You can purchase gas right now at 82 GBp/thm which translates to 2.8 p/kWh and for a 50% efficient CCGT that translates to 5.6 p/kWh fuel cost, in fact I purchased gas piped into my home for 4.8 p/kWh today.
The idea that gas is an expensive method to generate electricity in the UK does not hold with reality. If you blame gas markets for high electricity prices you should have a good explanation when the price of gas falls, like it has, and yet electricity prices paid by consumers remains the highest in the world.
DESNZ purposely hobbles gas-fired generators with approximately 2.5-4 p/kWh with two separate carbon taxes [1] (CPS + ETS) to try and make gas look expensive, and bans possible sources of domestic generation such as fracking, yet gas generators still happily supplied electricity at £72/MWh this afternoon, a number well below strike prices for even AR6 wind CfDs.
It simply doesn't hold water that gas is an expensive sources of electricity. If gas were such an expensive source of electricity large energy users would be fleeing countries with large gas fleets like Japan, China, the USA and flocking to the UK for the promised nirvana of cheap renewable energy we have supposedly have in the UK.
The gas-is-too-costly emperor has no *fucking* clothes. Do you really think that an approximately £20 billion bill of subsidies a year before we even account for the coming £50 billion of RIIO-3 DNO costs can beat 4.8 p/kWh CCGT fuel costs?
You can cherry pick prices as much as you like for particular favourable days or particular ideal conditions, but the prices I quoted are based on good market reports for the whole of the year. Besides this every few years we experience ruinous oil or gas crises which cause cost of living crises. A renewables, energy efficient strategy will avoid such problems. Carbon taxes help this, as well as reducing carbon emissions. Removing carbon taxes will not only make energy transition take longer but will also create a fiscal hole meaning either cuts in public spending or tax increases. I believe that we can do without that.
David. Interesting article, always intriguing how you and David Turver look at the same data and see different causes. But that is what makes the debate interesting.
Some questions.
Can you comment on figure 1. Gas prices peak in 2014 and decline continuously until around 2021. Yet electricity prices grow over that time. What was the dynamic in that period that meant gas was not setting the price in the way it appears to do before and after it?
In figure 4, the price of the EV battery is shown to fall and continue to fall. I see the logic of expanding this concept to the battery module. In these low price battery cell environments, when does the cost of the ancillary equipment and engineering costs start to dominate the cost so that the actual installed cost doesn’t change much?
Figure 5 on household price of electricity seems to have 2025 at above £1500 per annum. What electrical usage is that based on as it seems near the total number quoted for an energy price cap that covers both gas and electricity?
I've seen her comments. Certainly if gas was not setting the marginal price then electricity prices would be a lot lower. You can see in Figure 1 of my post how electricity prices largely track gas prices. If they fall back to 2018-2019 levels (in real terms) then of course electricity prices will fall substantially. That's not a difficult judgement to make.
Kathryn is saying that Gas prices isn't the cause. She points to renewables levies adding to consumer bills. She claims this is not in the short or long term interests of UK citizens or firms and that it is a policy choice?
yes, I know her views and I countered that in my last comment. Please look at the chart I produced - from Government data and it is clear that electricity prices track gas prices. Yes, high gas prices have put up electricity prices. Please read my post in which I explain how legacy costs of old windfarms and solar PV financed under the Renewables Obligation and feed-in tariffs will be phased out. They were a worthwhile investment to reduce costs of the technologies - which is successful and now they are coming in at prices well below current gas prices. They are not a major proportion of power prices anyway. Again, please see my post.
A very useful summary of the electricity supply system, thanks. A couple of points: I have not grasped how much the electricity supply total will have increased per year over the next 13 years, or indeed grid connected capacity, including winter duration capacity in the absence of wind. Also, batteries impose a cost (loss) on primary electricity generation similar (?) to losses from transmission. These losses used to be reckoned to be around 25% of the primary generation?
In the model I used I assumed that electricity generation would increase from 269 TWh to 379TWh by 2038. That's not a preferred outcome as it assumes lower rate of decarbonisation than we really need, but it seems (optimistically?) plausible in the light of policy trajectories in play at the moment. The figure of 25% losses for batteries seems on the high side. Something like that will apply to lead acid batteries (maybe that's where the figure applies?), but I think less with litium ion where I have seen performance figures of 95%. Of course you can add the same transmission/distribution losses (mainly the latter in fact) to batteries as any other form of generation which are around 10% nationally, and which are implicitly subtracted from national generation statistics produced by NESO
Thanks, yes, lead acid but also pumped storage and bulk grid scale batteries back in the day.
Another theme emerges; compromise(d), partial achievement, even contradictory policies and a very large expansion of the grid not offset by localised generation at any scale? And then there is oil / transport! I hope upcoming generations (sic) get to ponder the implications of this transition!
yes, we certainly need more locally organised generation. A major failing of the current system is that distribution companies are not encouraged to manage supply and demand locally and make sure they are balanced as much as possible in the distribution network areas
You can purchase gas right now at 82 GBp/thm which translates to 2.8 p/kWh and for a 50% efficient CCGT that translates to 5.6 p/kWh fuel cost, in fact I purchased gas piped into my home for 4.8 p/kWh today.
The idea that gas is an expensive method to generate electricity in the UK does not hold with reality. If you blame gas markets for high electricity prices you should have a good explanation when the price of gas falls, like it has, and yet electricity prices paid by consumers remains the highest in the world.
DESNZ purposely hobbles gas-fired generators with approximately 2.5-4 p/kWh with two separate carbon taxes [1] (CPS + ETS) to try and make gas look expensive, and bans possible sources of domestic generation such as fracking, yet gas generators still happily supplied electricity at £72/MWh this afternoon, a number well below strike prices for even AR6 wind CfDs.
It simply doesn't hold water that gas is an expensive sources of electricity. If gas were such an expensive source of electricity large energy users would be fleeing countries with large gas fleets like Japan, China, the USA and flocking to the UK for the promised nirvana of cheap renewable energy we have supposedly have in the UK.
The gas-is-too-costly emperor has no *fucking* clothes. Do you really think that an approximately £20 billion bill of subsidies a year before we even account for the coming £50 billion of RIIO-3 DNO costs can beat 4.8 p/kWh CCGT fuel costs?
[1] https://wattdirection.substack.com/p/the-missing-chart-from-the-uk-energy
You can cherry pick prices as much as you like for particular favourable days or particular ideal conditions, but the prices I quoted are based on good market reports for the whole of the year. Besides this every few years we experience ruinous oil or gas crises which cause cost of living crises. A renewables, energy efficient strategy will avoid such problems. Carbon taxes help this, as well as reducing carbon emissions. Removing carbon taxes will not only make energy transition take longer but will also create a fiscal hole meaning either cuts in public spending or tax increases. I believe that we can do without that.
David. Interesting article, always intriguing how you and David Turver look at the same data and see different causes. But that is what makes the debate interesting.
Some questions.
Can you comment on figure 1. Gas prices peak in 2014 and decline continuously until around 2021. Yet electricity prices grow over that time. What was the dynamic in that period that meant gas was not setting the price in the way it appears to do before and after it?
In figure 4, the price of the EV battery is shown to fall and continue to fall. I see the logic of expanding this concept to the battery module. In these low price battery cell environments, when does the cost of the ancillary equipment and engineering costs start to dominate the cost so that the actual installed cost doesn’t change much?
Figure 5 on household price of electricity seems to have 2025 at above £1500 per annum. What electrical usage is that based on as it seems near the total number quoted for an energy price cap that covers both gas and electricity?
Thanks.
The scale has been corrected for Figure 6, but the sense and meaning of the comparatve drop in prices remains the same
David, have you come across Kathryn Porter's work? She certainly critical of govt electricity pricing.
I've seen her comments. Certainly if gas was not setting the marginal price then electricity prices would be a lot lower. You can see in Figure 1 of my post how electricity prices largely track gas prices. If they fall back to 2018-2019 levels (in real terms) then of course electricity prices will fall substantially. That's not a difficult judgement to make.
David,
Kathryn is saying that Gas prices isn't the cause. She points to renewables levies adding to consumer bills. She claims this is not in the short or long term interests of UK citizens or firms and that it is a policy choice?
yes, I know her views and I countered that in my last comment. Please look at the chart I produced - from Government data and it is clear that electricity prices track gas prices. Yes, high gas prices have put up electricity prices. Please read my post in which I explain how legacy costs of old windfarms and solar PV financed under the Renewables Obligation and feed-in tariffs will be phased out. They were a worthwhile investment to reduce costs of the technologies - which is successful and now they are coming in at prices well below current gas prices. They are not a major proportion of power prices anyway. Again, please see my post.
A very useful summary of the electricity supply system, thanks. A couple of points: I have not grasped how much the electricity supply total will have increased per year over the next 13 years, or indeed grid connected capacity, including winter duration capacity in the absence of wind. Also, batteries impose a cost (loss) on primary electricity generation similar (?) to losses from transmission. These losses used to be reckoned to be around 25% of the primary generation?
In the model I used I assumed that electricity generation would increase from 269 TWh to 379TWh by 2038. That's not a preferred outcome as it assumes lower rate of decarbonisation than we really need, but it seems (optimistically?) plausible in the light of policy trajectories in play at the moment. The figure of 25% losses for batteries seems on the high side. Something like that will apply to lead acid batteries (maybe that's where the figure applies?), but I think less with litium ion where I have seen performance figures of 95%. Of course you can add the same transmission/distribution losses (mainly the latter in fact) to batteries as any other form of generation which are around 10% nationally, and which are implicitly subtracted from national generation statistics produced by NESO
Thanks, yes, lead acid but also pumped storage and bulk grid scale batteries back in the day.
Another theme emerges; compromise(d), partial achievement, even contradictory policies and a very large expansion of the grid not offset by localised generation at any scale? And then there is oil / transport! I hope upcoming generations (sic) get to ponder the implications of this transition!
yes, we certainly need more locally organised generation. A major failing of the current system is that distribution companies are not encouraged to manage supply and demand locally and make sure they are balanced as much as possible in the distribution network areas
Thanks