Wednesday 25 October 2023

The future price of electricity

Round these parts we often have a bit of fun at New Year, predicting prices etc.  We've even been known to suggest a few punts that might be taken.  That said, solemnly forecasting commodity prices etc as if it's a science is a fools' game.  The track record of "respectable" price forecasters is truly appalling - and that's not just because we're waiting for cleverer chaps to come along - it's because it is impossible.  Of course, they fact that plenty do it anyway is a tremendous boon to liquidity and commercial life generally: you always need to find someone to take the other side of a bet.

Having registered those points, we now turn to electricity.  From the Green corner (and indeed Miliband in the Red corner) there is currently a mighty howl going up: if we want to get the price of electricity down, we must accelerate "investment" in renewables.

Well, no.  This belief in "renewable electricity = cheaper electricity" is based on a couple of things, neither of them worthy of being the basis of policy.  First, there's the na├»ve view that because wind and sunlight are "free", this means the resulting electricity must be pretty cheap, too.  For those arguing in that way we can even helpfully chip in that sometimes, wholesale prices of electricity go negative!  All of this is true, but it has very little bearing on what the long-term, sustained wholesale price will be, when very costly capital equipment is required on a vast scale to intermediate between (e.g.) "free wind" and the consumer who wants power on demand, 24/7, every day of the year - and who finds himself being forced to "invest" in that capital equipment at exactly the same time everyone else in the world is buying the same stuff.

Secondly, and perhaps based on the first point, there's the entirely religious view that of course it will be cheaper because it's virtuous and clean and generated locally and that nice Caroline Lucas says so and, errr, well it must be.  To me this bears strong resemblance to those who argued that of course we'd be better off financially after Brexit, because, well, because.  It is of course perfectly fair to espouse the political view that Brexit is the way to vote - I espoused it myself - but please don't tell us it'll be cheap.  And exactly the same holds for renewable energy.

The underlying reason is similar in both cases.  Absent a subsidy, any time businesses and individuals are constrained to do something in the economic sphere that runs counter to what they'd do given the freedom to make their own informed economic decisions, that is prima facie gonna wind up costing more.  Of course there are exceptions: once in a blue moon there is genuine market failure (e.g. in energy, the practical inability of tenants and some householders to do the economic thing as regards short-payback insulation etc); and sometimes an economically viable new technology just hasn't become socialised yet (LEDs). 

Governments make people do more expensive things than they might choose to all the time, for policy reasons sometimes sound, sometimes not (and in any case, political policy is frequently politically contestable).  To me, the key is that politicians shouldn't lie about these things.

Now governments could choose to manage many of these types of policy intervention via general taxation.   That's what they do in the case of, e.g., the policy decision "we need nuclear submarines".  But mostly, they try to offload the cost onto the punter in various ways.  And that's certainly the case with most aspects of Green policy, in this country and elsewhere.

This being the case, all the evidence is there that wholesale electricity prices will rise, and continue to rise, over the very lengthy period over which it is intended - by almost all political parties -  we will aim towards "net zero".  This is so glaringly obvious, it barely needs explaining in detail: just sit back, watch and point.  But put on the ear defenders, because the Milibands of this world will continue to bellow that it'll be cheap ...

ND

23 comments:

Matt said...

How can you tell a politician is lying?

Rich said...

"...wind and sunlight are "free"..."

Of course, on the same basis, coal and oil are free. Funny we have to pay for them though.

Anonymous said...

Their lips move.

PowerGen reject said...

[i] Of course there are exceptions: once in a blue moon there is genuine market failure (e.g. in energy, the practical inability of tenants and some householders to do the economic thing as regards short-payback insulation etc); and sometimes an economically viable new technology just hasn't become socialised yet (LEDs). [/i]

Do markets fail?

If you compare the EPC rating of a mid-70's home with ones built to the current building regs, there is a significant difference in insulation value. The UK have long lauded the low energy homes in Sweden and Germany but our response has not to up the level of insulation to compensate but to strap on power generating solar panels to a roof.

So the 'market' has responded to energy signals but in a peculiarly British way which eschews learning from other societies to plow our own furrow. Brexit is an example of having tried 'other ways' we've decided - we just don't like it.

Nick Drew said...

PG-r - Interesting moniker! Care to elaborate? PowerGen was an interesting company, albeit with a couple of big strategic failings.

I see what you are saying, but how does that counter the notion that as regards the non-investment in short-payback household improvements, there is market failure in evidence? Does a tenant who suffers from readily preventable cold and damp, but whose landlord won't lift a finger (even maybe in return for higher rent: social landlords could readily offer such a deal) simply decide, stoic-Brexit-like, that he doesn't really care for home improvements?

No. I have acquaintances that are council tenants. They pressure their LA for sensible structural improvements that they are not allowed to do themselves, and have suggested that higher rent or a capital contribution from themselves, would be acceptable in return. The LA simply says "we'll get round to it whenever we get round to it" - which sometimes, when they are good and ready, they actually do! - and then they don't increase the rent! There may be some perverse logic at work on their part (bureaucratic inertia, too much trouble to listen to individual suggestions) but it's still market failure.

Asserting 'market failure' doesn't mean "this is wholly inexplicable in any terms whatsoever". It simply means the inertia is not explicable on purely economic / informational grounds.

Wildgoose said...

As Rich says, fossil fuels are also "free". They are just lying in the ground waiting to be used.

If we have to buy equipment to exploit any of coal/gas/sun/wind for energy, then we should tot up the spend for each and work out which is the best value for money. Don't forget incidental expenses such as grid stabilisation and crucially, security of supply. So, that means long term energy storage, which is simple & cheap for coal and gas, but extremely expensive (e.g. batteries) for sun and wind.

I'm sure that greenies will immediately start shouting about waste and CO2.

Fine, explain how you deal with lakes of toxic sludge from the production of rare earth magnets for wind turbines, plus the unrecyclable fibreglass blades, plus the huge amount of CO2 produced by their concrete bases.

I don't think the waste compares.

And if it all boils down to CO2, why not nuclear?

When are we going to get politicians who say "Net Zero" is a mindless fantasy and openly attack the idiots espousing these views? Everybody wants to be seen as "nice", but given the media constantly excoriates Tories as being "not nice", why not embrace that? Openly point out the idiocy and call out their opponents as either cynical liars or "nice but dim".

electro-kevin said...

The comment about Brexit is only valid because we are not allowed to discuss why the EU is a disaster.

Mass immigration.

That's because our once beautiful cities (most notably Paris) now look like African slums.

The EU wanted open borders and that left the EU only as secure as its weakest Eastern borders. We are now on the inexorable decline towards third world conditions because that's the only thing that will stop it.

----


Cheap renewable energy ?

There will always be some component in the supply that costs a lot and is controlled by a cartel or a rogue nation.

And then the Govt taxes it.

Do we honestly believe that if everyone converted to an EV tomorrow tax exemptions and subsidies would continue and that road restrictions would suddenly lift ?

Of course not !

Restrictions and taxation are what the Left is born to do !

Nick Drew said...

Wildgoose, response Part 1

@ Don't forget incidental expenses such as grid stabilisation and crucially, security of supply

There you have it. It's frustrating that calculating that is genuinely difficult. I have a strong intuition that those costs, properly identified and allocated, would cripple most "green" schemes OR, of course, put up the price they'd demand for their CfD subsidies. And that's the number we really need to see. But ...

(a) we are 100% dependent on the Grid for input data to this calculation;

(b) the Grid can't be relied upon to be neutral in this matter - far from it: there's huge Moral Hazard at work here because they get guaranteed rates of return on their own "necessary" expenditure, so they actually benefit from a big structural nonsense being created;

(c) even with full 'neutral / objective' data, it wouldn't be a slam-dunk calculation as there are many forward-looking components and difficult counterfactuals;

(d) in light of Ukraine, and China's total domination of many of the required commodities, Security of Supply is another massive factor (as you say) - and putting £££ numbers on that is again very difficult;

(e) just about anyone truly qualified to have a go at this calculation is likely to have skin in the game, on one side or another;

(f) wind, solar and nukes are characterised by disproportionate up-front capital costs, so all this needs to be "got right" before you even get started

The one person that was widely felt to be trustworthy and authoritative in all this, was the late and much lamented Govt Chief Scientist David MacKay. And even he had his critics. He was much taken by another factor, which was the footprint (in square metres) of the kit needed to generate electricity. On this count, nuclear wins by a country mile. Of course, many greens (though not George Moonbat) hate this, and declare land footprint to be totally irrelevant

Other folks major on EROEI, another highly germane and complex consideration. Personally, I also like to consider Marginal Abatement Cost rankings.

tbc ...

Nick Drew said...

Wildgoose, response Part 2

@ "Net Zero" is a mindless fantasy

given the above, in my view that can only be your strong intuition. We just don't have reliable numbers! And, given the multi-dimensional complexities, maybe we never really can - e.g. what value you put on security of supply is very much a matter of temperament (Greens have suddenly taken to mistrusting any country that produces hydrocarbons, and don't like to acknowledge how they are consequently trading a dependency on Putin etc for a dependency on Xi)

which is partly why I liken it to 'religions', such as spiritual Religions and Brexit. You pick a side, based on who-knows-what personal proclivities, and then you dig in. Numbers cease to have any deciding influence

Jan said...

The thing they have consistently mislead us on (lied?) is what they call the capacity of solar/wind. The MSM always report a new source as having the capacity to supply x homes (always a high number) but the reality is always much less than their reported capacity which assumes they are working at 100% efficiency all the time.

When the wind doesn't blow and the sun doesn't shine the amount of energy produced from these sources can be really low eg zero, 1 or 2% if you look on gridwatch. Do the greens ever look on gridwatch to see the real situation? I doubt it. Being kind I will say they are often nice but dim as Wildgoose says above so don't live in the real world. David Milliband is a prime exaample. We badly need a few good engineers to explain it all to them in very simple terms.

Wildgoose said...

There have been attempts to put some numbers into play.

Here is an example at trying to calculate what is needed to provide the large scale electricity storage that will be needed.

The numbers are staggering. And remember, coal, gas and nuclear don't need to do this.

https://royalsociety.org/-/media/policy/projects/large-scale-electricity-storage/Large-scale-electricity-storage-policy-briefing.pdf

Jeremy Poynton said...

The hypothesis that CO2 controls temperature is a very simple one. Yet when I asked the Climate Change Committee to point me to proof of this hypothesis, they couldn't.

That real world data, long and short term, shows NO correlation over tiny and statistically completely insignificant time periods (such as the last 30 years of the preceding century - that following on an 0.6 degree c FALL during rising in CO2 in the preceding three decades) is apparently irrelevant.

It's the models. They are beyond useless, yet such as Dr.Chris Folland ofd the Met pronounced in public

"The data does not matter. We're not basing our recommendations on the data. We're basing them on the climate models".

No bloody wonder. Real world data would put thousands of climate rent seekers out of work.

Jeremy Poynton said...

"NO correlation over tiny and statistically completely insignificant time periods"

should read

"NO correlation other than over tiny and statistically completely insignificant time periods"

An update to the blogging platform would allow edits AND IMAGES!!!!

Jeremy Poynton said...

Clinically insane, no?

https://www.telegraph.co.uk/business/2023/03/02/heat-pumps-ev-batteries-could-save-grid-47bn-says-ofgem/

Scrobs. said...

Water is the same commodity; we pay to get it to our homes, then flush it away, then pay to get it cleaned up to get it back again...

Why not use it better by letting it also produce more electricity - it cold be to do with damming a river, popping in a sort of turbine thing like 'hydrofoil' or hydroponic machine' in a big tube, or summat like that, and letting it provide electricity for us all?

Now what's wrong with that? Surely someone could come up with a solution?

Jeremy Poynton said...

Hi Scrobs,

Up and downstream of Frome, on the river Frome, there are about ten small hydros, producing enough lecky for their local village. Given appropriate riverage, so to speak, it could and should be done.

Nick Drew said...

Scrobs - we had a thread on this not so long ago.

The principle problem is the laws of physics: slow-flowing fluids aren't great for generating electricity. Clearly it can be done, but not on the scale you might imagine.

Jeremy Poynton said...

As for renewables making the cost of electricity cheaper...


https://www.telegraph.co.uk/business/2023/10/25/electricity-prices-rise-70pc-pay-wind-farms-energy/

"Electricity prices ‘must rise by 70pc to pay for more wind farms’
Warning from UK's biggest energy generator comes after latest bidding round received no offers to build new farms"

jim said...

A megawatt sounds like a lot of power but really it is not much. Your smartphone uses milliwatts and deludes folk into thinking you get a lot for very little input. Non-STEM types imagine that with more efficient motors or batteries cars and heating could also run on milliwatts.

The Royal Society report was very worthy and very boring and only pointed one way - expensive.

Some miserable folk think the planet is warming due to our burning fossil fuels. The consequences will be dire unless we stop. A few simple solutions are visible. Firstly deny there is a problem, this suits the political class admirably, they can argue anything true or not with complete sincerity. Or we could stop burning fossil fuel, but that is very inconvenient.

'Green' is very nice but expensive and does not work very well. In essence we have to collect diffuse energy and concentrate it. As ever the devil has all the good tunes. So what is to do? Fewer humans? The last experiment was not all that successful and not very well targeted. Those who eat a lot and travel a lot would be a good start. The main snag is that humans replace themselves and one would have to keep repeating the treatment. Not a very stable solution.

Traditionally famine is a useful treatment. Sufficiently insulated from direct political blame this solution may come quite naturally if we stick to doing nothing. Whilst solving one problem this approach opens up another problem - who gets the food. You can be sure the rich and powerful will be first in line with Humvee trucks to take it away. On that route lies the road back to feudalism which may not go down well with the Greenies.

Never mind, a hairy arsed wood merchant delivered the cordwood for 2024/25 yesterday, think large tipper truck. The sensitive will be glad to know the timber came from a Surrey woodland knocked down for housing. Renewable? - only if someone grows some more somewhere.

electro-kevin said...

Hi Scrobs !

Now there's a good point.

Water is free at source, is it not ?

So why isn't that cheap 'round 'ere ?

electro-kevin said...

PS, the outgoing dirty water... we could light the gas, to drive the pumps ... that take it back to the top again.

Jeremy Poynton said...

Oh dear...


https://joannenova.com.au/2023/10/wind-power-investors-abandon-siemens-energy-another-shocking-37-fall/#comments


https://www.reuters.com/business/energy/siemens-energy-seeking-billions-euros-state-guarantees-wiwo-2023-10-26/

As you can see, the one thing we DO know about renewables is there is NO way they will ever lead to lower prices. We're all being fleeced. As we are by the water companies who were contracted at privatisation to fix the leaks and improve the infrastructure. Not to line their pockets, as they have done.

When do we wake up to realise that NOTHING in the UK works any more? Despite costing more and more.

Anonymous said...

I remember Nick D had a lot of bad things to say about the featherbedding of the old CEGB.

But surely when he looks at our current energy provision shambles, a State energy supplier couldn't be worse? The featherbedding's just been translated into the private sector and multiplied by a big number.