An analysis of the energy crunch
Nov 16, 2015
Bishop Hill in Energy: grid

Over the weekend, Jonathan Leake wrote a trailer for Amber Rudd's speech on energy later this week, in which she is apparently going to signal something of a change in direction in government policy, with a shift of the focus from decarbonisation to consumer bills. As Matt Ridley pointed out in the Times a few days earlier, the government is running a real risk of getting landed with the blame if and when the energy grid goes pearshaped, so it's nice to think that the message might be sinking in.

And the risk of chaos still looms large, as the power price spike last week made clear. There is some very interesting, if rather technical, analysis of those events at the blog of Timera Energy, a firm of energy consultants, and one that carries a fairly firm warning for Ms Rudd:

Wednesday’s events are an indication of more to follow as the system capacity margin continues to tighten over the next two winters. The more enduring impact of this event is likely to come from the news headlines it attracted. It is this unwelcome media attention that is set to increase the UK government’s focus on security of supply, particularly as more plant closures loom in 2016.

Timera reckon that the availability of mothballed* power stations ("SBR" in the jargon),  will be enough to see off the possibility of power cuts, but they seem to hint that we should expect more price spikes in future. And there is a decidedly gloomy view of the efficacy of the capacity market itself:

The UK capacity market is yet to deliver a price signal that covers the fixed costs of existing CCGT capacity (let alone the delivery of new capacity).  That shifts the focus of plant owners & investors on to the energy and balancing markets.

Timera's blog is worth an explore, if you have the time. We read, for example, that the Trafford CCGT plant, the only new gas station to win in the last capacity auction has failed to get investment, leaving a 1.5GW hold in future capacity. We also learn why investors are not interesting in paying for new gas capacity:

Market players are also increasingly wary of taking on tolling contract exposure beyond a 5 year duration. This is due to a combination of:

Most of which can unequivocably be categorised as "government trying to rig the market in favour of renewables". Another way of looking at it would be "short-termism in government getting in the way of long-term investment by businesses".

Either way, you can see why Amber Rudd might think a bit of a change was necessary. I wonder whether she has the gumption to go for the status quo ante though. My guess would be not.


[Update: *not strictly mothballed, but it's a snappier way of referring to them than "assets taken out of the wholesale markets]

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