Lessons from the UK & SA – How to Destroy Power Supplies & Economies: Start with Subsidised Wind Power

economics101

Pinning its hopes to a wholly weather dependent power source – that requires 100% of its capacity to be backed up 100% of the time by conventional generation sources – Britain’s energy ‘policy’ was never going to end well.

Already faced with an unstable grid and rocketing power prices thanks to its gamble on wind power, the scale of the folly is only beginning to reveal itself. In order to prevent total grid collapses, wind power outfits are being paid hundreds of £millions to produce nothing at all (see our post here).

As examples of how to simultaneously destroy an electricity grid and a power market, Britain is right up there with Australia’s wind power capital, South Australia (see our post here).

As the following pieces from The Telegraph and The Economist reveal, the massive subsidies thrown at wind power have thrown up a number of pretty obvious and inevitable consequences for Britain’s electricity supply: compromised security of supply; increased unreliability; and skyrocketing retail power prices.

England not windy enough, admits wind industry chief
The Telegraph
Emily Gosden
4 June 2016

England is not windy enough to justify building any more onshore wind turbines, the chief executive of wind industry trade body has admitted.

Hugh McNeal, who joined RenewableUK two months ago from the Department of Energy and Climate Change, insisted the industry could make the case for more onshore turbines in some parts of the UK, despite the withdrawal of subsidies.

But he said this would “almost certainly” not be in England, as the wind speeds were not high enough to make the projects economically viable without subsidy.

Although the Government has implemented its manifesto pledge to end subsidies for new onshore wind farms, the industry believes it should be able to deploy more turbines onshore if it can show that this is the cheapest form of new power generation capacity.

Current wholesale electricity prices are too low to spur investment in any new form of power generation, so the Government has already had to make subsidies available to new gas plants.

If financial support required by onshore wind is less than that required by gas, the industry argues it should no longer be regarded as “subsidy”.

“We are now the cheapest form of new generation in Britain,” Mr McNeal said. “If plants can be built in places where people don’t object to them and if, as a result of that, over their whole lifetime the net impact on consumers against the alternatives is beneficial, I need to persuade people we should be doing that.”

But new wind farms in England were “very unlikely”, beyond those that have already secured subsidies and are awaiting construction, as they would not be cost-efficient enough to undercut gas power, he said.

“We are almost certainly not talking about the possibility of new plants in England. The project economics wouldn’t work; the wind speeds don’t allow for it.”

The admission calls into question why developers are still seeking planning consent for hundreds of new turbines onshore in England.

Analysis of Government databases by the Renewable Energy Foundation (REF), a group critical of subsidies, suggests there is till 425 megawatts of capacity in England in the planning system – although this is about a tenth of the amount seeking permission in Scotland.

Keith Anderson, chief executive of ScottishPower Renewables, said he agreed with Mr McNeal that new onshore wind in England would be “incredibly challenging”.

However, he suggested the economics could potentially be better for projects that involved removing small old turbines and building bigger, more powerful replacements on the same site.

The idea of “subsidy free” financial support for onshore wind has proved highly controversial. Owen Paterson, the former environment secretary, described it as a “con” after ministers confirmed earlier this year that they were considering the idea.

John Constable, REF director, said claims that wind power was the cheapest failed to take into account the wider cost impacts on the system.

“There has to be grid expansion to remove bottlenecks, short term response plant and or demand to cope with errors in the wind forecast, and the cost of operating a conventional fleet of almost unchanged size to guarantee security of supply,” he said.

While ministers have not ruled out “subsidy free” financial support for onshore wind, there are understood to be no current plans to offer it.

Ministers have also said they want ensure technologies have to “face their full costs”. A study on the true costs of different technologies is awaiting publication by the DECC.
The Telegraph

yacht

No point heading for Britain, then …

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Wind power is, always and everywhere, the product of a massive stream of taxpayer and/or power consumer funded subsidies, which, for the wind industry to exist, must necessarily outlast religion.

Like a rabid dog chasing its tail, Britain started throwing massive subsidies at wind power more than a decade ago.  And, just like in South Australia, because of the guaranteed fixed prices (underwritten by subsidies) wind power generators can happily dump electricity into the grid when the wind is blowing, either giving it away or, as in South Australia, literally paying the grid manager to take it (see our post here).

Then, when wind power output collapses – on a total and totally unpredictable basis – peaking power operators make out like proverbial bandits, charging up to $13,800 per megawatt hour in South Australia, instead of an average spot price of around $70 (see our post here): and, as noted by The Economist, when wind power output drops operators are being paid “£1,250 per MW/hour – being 30 times the normal price”.

As detailed below, in order to make the provision of dispatchable power economic, Britain has had to throw guaranteed payments (subsidies referred to as “capacity payments”) to have fast start up peaking power plants available to cover wind power output collapses, which includes hundreds of £millions to the operators of diesel generators (see our post here) and highly inefficient Open Cycle Gas Turbines. Likewise, in South Australia, its wind power obsessed Labor government has been forced to pay capacity payments to the French owner of a Combined Cycle Gas turbine plant at Pelican Point (see our post here).

The idea of throwing subsidies at conventional generators to deal with the colossal mess created by throwing massive subsidies at a wholly weather dependent generation ‘system’ sounds like the unpredictable result of the law of unintended consequences.  However, what’s occurred in Britain and South Australia involves the inevitable consequences of allowing lunatics to take over the asylum.

Power Hungry
The Economist
14 May 2016

The Hinkley Point nuclear shambles highlights the flaws of British energy policy.

For months a profound somnolence has settled over Hinkley Point C, where the government hopes to install an £18 billion ($26 billion) nuclear power plant. On a recent weekend the security guards were not on the gate. Dozens of diggers and bulldozers were lined up as if on sale. A sign hung at the entrance displaying the core values of the project. One of them was “Know how far we’ve come, how far we’ve got to go, and how we’re going to get there.”

In fact, no one has a clue when or how the world’s most expensive power station will get anywhere. EDF, the French contractor, has once again postponed a decision to go ahead–until September. There are growing fears that the French nuclear technology it intends to use is flawed. The British government, which has offered a huge subsidy to ensure that nuclear power helps keep the lights on and emissions down for decades to come, insists it will go ahead. But that conviction is shared only by local villagers, who shrug off the delays as a fact of life. “This is Somerset. We invented the word mañana and sold it to the Spanish,” a female Land Rover driver says jauntily.

The innumerable delays over Hinkley Point matter, though, because they reflect what many consider to be a crisis in British energy policy: the inability to build large power plants of any kind at a time when many coal-fired ones are closing and existing nuclear ones are on their last legs. Britain, once a model of energy deregulation, is now able to get the power it needs only when the government meddles in the market with subsidies and other inducements.

In his book, “Empires in Collision,” David Howell, a Tory former energy secretary, calls it “a very British fiasco”. He blames a combination of EU energy policy and overzealous greenery by Liberal Democrats in the former coalition government for putting Britain at risk of blackouts, pushing up energy bills and making energy-intensive industries such as steel uncompetitive.

But the current government is also at fault for continuing a series of interventions that Dieter Helm of Oxford University only half-jokingly says bring back memories of the pre-privatisation Central Electricity Generating Board. Since taking office last year Amber Rudd, the energy secretary, has offered new subsidies for offshore wind while removing them from onshore wind and solar power. She has proposed 2025 as a deadline for scrapping Britain’s coal-fired plants, which still provide nearly a quarter of the nation’s electricity. By the same year, she hopes to see less government involvement in the energy market, while saying it is “imperative” to build new gas-fired power plants.

Meanwhile investors are leery of investing in big gas plants when there is so much uncertainty about government policy, including whether or not Hinkley Point–which could supply 7% of the country’s electricity–will be built. Peter Atherton of Jefferies, an investment bank, says Carrington, a combined-cycle gas-turbine plant in Manchester, given the green light in 2012, may be the last big gas plant to be built in Britain without subsidies. “Now everyone sits down and says, ‘have we got a government contract?’ “. He says it is an “absolute dog’s dinner of interlocking policies and interventions–and calling it a dog’s dinner is unkind to Pedigree Chum.”

This year more than 6,000 megawatts (MW) of power generation could be lost, or almost twice Hinkley Point’s proposed 3,200MW capacity. That would lead to potentially the biggest supply shortfall in decades (see chart). On May 6th the Department of Energy said that the gap is the result of low fossil-fuel prices that have pushed down wholesale power prices, damaging the profitability of coal and gas plants. Under normal conditions, it says, the market can cope with up to three hours in which supply fails to match demand. National Grid, the system operator, makes up the shortfall with stop gap measures. But with a 6,000MW shortage, that timespan could increase to 38 hours, it said.

As a result it has brought forward a market-based subsidy scheme that aims to secure temporary supplies to prevent blackouts in winter when demand is highest. It held the first two “capacity” auctions in 2014 and 2015, aiming to bridge a gap in the winters of 2018-19 and 2019-20. Now it has scheduled another one early next year to smooth things out in the winter of 2017-18. On May 9th, for the first time since 2008, National Grid issued a summer alert that it urgently needed 1,500MW of extra power because of a mix of plant breakdowns, a drop in wind power and other factors. It paid one operator £1,250 per MW/hour for its electricity–30 times the normal price.

Such ad-hoc interventions push up energy bills. They have also handed juicy rewards to owners of small-scale diesel generators–a feature of life more reminiscent of countries like Nigeria. To be fair, governments across Europe are facing similar power-generation problems (though few have such a small cushion of capacity). The growth of renewable energy, which last year accounted for almost a quarter of Britain’s electricity supply, is becoming so abundant it is distorting electricity markets. Because it is intermittent, it needs backup supplies when there is no wind or sun. But when there is, it is so cheap that fossil-fuel plants struggle to compete.

Carbon targets are also complicating life for policymakers. One reason the Tory government remains committed to Hinkley Point is to avoid missing its 2030 emissions-reduction goals. Ideally, it should rely more on undersea power lines that connect it to the Netherlands and elsewhere. Last year it imported about 6% of its electricity. However, a vote this summer to leave the EU would make it harder to build more, analysts say.

In the long-run there may be no option but to muddle through until renewables work without subsidies, and backup technologies such as battery storage or nuclear power become cheaper and more efficient. For now, the strain on the grid is lightened by feeble electricity demand in Britain, which is still more than 10% below its level before the financial crisis in 2008-09. But that could change if more people start plugging in their cars rather than filling them up, and switching on industrial plants rather than stoking their furnaces. The country with the cheapest and most abundant electricity will prosper in such a future. At this rate, it won’t be Britain.
The Economist

The Economist talks about muddling “through until renewables work without subsidies, and backup technologies such as battery storage … become cheaper and more efficient.”

The concession made in The Telegraph article by the UK’s head wind industry spinner, Hugh McNeal verifies that which STT holds as an unassailable truth: wind power doesn’t run on wind, it runs on subsidies.  Even the merest hint threatening the removal of subsidies is enough to kill off investment in wind power, which is precisely what has occurred in Britain (see our post here) and in Australia (see our post here).

As to “battery storage” becoming cheaper and more efficient, the idea that grid-scale storage electricity (in the realm of Terawatt hours) is even technically feasible, let alone economic, is a pipe dream – up there with the perpetual motion machine: the bulk storage of electricity has never been achieved anywhere; and the economics of doing so at that scale render it wholly implausible (see our posts here and here).

Places like Britain and South Australia are now trapped in a downward economic spiral, with unstable grids and rocketing power prices; killing industry and crushing the poorest of their number, by denying them that which was once a birthright: affordable power.  As The Economist points out it is only countries “with the cheapest and most abundant electricity that will prosper”.  That rules out the UK and SA – and any other country foolish enough to pin their power supply to the vagaries of the weather.  Welcome to your wind powered future!

crystal-ball

About stopthesethings

We are a group of citizens concerned about the rapid spread of industrial wind power generation installations across Australia.

Comments

  1. Reblogged this on Climatism and commented:
    shock news. #unreliables

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