Britain’s energy market is under the spotlight – for all the wrong reasons

Posted: March 2, 2018 by oldbrew in Energy, government, opinion
Tags: , , , ,

Carrington gas power station, Greater Manchester


Britain badly needs new power stations but current national policy is working against that, argues an industry insider. Instead we have a ‘sticking plaster’ strategy.

Great Britain’s energy market, once the envy of free-marketeers after Margaret Thatcher ended decades of nationalisation in the 1980s, is once again under the spotlight – for all the wrong reasons, says businessman Peter Hughes at PEI.

The current Prime Minister Theresa May is fond of referring to the UK’s “broken energy market”. While she may use the phrase to justify a cap on consumer energy bills, she could just as easily apply it to the failure of successive governments to encourage the building of new power plants.

As old coal and aged gas and nuclear power plants head towards decommissioning, the UK faces the possibility of a shortfall in its future electricity supply that cannot be plugged by intermittent renewables alone.

The Capacity Market Mechanism is meant to eliminate this risk. The Capacity Market auctions allow power plant owners and developers to bid for fixed payments, either one year or four years ahead. In return they ensure the capacity is available when the grid needs it.

At first glance, results from the latest T-4 auction to secure capacity in four years’ time appear to suggest the UK energy market is in perfect health. The grid secured the 50.4 GW of reserve capacity it was looking for in 2021/22 at the bargain basement price of £8.40 per kilowatt (kW).

Unfortunately, a closer examination of the results reveals that, far from being in good shape, the prognosis for the future appears bleak.

The results

Some 50.4 GW of capacity was secured in February’s T-4 auction; this was dominated by existing generating capacity.

The big winners were owners of existing gas-fired power plants, which accounted for much of the 43.3 GW of existing capacity to secure payments (more if you count the refurbished capacity).

While coal-fired plants have been successful in previous auctions, just two sites secured capacity this time round, leading some to speculate many UK coal-fired power plants will need to close as they are economically unviable without the support of capacity payments.

But just 767 MW of new generating capacity managed to secure payments – just 1 per cent of the total capacity secured and a new low for these auctions, which have been running since 2014.

Treating the symptoms

This 767 MW of new capacity came from small scale, low-cost, gas engines. Instead of being a solution that addresses the cause of a future energy shortfall – a lack of large-scale, flexible and highly efficient capacity to replace what is being lost over the next few years – the T-4 capacity market auctions now appear to be delivering a “sticking plaster” strategy.

Rather than encouraging investment in technologies such as the latest combined cycle gas turbines (CCGT), the auctions encourage short-term solutions that do little to improve the UK’s long-term security of supply.

Continued here.

Comments
  1. tallbloke says:

    I despair. Words fail…

  2. A C Osborn says:

    This has been buildng up for years now and the stupid green governments have no clue of what they are doing or should do.
    It is very sad to see how far we have fallen.

  3. oldbrew says:

    The big winners were owners of existing gas-fired power plants

    But recent events show that can quickly be undermined by a shortage of gas.

  4. E.M.Smith says:

    We, in California, had a similar Stupid Policy. It required that the folks delivering the energy buy it at an auction. They could not enter into long term baseload contracts.

    This resulted in what the comedian Dennis Miller aptly termed “Buying electricity at mini-bar prices”.

    Even a comedian could see the stupid was strong in this one.

    In the end, it resulted in the spectacular growth of ENRON (later to crash and burn) as they exploited the system; repeated rolling blackouts and brownouts; and eventually the recall of Governor Gray “out” Davis.

    The Recall worked and the system was scrapped.

    Near as I can tell, your “Capacity Market Mechanism” is the same idea, just with the time horizon stretched by a couple of years. Now you tell me: Would I want to build a 50 year life span nuclear, coal, or Gas plant, knowing full well I might never recover my $Billions of costs? Forget profit, I’m just talking not losing your shirt. I have a “borrow short lend long” situation. (In banking, borrowing for weeks from your depositors to lend long for 30 year mortgages causes no end of issues needing tending).

    What happens if 5 years from now the Government decides to declare a whole new system and my plant doesn’t fit in it?

    So the rational thing to do is buy small cheap gas plant that has payback inside 4 or 5 years. Nothing more. Fire it up when prices are high and it makes a profit, shut it down otherwise and let some other poor sot pick up the cheap load.

    Government Fools who have never run a business have tried direct management (communism, socialism, nationalization) and failed. Then they thought a “managed market” with them as managers would be the ticket to fame and power. Well they can’t manage a market either.

    What works well is a FREE market with minimal regulation to maintain order and prevent predation.

    To remind them of this, the Recall and Sack (can their arse) works wonders. We’ve had stable power ever since Gray “out” Davis was pulled out of Office and the Democrat’s system was dismantled.

    It will likely take another generation of politicians for the current fascination with screwing up markets via “managing” them to wear off.

    Sidebar on Survival:

    To Survive Gov. Gray “out” Davis, I made my own emergency power. The short form is simple. Buy a Honda generator. I found the 1 kW unit enough for most things. The Honda is better than most of the others and very quiet. Also buy a nice camping stove. I ended up with several, but mostly from personal interest. The Propane ones are easiest for the novice to use, but I like the unleaded gasoline Coleman better for longer term use. The Primus propane camp stove is relatively cheap and works well without fuss.

    WHEN the power goes out, you can still make a hot dinner and tea, and watch the telly or have light to read.

    I also laid in some wood and we used the fireplace more for staying warm instead of for decoration. I now have a nice Coleman Lantern that really is a couple of kW heater with free light 😉 I have only used it for heat a couple of times as you must leave a bit of draft running though the house to avoid CO poisoning. As our outages were usually only an hour or two, and we were in warm California, I didn’t need to address heating more than that.

    Finally, a small inverter (about $30 from Amazon), an extension cord, and a light bulb make a small kit for emergency power and light that can travel in your car. A 300 W unit is fine for most things. I’ve used mine often for light, charging laptops and cellphones, and running radios. Just plug it into the car lighter outlet and you are done.

    For about $2000 you can have the generator, a nice camping kit, and the portable emergency power and light. Start with the low priced inverter and work your way up to camping kit and generator last, only once it is shown to be needed.

    We got to where power outages were just a minor annoyance. A kW UPS on the entertainment cluster and one lamp kept the room near normal. I’d get up and get a couple of candles / kerosene lamps ready if it was night. Make sure the mag-light flashlights were near each seating area. At about the 15 minute mark, fire up the generator and move the UPS plug onto the pre-laid drop cord to the generator. Plug the fridge into it too. Most short outages ended inside that first 15 to 20 minute wait. Longer ones tended to an hour or three. The Honda was good for an 8 hour run without refueling (one L tank).

    When they ended, it was the same drill backwards. UPS moved back to the wall socket. Same for the TV. Drop-cord back out the back door and shut down the generator. Any lit lamps put out.

    About as much bother as answering the door for a package delivery.

    Hopefully my experience can help some of you prepare. It is much much better to just run a cord to the inverter in the car in the garage and have lights and communication, than to curse the darkness in isolation. It is better to have a small generator and keep the food in the fridge good, then toss it every so often. It is more pleasing to NOT miss the key moment in a show via the UPS picking up the slack when the power fails, than to curse not knowing.

    If The Powers That Be will not provide reliable power, well, you can do it yourself.

  5. Bitter@twisted says:

    The only reason why we have a “broken energy market” is because of repeated Government meddling.
    If these PPE morons stopped worshipping Baroness Worthless’s wet-dream Climate Change Act, the sooner we could get it fixed.

  6. Stephen Richards says:

    “Sticking Plaster” strategy is a perfect description. That is to say seat of the pants, hope it works , couldn’t give a toss, strategy. Someone ought to face prison but they won’t.

  7. ivan says:

    Repeal the Climate Change Act and fire all the civil servants and hangers on that reside in the government and support services.

    Remove ALL subsidies to/for unreliable so called renewable energy.

    If there must be an auction for energy supply that supply MUST be guaranteed by fines of not less than 10 times the cost of the shortfall in supply.

    Any new base load power station build should be passed within 2 months of first application – no long drawn out environmental impact surveys or other green requirements. Also the stupid over-management of any new nuclear build should be scrapped.

    Doing those four things would being back reliable, affordable electricity to the country.

  8. Richard111 says:

    The real rulers of the world were hoping to reduce population in such a manor that when the population finally became aware of what was going on they would be totally handicapped by the lack of ‘renewable’ energy and the bitter cold.
    But it seems other powers are aware of this and are preparing for an eventual nuclear takeover bid.
    This is evolution and Mother Nature ensuring survival of the fittest.
    Unfortunately mankind’s twisted mentality may not leave an environment suitable for survival of any species.

  9. tallbloke says:

    E-M, thanks for supplying the words that failed me. Unfortunately no-one in a position to influence policy is listening. They’re fully on board with the green lobby.

  10. oldbrew says:

    Re: ‘Just plug it into the car lighter outlet and you are done’

    Why Does My Cigarette Lighter Fuse Keep Blowing?
    http://www.lifewire.com/fix-car-cigarette-lighter-fuse-4125196

  11. waterside4 says:

    Just wondering – during the recent near deficit energy supply, were any of those banks of diesel generators hidden around the country needed?

  12. gregole says:

    EM / Tallbloke,

    I remember the dark times of California well…I was part owner of a small manufacturing concern in Southern California – a Honda generator wouldn’t have filled the bill. At our peak we had (5) medium/large machine tools (mills, lathes), an environmental chamber (basically a big, big oven), industrial-scale lighting, an air compressor… you get the idea. With very thin profit margins the grid was our only practical option

    When the announcement of rolling black outs was broadcast, I thought there’d be rioting in the streets. I’d have joined in! What a bloody outrage! If I recall, there was a small protest outside LA city hall but mostly people just hunkered down and we got through it as we weren’t hit during working hours.

    Since then, I’ve moved; out of California, out of manufacturing in that state at all and initially moved my operation to Arizona. I divested the business some years ago and in retrospect, wished I wasn’t essentially forced out of California. It’s a great market, lots of smart people, and lots of facility to do manufacturing. For instance, the industrial buildings in Arizona don’t typically have enough power as most were initially set up as warehouses, not small manufacturing operations. Don’t even try to do any welding!

    And I’ve built five machine shops from the ground up . I tell myself if I do another, I’m getting a contractor’s license!

    So Tallbloke, what can be done in England when the municipal authorities go insane? I was fortunate enough to be able to load everything on flat-beds and drive 7-hours to Phoenix and start over. There’s lots of great manufacturing going on in England – I know I ride a Triumph Bonneville!

  13. stpaulchuck says:

    “to justify a cap on consumer energy bills”
    once again the socialist go-to, government interference in a market. What could possibly go wrong with that….? Hmmmm, Venezuela comes to mind.

  14. oldbrew says:

    Re-think on energy charging could reduce bills for 70% of households
    March 2, 2018

    Researchers have found that 70 percent of U.K. households would be better off if costs of government energy policy were removed from gas and electricity bills and applied according to household income.

    Read more at: http://phys.org/news/2018-03-re-think-energy-bills-households.html

    Don’t need ‘researchers’ to work that out.

  15. Bloke down the pub says:

    E.M.Smith says:
    March 2, 2018 at 5:48 pm
    Not for the first time, I agree with pretty much all EMS says.I don’t get as many power cuts as I used to but have still taken a few precautions, such as having camping stoves, inverters and building a POB oven. Reference the incentive for energy suppliers to think short term , an added benefit to them of buying large diesel gensets rather than building a new ccgt is that they are easier to sell on afterwards, especially to a developing nation hungry for energy.

  16. E.M.Smith says:

    @Tallbloke:

    You’re welcome. I just hope my description of coping methods helps someone else cope…

    @Gregole:

    At that time I was doing computer data center builds. Sometimes these were new sites and even saw-power (the bulk connection to a building site before formal connection is done) was not available. On one occasion we rented 3 “bread truck” sized mobile Diesel generators to bring up a data center when PG&E could not get us enough power on time. Ran for 3 weeks on them…

    At the Sun Microsystems Newark site ( I did the network build management) they specified that natural gas turbines power the place as co-generation units. No rolling blackout for them! It was both “emergency generator” and normal facilities heating in one. (If no heat was used and the “power company” had cheap electricity actually available, then they would be shut off…) People find ways to adapt. Like gasoline engine driven arc welders…

    @Bloke Down The Pub:

    POB? Is that this one:
    https://chiefio.wordpress.com/2013/02/25/pob-grill-layout/

    Just one of many things stimulated by our loony energy policy… They priced my All Electric Kitchen out of the “economical” range, and with decent weather, I cook on the patio. Wood, propane, and even kerosene are cheaper… That, and I figure “after the quake” there will be lots of bricks to make a “pile of bricks” stove 😉

    @Oldbrew:

    I’ve not had the 300 W inverter blow a fuse in any cars I’ve owned. (Mostly Honda and old Mercedes). In theory if fully loaded at the 13.8 VDC of a fully charged “12 Volt” battery, it ought to be drawing 21.7 amps, or 1.7 over my fuse (and potentially 6.7 over some other cars max fused lighter capacity). In reality, I’ve never put a full load on it as nothing I have used in such cases comes even close to that.

    I originally carried only a 100 W inverter (still have one in my small backpack kit). It is more than enough for a “100 W incandescent equivalent” LED or CFL bulb that really only uses about 18 to 23 Watts while charging my cell phone. That’s the typical “on the road” case.

    I moved to the 300 W job when I was carrying a Windows Laptop for work. It wanted something like 230 Watts to run and charge at the same time. Add cell phone and light bulb and you are up around 250 to 270 Watts. But still below fuse blowing load for a 20 A lighter.

    But yes, if you are afflicted with a 15 A fuse in your car, you get at most 207 Watts, so buy your inverter accordingly. (Since a 13 W CFL gives plenty of light, that’s enough for a string of 15 bulbs each of about a “60 W incandescent” equivalence. That is, you can light up your whole house. I have a 9 W bulb in my travel kit that is more than enough for inside the car or one small room)

    Just don’t expect to plug in your toaster, room heater, or fridge.

    I also have a 1 kW inverter that can be connected directly to the car battery with jumper cables. It cost me something like $70 at COSTCO during that “Gray ‘out’ Davis” time. It is enough to run my fridge, house lights, and TV cluster as the Honda 1 kW generator has done it. I’ve never had cause to use it. For small use, the cigarette lighter inverter is plenty. During major use (i.e the whole house for hours or days) the Honda Generator works nicely and I don’t have to run the car to keep the battery charged. Didn’t leave much room in between.

    I’d planned to use it with a “battery box” and a couple of RV deep cycle batteries, but that never got built as we found the “Recall” solution worked nicely. (Hint Hint!)

  17. Bloke down the pub says:

    @E.M.Smith
    Yep, that’s the one, or at least as similar as could be made with the stock of old fire bricks from electric storage heaters that I had available. The addition of an extra layer of bricks and a sheet of mild steel allows for baking and boiling/grilling at the same time.

  18. oldbrew says:

    EM – re Mostly Honda and old Mercedes

    No Fiats then 😉

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