Renewable energy targets: how Goldilocks got eaten by a bear

Goldilocks

Goldilocks

The bear

The bear

So how are we doing with that all important target of 15% of final energy use to be provided by renewables by 2020? It is a target agreed with our EU partners and I suppose some will say it doesn’t matter if we aren’t going to be in the EU come 2020. But even then there is the small issue of keeping the UK’s energy carbon output on a trajectory that makes a low carbon energy landscape possible by 2030, and we are of course in the EU right now. So for legal reasons and for reasons of keeping the planet in one piece answering the above question does currently matter.

Last Spring the misleadingly titled Renewable Energy Foundation (REF) (which, we should note, does not seem to be in favour of many renewables, and most notably onshore wind) published and widely trailed a claim that Britain was already well on the way to meeting its EU 2020 renewables target. The organisation therefore concluded that all outstanding onshore wind applications were, in reality, surplus to requirements.

Ed Davey, responding to a letter from Mary Creagh MP about those claims, advised that there isn’t actually a surplus hanging around. He pointed out that REF had assumed that everything in the planning pipeline gets built (he suggested that for example 50% of proposed onshore wind gets planning permission, and of that, 70% actually gets completed). However, despite the above, he did imply that the existence of the ‘pipeline’ means that ‘we remain on course to meet our…2020 renewable energy targets cost effectively’.

So who’s right on this? Remember that the 2020 target is an overall agreed EU target for 15% of final energy use to be met by renewables – which implies a far higher proportion of our electricity to be made up of renewables than that in order to meet the overall goal. It is generally accepted that about 35 – 40 % of our electricity by then should be from renewable sources, which, so the REF tells us, equates to about 33 gigawatts of installed power at average renewable capacity values.

Sorry, I was asking who was right…Well clearly Ed Davey is right to pull REF up on its assumptions about how much ‘in the pipeline’ will actually get built. But he is, I am afraid, now increasingly finding himself guilty of exactly the same assumption: that is that are enough renewable projects ‘in the pipeline’ to come good regardless of the various vicissitudes that the technologies are going through.

Ed’s most recent go at projecting the mix of technologies which would generate the installed capacity we need to deliver the 2020 target line was contained in the December 2013 Electricity Market Delivery Plan, which he helpfully pointed Mary Creagh to in his letter. This report (p.40) lists the range of projected capacity of the various renewables that the Department expects to fill the bill – overall from a minimum of 27.2 installed GW to 40 GW at the most optimistic. And there it sits, in the middle, the ‘goldilocks’ figure of about 33.3 GW. Thank god for ‘the pipeline’.

Well, except that is, if you turn to what DECC told the National Audit Office (NAO) this spring about what actually IS in that pipeline, and what its status is. You can check it out here on p.31 of their report ‘Early Contracts for Renewable Electricity’. At first sight this chart looks like case proven for the Renewable Energy Foundation. No less than 44GW of capacity in onshore wind, offshore wind and biomass listed, and that’s without the 4GW or so of large solar already installed or on its way. But the NAO have helpfully divided the overall figures into what is operational, being built, consented to and what awaits planning permission, and of all the plants in development, which have or don’t have an early investment contract agreed.

If we apply this helpful division into the events of the past few months, then the reality starts to look substantially less rosy.

The government has essentially stopped field solar installations because of Levy Control Framework (LCF) worries. So it is likely that the installed total of large solar installations by 2020 will stay around where it is.

But there’s still onshore, offshore and biomass in the pipeline? Well, Mr Pickles has decided to can onshore wind applications by calling them all in and refusing them, so it is probable that consented onshore will get built at about the rate Ed Davey suggests, but not otherwise.

But what about biomass and offshore? For this we have to turn to the LCF, also inter alia, the subject of the NAO’s report. DECC’s latest figures on the LCF, set out in the Annual Energy Statement in September show that the LCF is essentially bust. Projects that do not already have an investment contract (five offshore wind farms and three biomass plants…oh and of course a whacking great big nuclear power plant which doesn’t count as renewable even though it has scooped up shedloads of CfDs) are very unlikely to get anything now before 2020. Even if one is very generous with assumptions about the knock on the impact of the cumulative total of CfDs from other years, in the figures forward to 2020, it is hard to see anything more than one medium-sized, offshore windfarm getting a CfD, and even then, not before about 2018, by which time it will be too late for 2020. And of course the same goes for biomass. So on these figures, probably best to discount anything that does not now have the prospect of getting a CfD before 2020. Unless you believe that suddenly un-CfD supported projects will rise up and get built – highly unlikely.

And all this means that (and you’ll have to trust my maths on this, but I’ll happily send you a working sheet of the calculations), taking everything into account, we miss the magic figure of installed capacity by about 3GW or 10%. Granted, a good effort compared to where we were a little while ago but way short of where we need to be, way short of where Ed Davey seems to believe, despite the best efforts of his own government, that we will be, and miles off REF’s rambling.

Unless, of course, the LCF is recast to iron out its manifest faults, and/or Mr Pickles is taken away in a van and held somewhere until it’s all over, or of course we leave the EU in 2017. After that we won’t need to worry about the renewables target and the implications of not meeting it, but we might worry that we didn’t have much of an energy economy left, renewable or otherwise.

 

 

No Michelin stars for the fat dud

historic-michelin-guide

The Financial Times ran a piece yesterday, regrettably behind a paywall, that featured the findings of Aurora Energy Research. As the FT quaintly put it, ‘the pot of money ministers have set aside to subsidise UK renewable power is likely to run out much more quickly than previously thought, according to research, placing green energy projects in jeopardy’.

Apparently, the hitherto solid looking pot may turn out to be more like a collapsing bag as uncertainties about just what the pot’s contents may buy burgeon. This is because the sums that will be expended on Contracts for Difference (CfD) will change as the price of energy changes, which the government might have exacerbated anyway by freezing the carbon price floor. DECC doesn’t seem to have taken much of this into account.

To which the correct response should be, I think ‘blimey, you don’t say’ or perhaps more colloquially something like ‘no s*** Sherlock’.

It is good that a research company has now told us that, as an instrument to facilitate and plan investment in renewables, the Levy Control Framework (LCF) is a fat dud, regardless of its efficacy as a method of stopping anyone spending more than a set amount of ‘levy money’ whether what you get for that spend is worth having or not. But a number of people (me included) have been making this point for a long time now. It is perhaps only now that Contracts for Difference are upon us, that the true fat dud-ness of the device can be uncovered.

The point is that the LCF was perhaps not such a fully fat dud when it first came out. After all, it controlled the amount of Renewable Obligation Certificates (ROCs) and feed in tariff (FiTs) payments that could be made. Since both were in fixed sum form you could fairly accurately find out what you might get for what, and importantly, how much you would have in any one year for new entrants based on what you had already committed as fixed amounts. ROCs trading allowed renewables operators additional money from their activities to invest outside the process.

But now, with the more ‘market efficient’ CfD you never quite know what the ‘cost’ of a CfD in any one year will be, since it depends on the relationship over that year between the agreed strike price and the varying ‘reference price’ it seeks to make up the difference between. If you deliberately depress the likely reference price having set a strike price in the first place by, for example, taking some of the increase in carbon floor price out of the equation, then inevitably existing providers will get more money from the ‘pot’ each year. There will then be less from the same pot each year for new entrants.

And worse, as you keep doing that year by year based on a pre-agreed static strike price against a varying reference price, then the margin for new entrants gets smaller and smaller each year.  So that the ability to plan anything new that needs a CfD at a certain time (and contracts specify ‘windows’ within which your CfDs must start, otherwise you lose them, except if you are a nuclear power station) eventually and inevitably, melts away entirely. And to be fair to DECC, who didn’t design the system in the first place, there is nothing you can do about it, once a fixed out turn figure has been set against an inherently variable cost base in the years running up to that agreed figure.

So in terms of planning for renewables to come on stream on the basis of a known underwriting, or as the FT puts it, the sum ‘set aside to subsidise UK renewable investment ‘ the LCF is a complete turkey and has been ever since CfD were invented. If, on the other hand, you don’t care whether much in the way of renewables gets built or that what is built is good value, and you just want to stop whatever it is at the point at which the money stops in 2020, then it looks a bit better.

Except, of course, that come the early 2020’s when new nuclear finally gets off the ground and decides to cash in the monumentally bloated CfD allocation achieved under the ‘investment instrument’ mechanism, the whole edifice will almost certainly come crashing down under the weight of its own contradictions. Which is why, I guess, no-one has attempted to sketch in what might be thought of as some necessary reassurance of what a levy control envelope might look like after 2020.

There, that didn’t need a research report to get straight now did it?

 

Time for some turbo-expander expansion?

Things are stirring in the gas capacity market. Just last week, Centrica announced that it is to sell three of its largest combined cycle gas power stations, totalling 2.7 GW of capacity. Instead it will concentrate on investing in ‘smaller, more flexible’ power stations. Cornwall Energy, in their ever perceptive ‘Energy Spectrum’, speculate that, among other things, the capacity market auctions may be beginning to look a little lop-sided; existing power producers are disadvantaged by accumulated losses on plant, whilst new entrants can be ‘neutral’ on losses. These new plants can gaining long term contracts to build new whilst older plants close down to cut their losses. Maybe, Energy Spectrum ponders, it is quite possible that Centrica is hoping to gain some value from existing plant rather than mothballing it as it faces up to the wacky world of the capacity auctions. (N.B. Cornwall Energy didn’t say that last bit – I did. And it is indeed going to be a very wacky world if existing plant is demolished to make way for new plant doing roughly the same thing, simply because the capacity market makes that an apparently rational short-term choice for participants. I set it out here a few weeks ago.)

At the same time, some new entrants may be beginning to emerge. One, Stag Energy, is looking to build just the sort of – I guess – ‘smaller more flexible’ power stations that Centrica might have in mind. They have a proposal in the pipeline to construct a 299MW open cycle plant in Suffolk (that’s about a quarter the size of one of the plants Centrica is putting up for sale).

The above isn’t exactly what I wanted to write about this week but it does set what I do want to scribe on into some relief. Because if the gas industry really wanted to develop some quick, small and flexible new capacity, it could do to pay some close attention to its own gas supply lines. This is what one of the gas distribution companies, Scotia Gas Networks has done, albeit in a small way. They have put four interesting bits of physics together and produced some power out of them, more or less for free.

  1. Gas transmission pipes compress gas from the receiving points to very high bar pressures (up to 50 times atmospheric pressure) to transport it around the grid
  2. In order to draw off this gas into the distribution system, it must be radically depressurised, down to the 2 bar that we get through domestic gas pipes
  3. This process wastes huge amounts of kinetic energy as the reducing valves do their job
  4. Using turbo expansion valves (invented around a hundred and fifty years ago) much of this wasted energy can be captured and put to work making electricity

And voila! Free electrical power ensues, with a relatively short payback period on the fairly high initial capital costs of the plant to do it.

Scotia Gas Networks has been running the only such plant in the UK for a year or so now, at St Mary Cray in South London. It has a capacity of about 7MW altogether, combining a turbine and a CHP plant. Not much, granted, but there are about sixty or so pressure reduction stations around the UK, each of which could have such a plant operating at the point of pressure reduction. In other words such a scheme would create a rather larger cyber power plant running on nothing at all than the proposed actual power plant from Stag Energy running on the gas that comes through the pipelines in the first place. So shouldn’t turbo-expanders surely be in the frame for some of the billion-pounds-a-year capacity payments?

Ah but turbo expanders are not renewable, so they can’t get Contracts for Difference. Neither do they qualify as demand reduction so they won’t get to go into the DSR capacity auctions. And they are certainly not the shiny, new gas fired plant run on new style ‘capacity-paid-for’ gas that the auctions themselves seem set to bring about. Turbo expanders are just very efficient, and they make good use of what is there already, so they wouldn’t get anything. Which is a shame because with a modest amount of capacity payments behind a turbo expander scheme, turbo-expansion valves could get a turbo charge. Maybe even through Centrica’s future investments.