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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...

by 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.
  - tialaramex 3y ago
    Huh? We're not talking about when prices go to zero, we're talking about when prices are high. Suppose I'm a wind farm with a strike price of £75 and thanks to high gas prices the current wholesale electricity price is £150 per MWh. I can (and certainly will) sell my wind electricity, but I have to pass £75 of the £150 back to the Low Carbon company.
  - blitzar 3y ago
    In reality, when the wholesale price went to £500 they paid the government £466 and got to keep their £44.
- amenhotep 3y ago
  Not a great shape of deal for a biomass plant where the supplier has the choice of turning it off when the agreed price would be less than they could get for selling their fuel, though! (https://www.cityam.com/drax-hits-back-at-claim-it-cut-production-at-biomass-unit-to-avoid-639m-customer-payout/ https://www.cityam.com/drax-hits-back-at-claim-it-cut-produc...)
Manuel_D 3y ago
Uruguay generates 32% of electricity from wind and 3% from solar. 44% comes from hydroelectric power, which is really, really useful to serve as a carbon-free dispatchable energy source to fill in for the intermittency of wind and solar.

by tootie 3y ago

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.
- tialaramex 3y ago
  Huh? We're not talking about when prices go to zero, we're talking about when prices are high. Suppose I'm a wind farm with a strike price of £75 and thanks to high gas prices the current wholesale electricity price is £150 per MWh. I can (and certainly will) sell my wind electricity, but I have to pass £75 of the £150 back to the Low Carbon company.
- blitzar 3y ago
  In reality, when the wholesale price went to £500 they paid the government £466 and got to keep their £44.
amenhotep 3y ago
Not a great shape of deal for a biomass plant where the supplier has the choice of turning it off when the agreed price would be less than they could get for selling their fuel, though! (https://www.cityam.com/drax-hits-back-at-claim-it-cut-production-at-biomass-unit-to-avoid-639m-customer-payout/ https://www.cityam.com/drax-hits-back-at-claim-it-cut-produc...)

Manuel_D 3y ago

Uruguay generates 32% of electricity from wind and 3% from solar. 44% comes from hydroelectric power, which is really, really useful to serve as a carbon-free dispatchable energy source to fill in for the intermittency of wind and solar.