise the market’ to build enough gas to balance the system”. Yes, that’s the problem, so design systems that won’t need to ‘incentivise’ the market. Prevention is better than cure.

    “Yes, of course we need sufficient reserve capacity in the system, and it needs to be robust in the face of higher penetration of variable power sources.” – Er, no! There would never be a “higher penetration of variable power sources”, if new marine renewables were given built-in energy storage. Don’t generate when the demand’s not there. If electricity is dispatched only in response to demand the market price would remain stable 24/7 and the gamers hate that.

    I’ve explained how technology can fix these problems. Why not look into it?

  3. Your comment is the curious one Andrew. Energy efficiency/demand reduction is a no-brainer. That’s a given, but in itself it can never be a solution. DSM is aimed at reducing daily fluctuations in demand. Smart metering is an expensive way to try to change people’s behaviour and it may well be of limited benefit anyway. It’s another ‘market’-driven delusion.

    Personally, my demands are as small as they can be. My living space is a comfortable 18C, using a tiny bit of gas or electric. The rest of the house is 12C this morning. I consume as little of the planet’s resources as is practical. There’s no scope for further savings.

    The establishment view is that I should replace my old gas central heating boiler with an efficient new one. Sure, that’s good for ‘business’, but it’s a waste of resources and my money.

    You seem to be content to continue using fossil fuels? Smart people want to switch to zero carbon energy as quickly as humanly possible. Decarbonising electricity is the obvious first target, since it can displace gas. Do the job intelligently and it also displaces nuclear and makes CCS an unnecessary waste of money.

  4. Alan, your EU link tells us that:-

    “In Europe’s liberalised energy markets, the growth of renewable energy depends on private sector investment, which in turn relies on the stability of renewable energy policy.”

    There, in a nutshell, is the cause of all the problems. There’ll never be stable policies on renewable energy while the fossil fuel lobby calls the shots, so private sector investment will be channeled into familiar old technology. (conned into new nuclear?) The lack of incentives to embrace new technology – if we’re honest, an institutionalised aversion to innovation – stymies progress every time. Liberalised markets tend to empower the powerful and leave ‘democratic’ government open to blackmail.

    Anyone who looks upon that as ‘free market’ competition is out of their tiny mind. The very fact that these ‘markets’ have to be ‘incentivised’ exposes the lie. The radical reform of EU state aid regulations is an essential first step, since they are anti-competitive – hugely favouring big business at the expense of more innovative SMEs.

    We see National Grid investing millions in LNG, tying us to imported energy for decades to come. These are the dumb decisions you get from a private monopoly (or oligopoly) focussed on next year’s bottom line.

    Scrap the discredited neo-liberal mantra (at least in respect of infrastructure development) and improve on the Scandinavian social economic model. Why don’t we have a SWF?

  5. Alan, to further flush out my argument, it would be instructive, IMHO, to look at the German experience:-

    http://www.technologyreview.com/featuredstory/428145/the-great-german-energy-experiment/

    On one hand their knee-jerk political decision to phase out nuclear early puts them in a worse dilemma than the UK, but their vibrant manufacturing economy and research culture may still be able to overcome the problems we all face. (but they haven’t found the answer yet)

    Ottmar ­Edenhofer, chief economist at the Potsdam Institute for Climate Impact Research says; “The design of the electricity market will change fundamentally. You have fluctuating demand, and at the same time a fluctuating supply. The linkage and the interplay in these two dimensions has become the subject of intense research. There could be new and emerging market failures.”

    “Until large-scale, cheap storage is available, gas power plants, which can start up quickly and efficiently, will be the most practical way to cope with fluctuations. But there’s little incentive to build such plants. Owners of gas plants meant to meet peak power needs can no longer count on running for a certain number of hours, since the need will no longer fall on predictable workday afternoons but come and go with the sun and wind.”

    I think all the evidence suggests that storage won’t need to be on such a large scale, nor as cheap as many fear. The only logical strategy is to subsidise the best energy storage technology, but the UK energy industry, politicians and economists all think they can ‘incentivise’ a reserve gas plant market!?!

    Naturally, the economists will never agree! Here, there is one who is unable to envisage any change in technology and another who believes in the power of innovation:-

    “The Energiewende is a turn into nowhere-land, because the green technologies are just not sufficient to provide a replacement for modern society’s energy needs,” – Hans-Werner Sinn, president of the Ifo Institute for Economic Research at the University of Munich.

    “I want to emphasize how challenging the Energiewende is. At the moment, it’s looking difficult. But with the right incentives, one can have good reason to believe that technological progress will be a lot faster than we currently expect.” – Graham Weale, chief economist at RWE.

    The crucial factor affecting the outcome of the Energiewende is the sad fact that – “The current subsidies don’t encourage innovation as much as they make existing technologies profitable.”

    I rest my case.

  6. Alan, you are absolutely right to draw attention to this paragraph on page 7, but the EU’s ideas of how the system should operate are equally unworkable, aren’t they?

    “Some Member States, however, fear that investment in power generation capacity will not be adequate. As a result, they have developed “capacity payments”, where governments determine the required levels of generation capacity. Such an approach may encourage investment, but it also separates investment decisions from market price signals.”
    http://ec.europa.eu/energy/renewables/doc/communication/2012/comm_en.pdf

    Well, that’s a brainless hypothesis! Energy ‘market’ price signals are extremely volatile, by the hour and from boom to bust. How could anyone make long-term investment decisions on that basis? We need to identify the bureaucrats who believe in this farcical economic theory and sack them.

    Then, on page 10: “Other technologies are still young and may need support in the future. Floating and other offshore wind, wave and tidal power, advances in CSP and novel PV, electricity storage(including batteries) are all on a long list of strategic technologies which need to be developed. It would appear that ocean technologies, energy storage, advanced materials and manufacturing for renewable energy technologies need to be given higher priority in future research.”

    The same old fence-sitting weasel words – “may need support” – “It would appear”. Policy could be informed by science, if they bothered to study the evidence. The EU’s “Horizon 2020 research programme” will fail for the same reason. First of all, they need to reform intellectual property law to protect any science with commercial applications. They haven’t – so money again rules the roost.

    According to the mantra, state intervention must be technology neutral and never ‘pick winners’. That’s the gross inefficiency of ‘competition’ and the cause of market failures. Everything on that ‘long list’ could be prioritised right now, to reduce the waste of resources, time and money. The best technology solution isn’t even on the list! – ENERGY storage. (excluding batteries!)

    “With such a coordinated approach to technology development, Europe can continue to lead the race developing new generations of technologies and high tech manufacturing.”

    What planet does this writer live on? The only race is to see who is going to supply the most “high tech manufacturing” design to the Far East – Europe or the US?

    I finally rest my case by pointing out yet another barrier to be overcome:-

    “The study’s main question was: How will intermittent wind and solar power affect the grid? And how much electricity will need to be stored?” (As I intimate above – wrong question!)
    http://cleantechnica.com/2012/10/09/german-study-not-much-power-storage-or-coal-power-needed-for-40-renewable-power-supply/#SqswWQ5FP80KHRXL.99
    “German engineering association VDE finds that the need for storage will be modest [up] to a 40% share of renewable power, at which point the need will increase.” But why wait?

    So, even the pro-renewables engineers reinforce the inertia in energy storage innovation and argue it can be put off to some future date! Tragic isn’t it – new electricity generation/grid infrastructure is meanwhile compromised by an ill-conceived development strategy.

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