An important reason that power is expensive in the UK is that it doesn't use zonal pricing and is effectively not giving the right price signals to consumers of power to move closer to where the cheap power is (e.g. data centers) or to conserve power when power is expensive; or producers of power to invest in power generation closer to where the power is scarce and expensive.
Another point to make is that the national wholesale price of power in the UK is based on the price of the most expensive thing in the market at any point. Which now that they shut down coal is usually gas which at this point the UK mostly imports because gas production in the North Sea fields has been petering out. It no longer is the cheap resource it once was.
Even Scotland which either exports or curtails dirt cheap wind power most of the time gets to pay expensive gas rates for their power. Why is power curtailment a thing there? Because there is no price incentive to use the power. Otherwise people might be doing sane things like charging their EVs, powering their heat pumps, etc. Instead Scotland imports gas for heating and petrol for driving their cars. At the same time they curtail wind power by the GW.
Greg Jackson from Octopus (who are the largest energy operator in the UK) has been calling for this for some time. I don't live there but his name comes up a lot in several of the clean energy podcasts I follow. Smart person that has a lot of sensible things to say on this topic.
> Greg Jackson from Octopus (who are the largest energy operator in the UK) has been calling for this for some time. I don't live there but his name comes up a lot in several of the clean energy podcasts I follow. Smart person that has a lot of sensible things to say on this topic.
I've got a lot of time for Octopus, which is an odd thing to say about a utility company. It's amazing how much of a difference it can make when a company makes it a. pretty easy to speak to someone when you have a problem or question (especially via email) and b. getting that problem sorted or question answered isn't so arduous you want to jump off a bridge. It once took me six months to convince British Gas to actually start charging me for my gas and electric.
Plus every time there's a price cap change or something out of the ordinary going on, they send out emails explaining it in plain English (including, as you say, reiterating the case that our pricing model is utterly daft). They also have an API for customers so you can pull your usage data, which is pretty neat.
I must be the only person in the UK that has had an abysmal experience with Octopus, where they gave me a quote in writing, I attempted to sign up for it, couldn't due to "technical difficulties" on their end but got another email promising that the quote will be honoured once the difficulties are resolved....and of course once they finally fixed their system a month later they refused to honour it. I kept forwarding copies of emails they sent higher and higher up and finally was assigned a "senior customer agent" who basically said their decision is final and I can take them to an ombudsman if I want to. Then they couldn't bill me correctly for 6 months straight because no one knew why my smart meter wasn't sending them data, and then another time they literally provided incorrect information about my IHD when I asked why is the price for my tariff wrong. They are an absolutely useless company and I'd switch in a heartbeat if there was anyone else with a similar offering for charging EVs, no one else gets even close.
Yes, I am a landlord and have had multiple awful experiences with them on move in/out. The worst involved them referring my tenant to a debt collector for a totally incorrect bill (issued for a period after which they were not responsible for bills, and for electricity which hadn't been consumed) while we were still trying to get them to correct it. Customer service generally seems to stop responding after the first reply.
Exactly the same happened with me. Picking up the phone and responding to email (in weeks, not hours or days) didn't lower my bills. This sort of marketing is perhaps deflection.
Why does the UK have such trouble with smart meters? Everyone here, Norway, has one because they are required by the government. I haven't heard of any significant troubles and we've had them for years.
Quasi-government incompetence, mostly, though caused by government cowardace: they more or less just shouted "smart meters, do it!" at the energy industry and let them try to sort it out amongst themselves, which means they had several false starts of crap impementations (the first generation didn't think to allow them to be transferrable between providers! The issues in the North are basically because they decided to go for a low-power mesh network, which is a plan that has basically never worked), as well as the fact that the government hasn't made it a requirement for homeowners, but has made it a requirement for energy companies, so they basically just beg the current holdouts (who have little reason to want one) to let them install one.
Octopus have started doing things like connecting properties in the north to cellular type meters (not supposed to) or using Octopus Mini hubs (connects smart meters using WiFi) as a way of trying to solve the problems
but i called them to sign up, and they told me my house was two apartments. it isn't. it never has been. and when i asked them to update their data, the operator said that isn't something she can do.
Zonal also has issues with congestion, lack of locational price signals, and something called inc/dec gaming. A Nodal design (like in many US wholesale markets) fixes this, but some of the key policy makers are reluctant to go in that direction as it would be a ~7 year project and would introduce revenue uncertainty in the meantime when they are trying to decarbonize and need to make it easy for developers to get financing. Both pro/against arguments for nodal pricing have merit. There have been many discussions on this in government.
Marginal cost based pricing is extremely unintuitive to those outside of the field, but nearly all economists support it. The reason is that this eliminates a lot of the gaming in pay-as-bid designs and helps incentivize investment in more efficient/cheaper generation, while driving out less efficient clunkers that may not be profitable anymore. The reality is of course far more complicated. These markets have saved untold amounts of money by optimizing over large regions, but you can also point out "missing money" problems where there simply isn't enough investment in generators with access to firm fuel (as opposed to when we just had monopoly utilities). As a result, much of the US has an "at risk" or "very high risk" of not having enough generation during summer/winter peak.
Yeah, I'm not sure I understand your argument here. I work in the area. I can understand revenue uncertainty, but the solution is to sign a PPA. When Texas transitioned to a nodal market many existing generators got grandfathered into zonal pricing via free options, which is doable (e.g. any project built in the next 5 years will get this free option).
Give me an example of a "missing money" problem. I don't think these problems exist when you have capacity markets or ancillary service markets with enough incentives to exist (e.g. payments for standing offline, ready to turn on).
The big issue with UK power markets is that there is no incentive to build a huge power line down the country right now that delivers power from Scotland (where there are huge wind resources) to the rest of the country. Texas did this (very very successfully) with the CREZ.
The UK has many many competent engineers and making the energy grid more efficient is an attractive opportunity for many.
PPAs typically require the bank to be counterparty and that requires a forecast of the prices that will be received in the market over a lengthy period. The folks at Ofgem talked about how going nodal would be nice, but that they are worried about it being such a big project (these markets typically take 5-7 years to go from design to implementation in the US) that would take focus away from what is already mostly working for them. Overall, completely changing the market structure leads to uncertainty that investors don't like.
The grandfather point is a good one. Something could possibly be done there, but not sure of the complications.
The missing money problem is very much a real thing. You're right that capacity markets and other resource adequacy mechanisms create side payments to fix this, but not everyone has that. Texas infamously had an energy-only design that hasn't worked out so well and is why they have so many ongoing proposals like the PCM to address the reliability issues. It is also why fast start pricing has been pushed so hard by FERC. Even with the capacity markets, there are numerous issues such as the extremely high prices in PJM that is leading to numerous lawsuits and condemnation from their independent market monitor. The markets work well at reducing costs, but there are a lot of ongoing issues being addressed in numerous stakeholder groups and at FERC.
Sorry, I didn't mean to imply you hadn't, just offering a reason why I had a strong opinion.
Am I misunderstanding what you mean by counterparty? In the US, banks provide the tax equity and sometimes the project finance, but the PPA counterparty is a consumer, i.e. a utility or a large load (e.g. tech company data center). The forecast is necessary, but like I said, the uncertainty can be hedged.
Well, I'm talking about how linking a nodal market to a capacity or ancillary service market is necessary (i.e. purely nodal market without payments for reliability don't make sense). Texas's energy-only design would not have been saved from the 2021 disaster via a capacity market or a zonal price (gas availability dropped by 45%).
I think the PCM was always misguided and unnecessary (from just cursory understanding). I don't have time to respond to all the points about various capacity markets, but unfortunately a busy time of year, and will respond later.
No offense taken. I just wanted to make it clear I wasn't some rando who read an article or two on this.
I could have been more clear. There are many kinds of PPAs, but my understanding talking to the banks that do the financing is that they are an integral part of helping the developer get the steel in the ground. I agree there is almost always an off-taker that provides the fixed payment in exchange for the market payment. I agree the uncertainty can be hedged to a degree, but was just relaying what was said by the key folks representing the argument against nodal in parliament (think that's the right venue). The additional revenue uncertainty complicates things and slows things down.
I agree purely nodal markets don't make sense without some reliability mechanism, but that's not what many of the key academics were preaching/advocating not too long ago and why Texas did what it did. The Texas grid may have done better had they stuck to the older vertically integrated model which may have led to some older units staying around. It's hard to rewind in order to fully tell. I'd have to go pull a lot of figures to see if they retired coal that would have stuck around absent the markets. There surely wouldn't have been the bankruptcy fiascos from having $9000/MWh prices for a week, but that's another topic. I also think the courts are still looking into claims of market manipulation coming from the natural gas industry during Uri.
There is certainly a lot to talk about on PCM. Would love to chat later! Have a good holiday.
> the national wholesale price of power in the UK is based on the price of the most expensive thing in the market at any point
How much of the electricity demand goes through a bilateral agreement (or one where generation and retail are the same organisation, like EDF)? Also I seem to recall that the "pay the highest accepted bidder model" used to be argued as lowering the bids, resulting in a lower cost to the consumer!
It's exactly the same in Germany. In addition the state government of Bavaria in the south east does everything to keep wind power from being built in their state and worked against high voltage power lines to bring cheap and abundant energy from the north to his state.
To be honest, Bavaria isn't the ideal place for wind power imo, WHEN THERE ARE ALTERNATIVES.
Braindead Germany just woke up and decided that they want to do away with nuclear and suck the icy cold teats of Mother Russia.
Wind isn't suited for inland Germany, especially in a place like Bavaria, which has the frickking Black Forest ecosystem and a mountainous terrain. Not to mention the winds are much slower there than in North Germany. For the cost calculus that wind energy provides, it's best suited for underutilized offshore areas or desert climates.
Germany forcing wind power is basically a sorry excuse they have to compensate for their energy shortfall - wind and solar can be deployed relatively faster, but of course solar doesn't make sense in Germany, hence the government is trying to shove down wind.
Your comment really is a prime example of what is wrong with this discourse.
> which has the frickking Black Forest ecosystem
Bavaria has forests, but not the Black Forest. The Black Forest is in Baden Württemberg.
> and a mountainous terrain
Bavaria is more mountainous than northern Germany for sure, but not all of Bavaria is the alps.
> Not to mention the winds are much slower there than in North Germany. For the cost calculus that wind energy provides, it's best suited for underutilized offshore areas or desert climates.
I often see this argued, often with people citing ground wins speeds to support their statement. However, at 100m public records to show sufficient wind speeds to justify the investment in many cases. Of course offshore wind is always going to have a lower LCoE than onshore wind, but in southern states like Bavaria transmission bottlenecks and redispatch are also a concern (by the way, both of witch are exasperated by the lack of investment in transmission networks).
> but of course solar doesn't make sense in Germany,
This is just a factually wrong statement. Solar does make sense ans the business case is just getting stronger with the falling panel and storage costs. I have a residential installation (the least cost and energy effective solution) and I cover most of my electricity needs from my roof in 10 out of 12 months. People love to reference the two months to demonstrate that it is useless, but that’s a bit like saying your house is useless because you’re not at home for 10 hours a day.
Honestly speaking, I don't know for sure but I also spend time thinking about it and figured it mostly comes down to the politics of the issue. Although I can only comment on the German part of the issue, the overall discourse is likely rather similar.
> And that too, specifically, Germany ?
The discourse around the energy market in Germany is mostly centered around the inequality of the German energy market. Germany is a single price zone. However, this price is only the bidding price on the electricity market. In addition to the energy price, there are taxes and network transfer fees (Netzentgelte) that make up the final electricity price that is paid by the consumer. In the northern states the network fees are pretty high because of the high amount of wind turbines being connected to the grid, so the consumers in the northern states pay comparatively expensive prices, especially considering the vast amount of cheap wind energy that is in available in their network regions [0].
In southern states like Bavaria the network fees are less of an issue, resulting in lower energy prices overall (which sometimes makes sense because Bavaria has a lot of solar power installed). The north (eastern) states are also economically relatively weak, so the impression is that these regions essentially subsidize the "cheap" electricity for the economically well off states in southern Germany, hindering the development of new industries in those states.
Beyond those issues there is also the ever increasing cost for redispatch which is placing an increasing burden on electricity consumers [1]
> Is it targeting green energy
In Germany it is certainly targeting the green energy by proxy and the green party in particular. German politics has been a pretty shitshow ever since I turned old enough the care, but the last 3 years were super bad.
> Is it targeting Germany ?
I think Germany in particular is targeted largely because of the decision to phase out nuclear power. This is a decision that is for some reason widely unpopular nowadays, even with people who celebrated the decision 10 years ago. The stuttering transformation in Germany probably also has some side effects in countries that we're (re-) importing from, namely raising the prices due to higher demand.
With the power of hindsight you can argue that exiting coal before nuclear would have been a smarter play, but here we are.
TL;DR: Energy grid transformation is a bit of a (political) shitshow
I saw this on a Reddit discussion on American healthcare. One of the responses about American politics, brought up German decision making, and their denuclearization. Which was new, I’ve seen all sorts of misinfo, talking points, traps etc. etc.
Yeah that already was a mess before 2022 and only turned worse since then. And remember, what I outlined is only the surface of the electricity generation debate. It gets even worse when you turn towards mobility and heating. Oh you will hear some wild takes there!
> Bavaria has forests, but not the Black Forest. The Black Forest is in Baden Württemberg.
Brain fart moment, I guess you're right. But Bavaria still has plentiful forests for the argument to be valid.
> This is just a factually wrong statement. Solar does make sense ans the business case is just getting stronger with the falling panel and storage costs.
The business case is getting stronger because of a self-inflicted wound. You guys have ballooning energy costs in Germany by sole virtue of your own policies, even though you had the panacea to those issues earlier. It's like handling a toothache with clove oil and herbs when you should be getting a root canal, even though you're rich enough to afford that.
I for one would love to see German heavy industry run on solar power. Even the cost justification won't make sense and you know that.
You are free to believe what you want, but the Black Forest is not in Bavaria. Some other observations are not wrong per se, but heavily spin-doctored. For example, the average wind speed in Bavaria is 6.9 m/s, which is about 2m/s slower than average wind speed in Schleswig-Holstein but very much in the economical range of wind energy facilities of 3 to 12 m/s, or gas imports from Russia to Europe have fallen by ~70% from end of 2021 to end of 2023 which is still too much, but not exactly sucking a teat, and so on.
When I go to https://model.energy/ and run the optimization algorithm on Bayern using 2030 cost assumptions, it finds that using solar/wind/batteries/hydrogen to produce steady power output costs 77.8 euro/MWh. This is probably cheaper than new construction nuclear would be there.
Europe in general is one of the worst parts of the world for renewable energy, but this just means that in a post-fossil fuel, renewable powered world, Europe will be at a competitive disadvantage in energy intensive industries, and nuclear will not save them vs. industries in sunnier places.
While it's true that the UK doesn't have nodal electricity pricing per unit of energy (and Ofgem, the regulator, agrees that this would have benefits[0]) I'm not sure we'd be in much of a different position if we had.
We haven't seen particularly rapidly growing demand as energy efficiency improvements and the closure of heavy industry has offset the general increase in energy intensity which happens over time as economies grow.
It's also not like there is no locational signal in the current system - the costs which large generators and large consumers pay to use the transmission network do depend in part on where they are connected and how much of the peak network capacity need they are responsible for (so called "triad charges").
There are also significant revenue incentives for building embedded (ie distribution-connected) generation.
Ultimately it's hard to avoid the fact that we closed down old reliable coal and gas generation without having the right replacements in place. Governments of all political stripes didn't want to take decisions (eg on new nuclear especially but also things like pumped storage hydro) because it was easier to pretend these changes were cost free.
We had similar problems with the Nixon/Ford/Carter price and allocation controls on gasoline. There were shortages and long lines in some states and gluts in others. Carter was baffled about what to do.
Reagan ended it on day one with an Executive Order to repeal the controls. The lines disappeared overnight and never returned.
> Nixon/Ford/Carter price and allocation controls on gasoline...long lines in some states and gluts in others.
> Reagan ended it on day one with an Executive Order to repeal the controls. The lines disappeared overnight and never returned.
We had lines in 73 following OPEC's response to western involvement in Yom Kippur war. We had lines again in 79 when Iran's oil dropped out of the market. I can't recall gas lines (or reports thereof) during the intervening time. Searching didn't turn anything up.
(Anecdotally, I hung out with the Jan-Feb 1979 tractorcade. They came in from all over. Fuel prices were a concern but not availability.)
The latter spurred conservation. 1979's sharp oil price increases peaked in July 1980. Oil prices then began a long and steady fall, until the precipitous fall in Dec 1985.
Gas prices increase sharply in 1979, again in 1980 and again in 1981. In 1982 they drop to the highs that were set in 1980 and stay there, untethered to continually dropping oil prices. Until 1986, anyway.
I remember 1979 well. Lines every time I needed gas.
The day after Reagan signed the EO, the lines disappeared. I have never seen them since. I pull right up to the pump every time. That's with the prices going up and down pretty much daily.
It seems to me quite a lot of it is down to having a net co2 zero goal but not anything like market tax for co2 so if reducing emissions by 100kg can be done by spending £100 on insulation or £1000 on domestic solar then solar it is because it sounds sexier to politicians.
No expert but there is segmentation in terms of network costs to generators (tnuos), which come out of the CFD generators are awarded, so while bill payers have a single cost the utilities that generate their power do feel the effect of where they build their plant.
> Even Scotland which either exports or curtails dirt cheap wind power most of the time gets to pay expensive gas rates for their power
1. window power is not "dirt cheap" because of the rates the wind farms get paid. As you said they get paid the wholesale rate, and IIRC it is the greater of the wholesale rate and a minimum rate they are guaranteed by the government.
2. the reason curtailment happens UK's is because there is a lack of grid capacity to take it where it is needed. Most of the wind generating capacity is in Scotland, which has about 10% of the UK's population. This part of the problem would be helped by cheaper rates when there is excess energy, but increasing the use of wind power would mean higher bills because of 1.
The cost of fixing this will mean building grid capacity, so it means higher electricity bills.
I just assume the real reason is that it's an island and there is relatively little competition. The government and power companies can work together to take whatever they want from you and you can't stop them.
Another point to make is that the national wholesale price of power in the UK is based on the price of the most expensive thing in the market at any point. Which now that they shut down coal is usually gas which at this point the UK mostly imports because gas production in the North Sea fields has been petering out. It no longer is the cheap resource it once was.
Even Scotland which either exports or curtails dirt cheap wind power most of the time gets to pay expensive gas rates for their power. Why is power curtailment a thing there? Because there is no price incentive to use the power. Otherwise people might be doing sane things like charging their EVs, powering their heat pumps, etc. Instead Scotland imports gas for heating and petrol for driving their cars. At the same time they curtail wind power by the GW.
Greg Jackson from Octopus (who are the largest energy operator in the UK) has been calling for this for some time. I don't live there but his name comes up a lot in several of the clean energy podcasts I follow. Smart person that has a lot of sensible things to say on this topic.