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I'm having trouble reconciling these two statements. > The BBC understands the government now will raise the price it pays from £44 per MWh to as much as £70.

by tome 3y ago

I'm having trouble reconciling these two statements. > The BBC understands the government now will raise the price it pays from £44 per MWh to as much as £70. > It is hoped more offshore wind capacity will lead to cheaper energy bills.

toomuchtodo 3y ago
Although the price of offshore wind goes up, it offsets the price of more expensive energy in the energy mix. Could be spot market fossil gas in peakers or something similar (power imports without a long term contract). https://www.ofgem.gov.uk/energy-data-and-research/data-portal/wholesale-market-indicators https://www.ofgem.gov.uk/energy-data-and-research/data-porta...
- julosflb 3y ago
  A very nice writing about that concept where more wind power drives price down: https://jeromeaparis.substack.com/p/the-cost-of-wind-the-price-of-wind https://jeromeaparis.substack.com/p/the-cost-of-wind-the-pri...
  - mortify 3y ago
    This explains how it makes wind affordable, but not necessarily cheaper except perhaps in the 20+ year time frame. It likens the CfD models to mortgages which do, in fact, raise of the cost of housing. The long-term savings potential seems to be in the stability of "fuel" costs which are zero for wind and who-knows-what for oil. The below statement confuses me deeply as getting more wind is entirely out of our control. "it costs you nothing to produce an extra MWh (all you need is more wind)"
mperham 3y ago
It is common for governments to subsidize areas where they want to see more industrial capacity and research. This, in the long run, leads to more competition and lower prices.
- blitzar 3y ago
  The wholesale market is ~£100. Paying £73 (or even £44) for something that is priced at £100 is certainly a subsidy, but in this case it is the offshore wind farms that are giving the subsidy to the government. (It was an even bigger subsidy when the wholesale price went to £500)
tootie 3y ago
https://www.npr.org/2023/10/06/1197954251/uruguay-green-energy-carbon-emissions-climate-change https://www.npr.org/2023/10/06/1197954251/uruguay-green-ener... Planet Money ep on the strategy at play. Uruguay managed to build an entire wind grid by offering guaranteed rates for electricity for 20 years. I think UK is trying something similar. Guaranteed minimum payments to offset the risk associated with the massive startup costs.
- tialaramex 3y ago
  The UK uses Contracts for Difference. A government entity (the "Low Carbon Contracts Company") agrees deals with supplies who are going to build (in this case) a wind farm, with an inflation adjusting "strike price" where the government agrees to pay say £68 per MWh for up to 850MW of electricity delivered from the farm. The agreed deals are set up via an auction process periodically in batches, with plants constructed over the subsequent few years after an auction completed. So e.g. they hold an auction this year, maybe the plant is built during 2024-2025 and starts supplying power in 2026. This news is about the UK government seeking new bids after it had previously asked for bids around a much lower strike price and it got no takers for the auction. In a world where everything is more expensive, the government somehow imagined people building wind farms would be willing to charge less money and none of the builders were interested. They're not minimum payments. The risk is eliminated by promising to pay a fixed price for the energy, in the form of an adjustment to the wholesale price given for the sale of the actual electricity. If wholesale electricty prices are very high (as they were e.g. shortly after Russia turned the gas off) the wind generators actually have to pay the government because the contract is for the difference. It's exactly the right shape of deal for Wind and Solar, which are mostly about capital investment to build the power plant, with no fuel and minimal maintenance necessary. CfD is also a reasonable shape for a nuclear power deal, fuel is very cheap but there is much more maintenance for a nuclear plant than a wind farm, although less than for a coal plant.
  - iudqnolq 3y ago
    > If wholesale electricty prices are very high (as they were e.g. shortly after Russia turned the gas off) the wind generators actually have to pay the government because the contract is for the difference. In practice this seems to be capped at zero as when the price goes negative the producers simply don't produce energy.
iamthemonster 3y ago
Remember that at the home we pay about £300 per MWh - this payment does not have much relation to bills
piuantiderp 3y ago
You are being too negative, you just have to believe in them.

by tome 3y ago

toomuchtodo 3y ago

Although the price of offshore wind goes up, it offsets the price of more expensive energy in the energy mix. Could be spot market fossil gas in peakers or something similar (power imports without a long term contract). https://www.ofgem.gov.uk/energy-data-and-research/data-portal/wholesale-market-indicators https://www.ofgem.gov.uk/energy-data-and-research/data-porta...

julosflb 3y ago
A very nice writing about that concept where more wind power drives price down: https://jeromeaparis.substack.com/p/the-cost-of-wind-the-price-of-wind https://jeromeaparis.substack.com/p/the-cost-of-wind-the-pri...
- mortify 3y ago
  This explains how it makes wind affordable, but not necessarily cheaper except perhaps in the 20+ year time frame. It likens the CfD models to mortgages which do, in fact, raise of the cost of housing. The long-term savings potential seems to be in the stability of "fuel" costs which are zero for wind and who-knows-what for oil. The below statement confuses me deeply as getting more wind is entirely out of our control. "it costs you nothing to produce an extra MWh (all you need is more wind)"

mperham 3y ago

It is common for governments to subsidize areas where they want to see more industrial capacity and research. This, in the long run, leads to more competition and lower prices.

blitzar 3y ago
The wholesale market is ~£100. Paying £73 (or even £44) for something that is priced at £100 is certainly a subsidy, but in this case it is the offshore wind farms that are giving the subsidy to the government. (It was an even bigger subsidy when the wholesale price went to £500)

tootie 3y ago

https://www.npr.org/2023/10/06/1197954251/uruguay-green-energy-carbon-emissions-climate-change https://www.npr.org/2023/10/06/1197954251/uruguay-green-ener... Planet Money ep on the strategy at play. Uruguay managed to build an entire wind grid by offering guaranteed rates for electricity for 20 years. I think UK is trying something similar. Guaranteed minimum payments to offset the risk associated with the massive startup costs.

tialaramex 3y ago
The UK uses Contracts for Difference. A government entity (the "Low Carbon Contracts Company") agrees deals with supplies who are going to build (in this case) a wind farm, with an inflation adjusting "strike price" where the government agrees to pay say £68 per MWh for up to 850MW of electricity delivered from the farm. The agreed deals are set up via an auction process periodically in batches, with plants constructed over the subsequent few years after an auction completed. So e.g. they hold an auction this year, maybe the plant is built during 2024-2025 and starts supplying power in 2026. This news is about the UK government seeking new bids after it had previously asked for bids around a much lower strike price and it got no takers for the auction. In a world where everything is more expensive, the government somehow imagined people building wind farms would be willing to charge less money and none of the builders were interested. They're not minimum payments. The risk is eliminated by promising to pay a fixed price for the energy, in the form of an adjustment to the wholesale price given for the sale of the actual electricity. If wholesale electricty prices are very high (as they were e.g. shortly after Russia turned the gas off) the wind generators actually have to pay the government because the contract is for the difference. It's exactly the right shape of deal for Wind and Solar, which are mostly about capital investment to build the power plant, with no fuel and minimal maintenance necessary. CfD is also a reasonable shape for a nuclear power deal, fuel is very cheap but there is much more maintenance for a nuclear plant than a wind farm, although less than for a coal plant.
- iudqnolq 3y ago
  > If wholesale electricty prices are very high (as they were e.g. shortly after Russia turned the gas off) the wind generators actually have to pay the government because the contract is for the difference. In practice this seems to be capped at zero as when the price goes negative the producers simply don't produce energy.

iamthemonster 3y ago

Remember that at the home we pay about £300 per MWh - this payment does not have much relation to bills

piuantiderp 3y ago

You are being too negative, you just have to believe in them.