Energy costs in the absence of policy

Since the government published its most recent estimates of the costs of renewable energy policy I have been trying to get to the bottom of the question of how they estimated what the costs would have been in the absence of policy.

After several months of effort I have managed to get the underlying spreadsheet and a bit of a steer (link).

In relation to your question on the price before policies, page 66-67 of the prices and bills report, sets out that the wholesale price in the baseline (no policies) is modelled using DECC’s Dynamic Dispatch Model, and requires making a number of assumptions, particularly about the no policy baseline.  To estimate the electricity wholesale cost in the baseline, we used historical trends in build rates and plant characteristics where possible to match capacity margins, and plant efficiencies as closely as possible to what is most likely to have happened in a world without policies. This is therefore a modelling output, and not a result of a simple calculation.

So on the price of electricity generation, the numbers come from a computer model - which means that it is likely to be somewhat tricky to confirm. Worryingly, DECC advises that "the resulting wholesale price effects are sensitive to the assumptions chosen".

DECC also says this:

Adding network costs, and supplier costs and margins and VAT as set out in rows 88-92 of the purple supplementary tables results in the retail price before policies presented in the household central scenario in the supplementary tables of £50/MWh for gas in 2014, and £140/MWh for electricity (cell references C70 and D70 respectively). These can be multiplied by consumption before policies (16.6MWh for gas and 4.5MWh for electricity, cells C55 and D55) to arrive at the energy bill before policies.

The Supplementary Table referred to is shown below (click for full size):

If you look at the second column, you can see that the costs that are said to be affected by policy do not include anything to do with the grid or with supplier margins. So, as implied by the wording of the quote above, the government appears to be assuming that the costs of grid connections for all those windfarms is not a cost of policy.

So it seems fair to say that DECC are pulling the wool over our eyes. But until the Dynamic Dispatch Model can be examined it's hard to say just how much wool they are using.

Comments

[It doesn't add up...]

I doubt DECC are in a hurry to acknowledge this cost:

http://www.ippr.org/publications/feed-in-frenzy

though I'm sure we've known about the de-rating scam for higher subsidies for some time.

[It doesn't add up...]

Kevin Marshall:

Both you and Richard Tol are correct. A dispatch model is not concerned with capital cost. It will consider nuclear as "must run" base load, regardless of the capital cost of individual plants. It will select other technologies according to marginal costs of operation in meeting variations up to peak demand: it treats capital cost as sunk. It will however recognise those plants which are on limited hours under the LCPD which will tend to operate to take advantage of peak prices and avoid operating overnight at base load prices. Whether the market clearing price is sufficient to generate a return on capital is a consequence, not an input of the model.

[stewgreen]

@It doesn't add up So Decc came up with a cunning plan
give the small Turbines a bigger subsidy ..and big turbines a smaller subisidy so it doesn't go to big corps
..what could go wrong ??

[stewgreen]

Shrinking turbines scam is now in the Mail