Monday 6 February 2017

Money For Old Rope

Little-noticed by the MSM, last week saw an event that neatly demonstrates two interesting British governmental phenomena: one of tremendous strategic incompetence, the other of impressive tactical prowess.  

Recognising that the 'capacity margin' (of reliable electricity supply over peak demand) has become perilously low - probably negative, in fact - the PTB (technically the National Grid, but it is of course government + regulators + grid in cahoots) ran an unscheduled, one might well say panicky, capacity auction for next winter's cover.  More on capacity auctions below. 

The first thing this demonstrates is the astonishing failure of policy that results in an 'advanced' nation getting itself into the position where there could be blackouts arising from lack of generating capacity - a situation that could well arise even this winter if February turns out to be as cold as some forecasts suggest**; and next winter will be worse.  (Note: any blackouts would be for industry - governments will do absolutely anything to keep lights on in homes and hospitals.)  This state of affairs has been evolving in slow motion, in plain sight, for 10 years with no shortage of warnings from many sources (e.g. this blog, for the whole of that decade).

On the flipside, it demonstrates just how technically capable the civil service (incl. regulators and grid) still are in this country.  The Capacity Mechanism was designed to provide an incentive for firms to build new power plants with a 4-year lead time: so the first auction more than 3 years ago was for the period starting winter 2018-19, and there have been two more of these annual 4-year-ahead auctions.  For various reasons to do with the stupidity of ministers and economists, the 'wrong kind' of power plants have been winning these auctions.  They were hoping for new ultra-efficient gas-fired plants: they got old coal plants on life-support, creaking old gas plants coming out of mothballs, cheap-and-cheerful inefficient gas plants, and banks of diesel generators instead.  Anyone could have told them this would happen (specifically, I did). 

However, as a purely technical exercise in running a complex auction - and 'discovering' the cheapest way of solving the problem - they have been a great success: a credit to the team that devised the Mechanism.  To be fair, they had several pre-existing examples of auction designs to consider frm around the world, including some that have been a fiasco.  Nonetheless, to get it right first time is creditworthy.  Several continental countries whose energy policy is just as bad if not worse than ours - oh yes, it is possible - gaze in awe at how well we do these technocratic things, and wish they could emulate us.  (I was at a 3-day technical seminar in the Netherlands in December - the only Brit there.  On four separate occasions, concerning different aspects of energy policy, someone said "they've done this already in the UK" or "they do it so much better in Britain".)

So - when in 2016 ministers contemplated the dire prognostications for winter 2017-18, and the dreadfully inefficient way the Grid struggled through 2015-16 and this winter, they readily concluded the answer was to run an emergency 'early' auction.  As a piece of sticking-plaster, it's probably worked.  The clearing price that we all shall pay in our electricity bills was way, way lower than the commentariat forecast (enabling the government to crow); and of course 97% of the winning capacity is ... already-existing power plants.  Less old coal-on-life-support has succeeded; more gas-coming-out-of-mothballs.  Oh, and of course, the 3% that will be new-build plant will all be little diesels: what else can you put in place inside 6 months??

This being the case, for 97% of the winners they are being paid just for being there - which they already are.  I can report that in the industry, these payments are routinely referred to as 'money for nothing'.  Dire Straits indeed.


UPDATE - bit of a PR campaign going on here: and there have been other self-congratulatory pieces over the past few weeks.  You might argue some of my text above justifies their preening.  But there's a political agenda here too - don't worry about renewables, everything's fine.  Trouble is, National Grid are not a neutral judge on this: they get a guaranteed rate of return on investments they make that are required to accommodate, e.g., windfarms in the north of Scotland.  Nice work if you can get it  -  or moral hazard, as professors of ethics say.

** because we may run out of gas, owing to an unforseen problem with storage: and gas-fired power generation is now absolutely critical with so much coal plant having shut down.


Flagwaver said...

And presumably your emmissions chits for free? I'll get my coat.

If we do it well and others less well, why don't they, err, do what we do?

Nick Drew said...

chits for free is good enough (+:

actually, they are rushing to copy us - the French and the Italians both, right now, are limbering up fo Capacity Mechanisms

rwendland said...

I see that EDF has asked the nuclear regulator to permit twice the number of cracked bricks in their aging AGR power stations graphite cores, hoping for yet more life-extension. So they will be collecting this capacity margin fee on old nuclear for quite some time!

Also according to a Japanese newspaper, Toshiba wants to sell its shares in NuGeneration as well as Westinghouse, so that looks like new nuclear at Moorside (Sellafield) is a dead duck without direct UK govt investment. That will add heat into the Copeland bye-election.

Fun times for UK leccy generation.

Electro-Kevin said...

Nick - I know it took a while to get it into my thick skull, but you did it eventually.

Energy is probably our greatest risk to economic growth and it beggars belief that we are converting railways from diesel to 25kv electrics at such a time.

The idea is sound in itself (fuelling of trains causes a lot of wasted movement) but the power generation has to be in place first of all.

Nick Drew said...

Kev - the German rail nework is heavily electrified, and D.Bahn are absolutely paranoid about the potential for power cuts and (possibly worse, for them) sub-spec frequency, which can really bugger their ops

in their publicity they waffle on about being green; but behind the scenes they are demanding assurances (with menaces) from the grid operators that the wind-power nonsense isn't going to queer their pitch

(and they have a lot of political clout)

(they also enjoy the fees that transporting coal brings ... but not lignite, which tends to be burned at the same place it's mined)

Electro-Kevin said...

I don't think they've ever tried putting sails on trains, Nick. It wouldn't be any more insane.

I do marvel at the German engines in British trains. They really are works of art and so much is made of their low emissions... oh dear.

I licked one of these once. Seriously ! (Well it was in racing green.)

Nick Drew said...

well that vid is certainly a work of art (Disney??)

would bet £££ that the diesels used for stand-by elec gen here are not at all as efficient - no Kev-kisses for them!