In Q2 Solar CfDs returned 7.7m in the same qtr Offshore wind gained back 372m despite the average system price being high through the quarter. Granted solar CfD contract actualisation is coming on fast unlike its wind brethren who are hanging out to their long stop date so the gap will close up but wind will still be a nett recipient till well into the 2030s and if Hormuz gets sorted out the costs will only go one way.
Also i agree it does lower wholesale price but thats no longer representative of the true cost of the energy to consumers as the various subsidy regimes then have to be added back in by the time it gets to your meter. Also this distortion of the wholesale price is benefiting battery operators unfairly and even worse we end up giving energy away to any trader who has access to capacity on an interconnector.
then we also have NESO/DESNZ telling us there's still too many BESS proposals in the connection queue!! We need more as that will stop the stupid negative pricing we are seeing but as usual even Labour succumbs to letting corporations dictate policy.
Thus there is lot that still needs sorting out in the energy market yet REMA drags on and on.
(1) I'm not convinced that some portion of the cost reduction of intermittent renewables isn't paid back via higher prices on the capacity market.
If we imagine two scenarios, one with no solar / wind, and one in which they generate say 20% of electricity, it is true that in both cases you might have the same quantity of firm capacity like natural Gas plants, as you said. But in the latter case, their utilization rate is significantly lower, thus to pay back their investment they have to charge more.
I don't think we should be allergic to admitting this fact, it doesn't invalidate the value of solar and wind.
(2) I would be curious for you to engage with Frank Wolak, who is both a supporter of renewable energy, but also argues that yes, renewables should be paying the price of additional capacity via what he calls standardized fixed price forward contracts. (If I'm inaccurately summarizing his ideas, you'll forgive me.) His argument is not a ploy against renewables, but rather a plea that the most efficient way to set the market value of capacity is through this specific financial instrument. Noting that this would penalize renewables, he calls for renewable energy certificates, stating that if we value clean energy, the simplest way to do so is to put a price on that specific attribute.
No, solar does not impose any extra capacity costs on the system. I dealt with this point in the post when I say 'some have argued that solar PV ought also to pay for the provision of capacity since solar PV fluctuates. Yet this is a vacuous argument. The solar-critics argue that without solar the system would still need the same amount of capacity. But by logic, therefore, putting solar PV on the system does not add extra costs to the system!'
I read the post; it reads as overly confident to me. The important point is not whether the total capacity required is the same with and without solar; the important point is whether total required capacity payments increase as a result of increased solar penetration. That's a very different question.
(1) Imagine solar at $50 / mwh displaces a gas plant at $100 / mwh for a thousand hours a year. (100-50) x 1000 = $50k saved by the wholesaler; $100k revenue forfeited by the gas plant. This is the effect that you're documenting, totally real, undisputed.
(2) Has (1) changed the amount of capacity payments required to induce the plant to stay online?
(3) If the answer is no then you are correct: there is no money forfeited via the capacity market. The capacity payment remains the same. (I believe this is what you are claiming.)
(4) But I think (3) is not safe to assume. High penetration of renewables will cause a missing money problem for thermal generators. At sufficient penetrations, the missing money will be large enough that capacity payments will have to rise to either induce the plants to remain online or for new plants to be built.
E.g. the gas plant only had an $80k annual profit prior to the introduction of solar, and having forfeited $100k in revenue, it's now in the red and must recoup an additional $20k via capacity markets.
It raises its bid within the capacity market, and either receives the payment or retires. In either case total capacity payments increase, either to keep the plant online, or to incentivize the building of a new plant.
(5) The counter argument would be that the intermittent generators - solar, wind, battery - will themselves form new capacity, and this will negate the effect: thermal generators raise their bid within capacity markets, but are rebuffed and capacity payments instead flow to renewables. But most capacity markets put such a low value on the capacity of solar especially that I don't think this is feasible.
...
I too am greatly oversimplifying, especially as it relates to how capacity markets are designed or whether you need one at all. I'm not certain that increasing penetration of solar will require increased capacity payment outlays to thermal plants but I'm very skeptical that we can categorically deny the possibility.
We now need to gets these facts out to the general population, in terms that Deform UK Ltd and their followers can understand.
In Q2 Solar CfDs returned 7.7m in the same qtr Offshore wind gained back 372m despite the average system price being high through the quarter. Granted solar CfD contract actualisation is coming on fast unlike its wind brethren who are hanging out to their long stop date so the gap will close up but wind will still be a nett recipient till well into the 2030s and if Hormuz gets sorted out the costs will only go one way.
Also i agree it does lower wholesale price but thats no longer representative of the true cost of the energy to consumers as the various subsidy regimes then have to be added back in by the time it gets to your meter. Also this distortion of the wholesale price is benefiting battery operators unfairly and even worse we end up giving energy away to any trader who has access to capacity on an interconnector.
then we also have NESO/DESNZ telling us there's still too many BESS proposals in the connection queue!! We need more as that will stop the stupid negative pricing we are seeing but as usual even Labour succumbs to letting corporations dictate policy.
Thus there is lot that still needs sorting out in the energy market yet REMA drags on and on.
(1) I'm not convinced that some portion of the cost reduction of intermittent renewables isn't paid back via higher prices on the capacity market.
If we imagine two scenarios, one with no solar / wind, and one in which they generate say 20% of electricity, it is true that in both cases you might have the same quantity of firm capacity like natural Gas plants, as you said. But in the latter case, their utilization rate is significantly lower, thus to pay back their investment they have to charge more.
I don't think we should be allergic to admitting this fact, it doesn't invalidate the value of solar and wind.
(2) I would be curious for you to engage with Frank Wolak, who is both a supporter of renewable energy, but also argues that yes, renewables should be paying the price of additional capacity via what he calls standardized fixed price forward contracts. (If I'm inaccurately summarizing his ideas, you'll forgive me.) His argument is not a ploy against renewables, but rather a plea that the most efficient way to set the market value of capacity is through this specific financial instrument. Noting that this would penalize renewables, he calls for renewable energy certificates, stating that if we value clean energy, the simplest way to do so is to put a price on that specific attribute.
No, solar does not impose any extra capacity costs on the system. I dealt with this point in the post when I say 'some have argued that solar PV ought also to pay for the provision of capacity since solar PV fluctuates. Yet this is a vacuous argument. The solar-critics argue that without solar the system would still need the same amount of capacity. But by logic, therefore, putting solar PV on the system does not add extra costs to the system!'
I read the post; it reads as overly confident to me. The important point is not whether the total capacity required is the same with and without solar; the important point is whether total required capacity payments increase as a result of increased solar penetration. That's a very different question.
(1) Imagine solar at $50 / mwh displaces a gas plant at $100 / mwh for a thousand hours a year. (100-50) x 1000 = $50k saved by the wholesaler; $100k revenue forfeited by the gas plant. This is the effect that you're documenting, totally real, undisputed.
(2) Has (1) changed the amount of capacity payments required to induce the plant to stay online?
(3) If the answer is no then you are correct: there is no money forfeited via the capacity market. The capacity payment remains the same. (I believe this is what you are claiming.)
(4) But I think (3) is not safe to assume. High penetration of renewables will cause a missing money problem for thermal generators. At sufficient penetrations, the missing money will be large enough that capacity payments will have to rise to either induce the plants to remain online or for new plants to be built.
E.g. the gas plant only had an $80k annual profit prior to the introduction of solar, and having forfeited $100k in revenue, it's now in the red and must recoup an additional $20k via capacity markets.
It raises its bid within the capacity market, and either receives the payment or retires. In either case total capacity payments increase, either to keep the plant online, or to incentivize the building of a new plant.
(5) The counter argument would be that the intermittent generators - solar, wind, battery - will themselves form new capacity, and this will negate the effect: thermal generators raise their bid within capacity markets, but are rebuffed and capacity payments instead flow to renewables. But most capacity markets put such a low value on the capacity of solar especially that I don't think this is feasible.
...
I too am greatly oversimplifying, especially as it relates to how capacity markets are designed or whether you need one at all. I'm not certain that increasing penetration of solar will require increased capacity payment outlays to thermal plants but I'm very skeptical that we can categorically deny the possibility.