Energy Change for Climate Control
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  • Market Tinkering

    Posted on February 2nd, 2011 Jo No comments

    The Conservative and Liberal Democrat Coalition Government in the United Kingdom have several competing interests to juggle when it comes to the electricity generation industry.

    Any proposed tinkering in the electricity market will need to show it still promotes competition (even though new entrants will probably complain they can’t compete in auctions), even as it guarantees safe and stable power supplies, even as it needs to make sure consumers don’t get ripped off.

    The Department of Energy and Climate Change have published a clearly-written consultation document on their proposals for an Electricity Market Reform (EMR), detailing various methods of intervening to ensure long-term objectives on carbon emissions and energy security :-

    http://www.decc.gov.uk/en/content/cms/consultations/emr/emr.aspx

    I’ve been reading some really helpful commentary on the system-wide effects of these proposals :-

    http://www.decc.gov.uk/assets/decc/Consultations/emr/1043-emr-analysis-policy-options.pdf

    http://www.parliamentarybrief.com/2011/01/thumbs-up-a-little-early-for-that-mr-huhne#all

    So far, my conclusion is that the net effect of these proposals will be to make the electricity generators feel secure about future earnings.

    I’m not convinced that anything I’ve read so far will help energy supply companies feel willing to leap the expensive investment hurdle to ensure the UK gets new low carbon power plants.

    I’m not even sure if the carbon and power pricing described will deter companies from dirty power generation and direct them towards new low carbon investment.

    When I happened on the levelised cost of power in the main DECC analysis document, I came to a very pragmatic conclusion :-

    http://www.decc.gov.uk/assets/decc/Consultations/emr/1041-electricity-market-reform-condoc.pdf

    Figure 2 (see top) shows that FOAK (first of a kind) new nuclear reactor plant designs (which is what we are told we will be getting in the UK) are probably going to yield similar unit electricity price values to Onshore Wind Power and Combined Cycle Gas Turbine (CCGT) plant using Natural Gas feedstock.

    My question is : why do we need to intervene with the electricity market to incentivise low carbon generation if the cheapest technologies are the low carbon options anyway ? (Yes, I’ve deliberately forgotten to discuss Carbon Capture and Storage).

    My second question is : are the financial instruments proposed for the electricity market simply a sop to the electricity generators to leverage investment in new and efficient low carbon power stations ? Come and invest in new power generation in Great Britain and see your earnings stable (or rising) !

    And my third question is this : don’t the NIMBY campaigns against Onshore Wind Power realise their success means that the overall cost of electricity to the consumers will rise significantly as wind power has to move offshore ?

    My conclusion is : it would be far cheaper simply to instruct the largely publicly owned banks to make investment finance available, but only for low carbon technologies and forget about trying to maintain the facade of a free market.

    Power supply is virtually a monopoly – and the State is bound to maintain supply – DECC have even got proposals on the table in their main Energy Bill to buy up any power companies that fail…yet another bailout !

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