A boring treatise on why building a load of gas fired power stations isn’t as easy as it looks.

Yes, I’m afraid this piece is very long and probably quite boring, and you can skip to the denouement if you like, which is *here, but you might need to read through the stuff above it to allow it to make sense. So good luck, and start **here if you are really determined.

**Last week the Energy and Climate change Committee tried out a new method of getting its enquiry programme underway – it invited a number of industry and interest group stakeholders to discuss in some detail what the priority enquiries might be and how they could be set up. An interesting initiative which perhaps deserves a bit more airspace, but for the purpose of this piece, (and I hope the purpose will become apparent sooner rather than later) participants opined quite extensively about the fact that there does not seem to be an ‘energy plan’ and that the committee might spend some time investigating whether there is, and if not, why not (I paraphrase a little….)

This certainly seems to be true when we look at the inability of anyone to stick the recent series of random pokes , swipes and casual extinctions that have characterised Government ‘policy’ into any coherent framework of a plan for the future. Surely there has to be more to energy policy than that – there must somewhere be some sort of framework within which these measures can be placed, or at least held up against and measured (as in if you do x, then the effect is y and that means you need to do more of z to make up for it.)

So there’s the purpose of the piece – and with it come two curiosities.

The first curiosity is that there is, in effect ‘a plan’ in place at least as far as generation is concerned – carefully set out, consulted on, debated in Parliament etc. – namely the National Policy Statements for energy, agreed in July 2011 which are supposed to inform and be the reference point for all applications and decisions on large power infrastructure and plant. There are six of them covering fossil fuel generation, renewables, nuclear etc. and an ‘overarching statement’ which pulls them all together. They are supposed to ‘remain in force…unless withdrawn or suspended by the Secretary of State’ As far as I am aware, that hasn’t happened, so I guess they are in force at least for the time being.

And they make interesting reading. ‘Onshore wind farms’ we are told in passing ‘will continue to play an important role in meeting renewable energy targets’, and I am sure Lord Bourne failed to read the section on offshore wind when he took his recent lunatic decision on the Navitus Bay offshore windfarm recently.

The ‘overarching policy statement’, among other things, sets out the mix of generation and the indicative installed capacity that the policy statements envisage. ‘As part of the need to diversify and de-carbonise electricity generation, the government is committed to increasing dramatically the amount of renewable generation capacity’ the statement says, and it sets out just what new capacity we are likely to need by 2025. (What you need to know is that ‘installed capacity’ of about 1 gigawatt – or 1000 megawatts) is about the flat out capacity of one newish gas-fired power station. What actual electricity is produced from this installed capacity is another matter, but you need to have a known amount of installed capacity to be sure that you can deal in terms of production with all eventualities.) We will need, it says, 113GW of capacity compared with 85GW now, and of this 59GW would be new build. Within that, the statement says ‘around 33GW of the new capacity by 2025 would need to come from renewable sources’. 26GW would be non-renewable capacity, and the statement says (at the time) 6GW was under construction leaving some 18GW to come ‘from new non-renewable capacity’ – and finally, it concludes ‘government believes that new nuclear power should be free to contribute as much as possible’ because they want as much as possible of the 18GW to be ‘low carbon’.

Well, we may or may not get to the 33GW of new renewables capacity envisaged in the NPS. Currently about 13GW of wind, 7.8GW of solar and 3GW of biomass are operational, with another 13-14GW with consents and under or awaiting construction. But with the likely curtailment of most wind, some of this may not get built and certainly the pipeline of plans awaiting consent won’t. DECC is now estimating that about 30GW or so will be deployed by the early 2020s, with not much more to come after that. A shortfall in the 33GW projected capacity will all come essentially now because Government has deemed both onshore and offshore too expensive to underwrite, either through Feed in tariffs or Contracts for difference, and the supply chain will probably simply dry up.

We also know that nuclear will certainly not step forward to provide capacity – 2.3GW if that, from one power station by the mid-twenties.

So that leaves, pretty much one technology –gas, to fill in all the gaps. I know, of course that capacity margins between gas and wind are not the same, but we might come to that in a moment. The sums indicate perhaps 20-25GW of new power stations between now and 2025, which it seems is more or less now ‘the plan’ if Amber Rudds DECC blog of August 11th is anything to go by. ‘Gas’ she said ‘has a huge role to play, because moving too quickly to zero carbon energy risks driving the bills of hardworking people too high lots of new low carbon generation cannot be relied upon in the same way that gas fired power stations can’ – and to boot associated the new drive for shale with the indigenous powering of these new plants.

And here’s the second curiosity. Such a ‘plan’ would involve constructing perhaps 18-22 CCGT plants over the next ten years. All doable in terms of construction periods, except that it appears no-one, at present prices and conditions is very willing actually to build them. The government, it must be said is aware of this and with much trumpeting of the need to procure new plant, introduced capacity market auctions – essentially offering to pay people to build plants that might or might not actually supply electricity: fifteen year ‘capacity payments offered at auction. There were no takers this last year except for one putative plant that probably won’t get built: the vast majority of capacity payments went instead to plant that already exists (including coal and nuclear plants!) that would be likely to produce anyway. Ten more auctions to go – twenty plants to build.

Perhaps one of the key long term reasons that investment in new gas plants looks brittle is that even if wind is banished from the national generating asset books in future, there will be sufficient supply to make it likely that gas plants will be running at far lower loads than hitherto, with DECC suggesting in the gas strategy that plants will be running as low as 27% capacity, interestingly about that of offshore wind, which rather (and I said I would raise this earlier) puts the relative capacity margin argument into a new light. The return on investment will therefore need to be gained from this sort of prospect, but even on more generous assumptions on load the figures do not look good. Which takes us to the main reason right now, which is that, with the prevailing price of electricity as against gas price, they are not a viable commercial proposition. Estimates of the cost per mwh of new build gas from DECC and the Committee on climate change recently suggest that they would need a return of about £68 a mwh of electricity produced to cover investment compared with the present market range of electricity at £40-45 per mwh. In other words, unless electricity prices shoot up and remain permanently up, gas plant developers might be looking at a ‘gap’ of perhaps £23-28 per mwh that might need to made up from somewhere to facilitate the pouring of concrete into the ground.

Which in turn brings us up against the sheer unlikelihood that capacity auctions will in the foreseeable future ever approach that sort of 15 year underwriting to persuade building to take place. Indeed, Policy Exchange estimates that the last Capacity auction (clearing as it did at overall at £19.40 per mwh) represents in real terms a ‘subsidy’ to a would-be new build gas plant of about £4 per mwh. It no wonder that existing plants with amortised costs gobbled up short term contracts leaving virtually all new build far from the ring. In short, unless future capacity auctions clear at much higher levels, giving far more free money out to existing generators in the process, then they are not likely to be more successful at securing new build than the last one.

*The denouement: And here then, is a tentative conclusion from all this: that if the government indeed has a ‘plan’ to remove future wind from the equation and go for gas instead, than it looks like on present mechanisms, the amount of obligated subsidy falling on consumers and therefore increasing bills will come to something like the subsidy level that the government has cited as one of its main reasons for pulling the rug under wind (and solar, of course): because we all know, don’t we that capacity payments have an identical feed through effect on bills as do Renewables Obligations , feed in tariffs and contracts for difference , however we may decide to classify them as inside or outside the famous Levy control Framework. Oh, and of course there will be a much higher carbon emission outcome than had we continued to use that amount of subsidy to continue with wind and other renewables.

We will certainly continue to need gas in the system for a very long time, and the real challenge lies in how we develop a ‘goldilocks’ path of enough new build to sustain a reducing requirement over the next fifteen years, whilst not locking ourselves into generation paradigms which harm our path to long term carbon sustainability in generation. But that looks like quite a different ‘plan’ than the government apparently has in mind for us right now

When is March 2016 not March 2016?

Well, look, what can I say other than sorry? You might have noticed (if noticing things not happening can be bracketed in the same way as things happening) that nothing has emanated from Alan’s Energy Blog since…er…the beginning of February. A small interruption in the shape of a particularly enervating General election campaign did occur it is true, but that is really no substantive excuse for not putting stuff out.

So for all my several avid readers, here’s something new at last, and to achieve this, I thought I would proceed with an obscurity. Well more a starry eyed question, really, and that is this: Has the Secretary of State actually stopped the giving out of Renewable Obligation certificates after March 2016 by saying in a written statement that there will be no RO certificates after that date? There has, of course been a justifiable storm, on the day of the statement, about its effect: a good piece by Julie Elliot MP in Business Green  sets out just what damage such a knee jerk, ill thought out piece of reverse engineering will do to the wind industry and to the cost of renewables. I concur with all that, but my question is, in the rush to produce this handbrake turn has the Sec of State actually done what she thinks she has?
I ask this because there is, in the nether regions of her statement, this curious phrase:

‘I am therefore announcing today that we will be introducing primary legislation to
close the RO to new onshore wind from 1st April 2016 – a year earlier than planned.’

So the Minister is going to legislate to close entry: which I guess she will have to do because there exists already a piece of secondary legislation which states that no new RO certificates are to be issued for electricity generation after 31st March 2017. Or to put it another way; ROs WILL be issued up until that date. The secondary legislation in question is the Renewables Obligation closure Order 2014 (no. 2388) which seems to have been passed in a bit of a panic by then DECC minister Matthew Hancock to ensure that the RO really did close in 2017: and to make sure it did he (unusually) put the date on the face of the legislation. And there it is; no ifs, no buts, no ministerial discretion, the RO closes on 31st March 2017.

So let’s then think for a moment about the passage of the legislation – Primary legislation, that is, – that the minister has in mind. That will be the forthcoming Energy Bill rostered to appear in this session. Let us say it starts its passage through Parliament in late autumn: after all its stages it will probably get royal assent ..ooh around next summer, after the magic date of April 2016 has passed, but obviously, before the former magic date of March 2017 has appeared. And meanwhile, as far as I can see the RO closure Order of 2014 chugs on until such time as it doesn’t. So maybe we’ll find ourselves in the difficult situation of having to give out ROs in the spring or summer of 2016 because the law says we have to, even if the Minister says we don’t. I wonder if that has been budgeted for? Just asking.

On Wind, Cameron and Machiavelli

Guess who's who

Learning from the greats?

So from 2015 onwards, if the Conservatives run the country, there will be no more onshore wind turbines. Or there might be, if developers of onshore farms, or even single turbines, can raise the funds with no underwriting whatsoever (an almost unique position now to be in if you’ve read my recent posts on gas, nuclear and everything else that is now being underwritten), get past a local planning hearing, get a connection slot etc.   So it’s pretty inconceivable that, given these hurdles, any projects will get off the ground.

Dave’s minder in DECC, Michael Fallon, says rather disingenuously that there are enough onshore wind projects ‘in the pipeline’ to reach targets for deployment up to 2020. What he doesn’t mention is that these are largely sketched-in plans which are still a long way from reality. Many of them have no guarantee of funding and even those that do will undoubtedly have the plug pulled on them in a climate of uncertain underwriting, vanishing onward prospects and collapsing supply chain. So it’s therefore likely that onshore wind generally would rapidly roll up, just as it starts to compete with other forms of energy supply on an effective basis and cements its place as the most cost effective form of large scale renewable energy production. ‘Irrational and illogical’ says Good Energy’s CEO Juliet Davenport.  Good stuff in the blog Juliet, but not quite right; you obviously haven’t been reading your Machiavelli. Dave has, I think. Here’s the old cynic giving advice to his prince on new-fangled notions:

 

“It ought to be remembered that there is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things. Because the innovator has for enemies all those who have done well under the old conditions, and lukewarm defenders in those who may do well under the new.”

 

And as if by magic, an infographic turns up sourced from DECC surveys, which shows that the vast majority of the British public sort of quite like onshore wind, whilst a little, very shirty group (the little angry red people in the corner of the chart)  splenetically don’t. And since they are the people who write to local papers, form committees and, incidentally in some cases, run the hollowed-out local Conservative associations, Dave has clearly opted to listen to Niccolo, and not to everyone else.

But of course, there is the small matter of him being allegedly onside in the great low carbon energy/climate change debate, as he was keen to tell the Liaison Committee in the House when questioned by them recently:

The point I would make is that I support the carbon budgeting process and the Climate Change Act, which I think is a good framework

was his response to gentle questioning from Select Committee chairs. Which leads the excellent James Murray, in a great blog piece  to make the point that if you a) stand by climate change and, in principle, to low carbon energy targets but b) pull the rug from under the most successful and economic component of those targets, you ought to c) set out what you are going to put in its place. He’s quite right, of course, since it would take rather a lot of ‘something else’ in place of onshore wind to get low carbon energy deployment back on track.

I can’t help feel though, that there isn’t a great deal of appreciation around about just what ‘quite a lot’ comes to and  how extensive ‘something else’ would then have to be, so I’ve tried to do a few, immediate sums.

Out to 2020, DECC’s UK Renewable Energy Roadmap tells us that, taking account of attrition in development, there will be about 9.1 GW of new onshore added to the 6.6GW already operational. National Grid’s Gone Green scenarios for development out to 2030 adds another 2GW to that total post 2020. So let’s assume, for the reasons I’ve set out, that much of this of this presently assumed development doesn’t take place with a new onshore regime and that the additional 2GW of capacity after 2020 certainly doesn’t get built. On a reasonable estimate, that’s about 8GW of otherwise accounted for capacity that’ll be lost. And yes, I know that relative capacity margins mean you can’t make a strict comparison, but even after that, that’s something like four nuclear power reactors or five gas-fired power stations worth.  But of course, if you really do believe in the need for low carbon power as part of your carbon budgeting process, then the replacement capacity would have to be found. Not from gas and …er…not nuclear, because you can’t magic up two new plants in six years, but maybe from …what? Biomass, tidal impoundment? Hmm, all these technologies have underwritings far higher per kWh than onshore does, so presumably you’d need to adjust that Levy Control Framework ceiling considerably. So it’s looking improbable that Dave will do what James outlines in his piece, and try to make it all fit together logically.

But then James probably hasn’t read his Machiavelli either. Niccolo has some good advice on this dilemma as well. He tells his prince:

“It is unnecessary for a prince to have all the good qualities I have enumerated, but it is very necessary to appear to have them. And I shall dare to say this also, that to have them and always to observe them is injurious, and that to appear to have them is useful; to appear merciful, faithful, humane, religious, upright, and to be so, but with a mind so framed that should you require not to be so, you may be able and know how to change to the opposite.”

 

….which is probably what Dave will now do.