IPPR wrong to wind up the wind power haters.

IPPR is wrong about medium-sized wind turbines when it claims a ‘subsidy loophole’ is damaging the confidence in UK clean energy. The problem is not the dishonesty of manufacturers, the mendacity of installers or the gullibility of government. The real issue is the cliff-edge nature of wind FiTs.

If I install a handsome EWT 500 kW turbine in my field today, I get paid 13.34p for each kilowatt hour of electricity it produces. If, instead, I put a 501 kW machine there, I would get 7.24p, only 55% as much. Instead of getting a gross income of about £300,000 for my electricity from a windy site, the return would fall to about £165,000.

Feed-in tariffs (as at February 2015)

Up to 100 kW 16.00 pence

101-500 kW 13.34 pence

501 kW+ 7.24

Unsurprisingly, farmers and wind turbine manufacturers noticed this when the feed in tariffs arrived five years ago. Under 500 kW and you got paid almost twice as much as just over 500 kW. So a larger wind turbine costs more but produces a much lower income.

A phrase I heard a lot at the time was ‘the 500 kW sweet spot’. If you could get planning permission for a 500 kW turbine on a coastal hill top you would get an extraordinarily attractive financial return. At the higher feed in tariff rates then available, payback could be as short as two years.

If my memory is correct, the only problem was that there wasn’t a 500 kW turbine on the market. There were smaller machines at around 300 kW and much larger turbines. The race was on to turn an existing design into one that could exactly hit the sweet spot. The mid-sized Dutch manufacturer EWT was one of the first to market with a variant of its 900 kW turbine with its power capped at 500 kW. And it is now capturing a large fraction of the sales of turbines put on British farms.

Despite what the press is saying today, the 500 kW version isn’t the same as the 900 kW machine and doesn’t typically produce as much power. The cut-in wind speed when the blades start moving is lower and the smaller turbine reaches maximum output at a much lower wind speed. At a wind speed of 10 metres/second (20 miles an hour or so) the bigger machine produces about 20% more output. If you were paid the same price for producing electricity, you might well choose the larger turbine. But you don’t because the subsidy is much, much lower.

IPPR gets rather heated about how wicked this is. But let’s put this in context. The total number of machines that have been tuned down to fit just under the arbitrary 500 kW limit is probably about 100 (source IPPR). The net impact is probably about 30,000 MWh a year of diminished production (what these 100 turbines would have produced if they were rated at the original manufacturer’s specification). This about 0.01% of UK electricity output.

The answer to the problem is not what IPPR proposes, which is to award subsidies based on rotor size. That would introduce another set of incentives to tinker with turbine designs to look for the sweet spot. The right thing to do is to adjust the feed in tariff rates so there isn’t a cliff edge at 500 kW. The sensible structure of rates is one which mirrors the underlying costs of turbine and, importantly, turbine installation. This will trend downwards at quite a steep rate to 200 kw or so, and then drop more slowly as the benefits of increasing scale grow smaller. This is all that need to happen. We can then call an end to the pumped-up panic in the tabloid press about the problem.

 

Opposition to new energy technologies among different age groups

Policy in the UK tends to be determined not by the strength of support for a measure, but by the absence of active opposition to it. More precisely, the amount of forceful and focused opposition by people in the second half of their lives. These are the voters at elections.

This week’s poll of attitudes towards energy sources shows the correlation clearly. Less than 5% of UK respondents aged 16-44 are opposed to onshore wind. 20% of those over 65 are, and their views are increasingly winning the day. Even if approved at local level, wind farms are now routinely turned down by central government even though general electoral support for wind shows no decline. Several dozen developments have been blocked by Eric Pickles in the last year.

But in this latest survey, 68% of people over 16 either ‘supported’ or ‘strongly supported’ onshore wind. Another 22% had no view for or against. Any notion that onshore wind is unpopular with the electorate is simply wrong.

The position is even clearer with solar PV, another form of renewable energy facing rising resistance from planning committees and from central government. Only 2% of those 16-44 oppose this technology, compared to 10% of those over 65. And, as with wind, there is no sign whatsoever of rising general opposition to PV in this survey. 81% of the UK adult population support the use of solar PV as an energy source.

However any glib thesis that the attitudes of stroppy pensioners now dominate the policy-making process turns out to be wrong. More people over 65 oppose fracking for shale gas than onshore wind but their views have made little headway in central government even though support for fracking is tending to fall amongst the population as a whole.

The same is true for nuclear energy. Older fewer people are slightly less likely to dislike this form of electricity generation than younger groups but, even still, more oppose nuclear than oppose onshore wind. It is the 45-54 year olds who most actively reject nuclear power. They were growing up when Chernobyl happened and the sharp difference in their attitudes shows the influence of a single nuclear accident. Perhaps the slight bump in opposition to nuclear among 16-24 year olds also reflects Fukushima, an event that may have occurred at the moment when their attitudes were being set?

A look at the table below does force a question into the front of mind. Why is an elected government so actively fighting technologies that have large-scale popular support but backing those with so much more opposition? 

Source: DECC Public Attitudes tracker wave 12, February 2015

Source: DECC Public Attitudes tracker wave 12, February 2015

 

 

 

 

Does decreasing energy demand really cost 10 times as much as increasing energy supply?

Energy efficiency suddenly doesn’t seem to be  such a cheap alternative to building more power stations. In a small auction concluded in the last few days, DECC agreed to pay organisations to reduce their peak late afternoon electricity demand. Chains of shops such as Dixons, council buildings and industrial companies promised to cut winter electricity use in 2015/16 and will receive over £200 a peak kilowatt saved between 4 and 8pm.  It looks as though most of the savings are going to be gained by switching to LEDs from less efficient forms of lighting.

This scheme was the reverse of the capacity auction concluded a couple of months ago. In that process, DECC committed to paying £19 a kilowatt to electricity generators in return for a promise to operate their plants over the winter. In other words, energy demand reduction is costing the government over ten times more than keeping generator online.

Both auctions are distorted. The generation auction was horribly flawed by the inclusion of plants that would stay open anyway (such as nuclear) and therefore offered very low prices. The latest energy efficiency auction is the first-of-a-kind and participants were probably a little wary of the cost of upgrading their lighting to LED. Nevertheless, the unfortunate headline conclusion is that cutting energy demand is currently an order of magnitude more expensive than increasing supply.

But should it really have cost over £228 to achieve a kilowatt of demand reduction?

Go into your kitchen. If your home is typical, it probably has about 200 watts of halogen bulbs in it. Scattered around the house might be another 200 watts or so of the little hot lamps like the ones above the cooker. Replacing just the ten or so bulbs in the kitchen with ten LEDs (a plug-and-play switch) and the cost will be about £80. (The colour of the light isn’t quite the same but the difference between halogen light and ‘very warm’ LED is now small).

Your switch will save about £15 a year in electricity and perhaps £5 in halogen purchase costs because they blow far more often than LEDs. Total benefit £20 compared to a cost of £80. So payback will be just four years in a domestic house, and much less in a shop or other commercial premises where the lights are often on all the time.

Isn’t a four year payback good enough? Do you – or Dixons or Leicestershire County Council - really need a further financial incentive to make the move to LEDs? However if you had banded together with your neighbours and sensibly entered the auction then you personally would have been paid about £35, meaning that the net cost of new LEDs would have been £45 and your payback would now be about two years. That looks far too generous to me.

So £228/kW isn’t really the price of energy efficiency. Despite today’s warped result, the replacement of halogen bulbs by LEDs is now financially rational for almost everybody without any subsidy. And the net impact on demand of just replacing domestic halogens is large;  probably 3-4 GW, or around 7% of UK peak demand. If we are serious about energy efficiency, we need a national programme that encourages us to throw away those dreadfully inefficient halogen bulbs in our kitchens and bathrooms. Give me £228 a kilowatt and I’ll switch all the neighbours for you, DECC

Is cutting energy demand really 10 times as expensive as increasing energy supply?

Energy efficiency suddenly doesn’t seem to be  such a cheap alternative to building more power stations. In a small auction concluded in the last few days, DECC agreed to pay organisations to reduce their peak late afternoon electricity demand. Chains of shops such as Dixons, council buildings and industrial companies promised to cut winter electricity use in 2015/16 and will receive over £200 a peak kilowatt saved between 4 and 8pm.  It looks as though most of the savings are going to be gained by switching to LEDs from less efficient forms of lighting.

This scheme was the reverse of the capacity auction concluded a couple of months ago. In that process, DECC committed to paying £19 a kilowatt to electricity generators in return for a promise to operate their plants over the winter. In other words, energy demand reduction is costing the government over ten times more than keeping generator online.

Both auctions are distorted. The generation auction was horribly flawed by the inclusion of plants that would stay open anyway (such as nuclear) and therefore offered very low prices. The latest energy efficiency auction is the first-of-a-kind and participants were probably a little wary of how much upgrading their lighting to LED is going to cost. Nevertheless, the unfortunate headline conclusion is that cutting energy demand is currently an order of magnitude more expensive than increasing supply.

Should it really have cost over £228 to achieve a kilowatt of demand reduction?

Go into your kitchen. If your home is typical, it probably has about 200 watts of halogen bulbs in it. Scattered around the house might be another 200 watts or so of the little hot lamps like the ones above the cooker. Replacing just the ten or so bulbs in the kitchen with ten LEDs (a plug-and-play switch) and the cost will be about £80. (The colour of the light isn’t quite the same but the difference between halogen light and ‘very warm’ LED is now small).

Your switch will save about £15 a year in electricity and perhaps £5 in halogen purchase costs because they blow far more often than LEDs. Total benefit £20 compared to a cost of £80. So payback will be just four years in a domestic house, and much less in a shop or other commercial premises where the lights are often on all the time.

Isn’t a four year payback good enough? Do you – or Dixons or Leicestershire County Council - really need a further financial incentive to make the move to LEDs? However if you had banded together with your neighbours and sensibly entered the auction then you personally would have been paid about £35, meaning that the net cost of new LEDs would have been £45 and your payback would now be about two years. That looks far too generous to me.

So £228/kW isn’t really the price of energy efficiency. Despite today’s warped result, the replacement of halogen bulbs by LEDs is now financially rational for almost everybody without any subsidy. And the net impact on peak demand of just replacing domestic halogens is probably 3-4 GW, or around 7% of UK peak demand. If we are serious about energy efficiency, we need a national programme that encourages us to throw away those dreadfully inefficient halogen bulbs in our kitchens and bathrooms. Give me £228 a kilowatt and I’ll switch all the neighbours for you, DECC.

Wind power costs nothing: the subsidies are matched by the reduction in wholesale electricity prices (amended in response to comment, 3rd February 2015)

In a comment  below this article, 'jjk' asks a very good question. He expresses it politely but I can be more blunt. If wind is providing a large percentage of total power, it will probably be when the demand for power is low at night. How do I know, he asks, that the effect I observe isn't simply a reflection of the fact that high percentage wind tends to occur at low demand moments, when the price tends to be low anyway?

I wish I'd thought of this before because I think 'jjk's suspicion may be partly correct. If, instead of looking at the percentage of demand provided by wind, I examine the correlation between the absolute amount of wind power in each half hour (MW not percentages) and the National Grid's buying price (the 'System Buy Price), the correlation is less clear-cut, though it still exists.

In other words when there isn't much wind, the average price that National Grid has to pay to buy electricity is higher (£54.50 per megawatt hour) than when the wind is strong (£49.90 per megawatt hour). Closer examination of the results also shows (not noted in the table above) that at the very highest levels of wind output the price tends to rise slightly. 

When there is less than 500 MW of wind, the price averages £55.8, about £3.1 more than the average price in the table above. This contrasts with the £7 difference I estimate in the main body of the article

You can argue that this calculation is in fact too harsh for a reason that works in the opposite direction to 'jjk's hypothesis. High levels of wind output tend to occur in the winter, when the price of power is typically higher. So I think the table above probably sets a lower limit on the impact of wind on power prices.

On average, I think we can say, wind makes a difference to UK power prices for immediate delivery of somewhere between £3.1 and £7 per megawatt hour. Even at the lower level this washes away a large fraction of the consumer subsidy for wind.

Original article follows

You can argue that the subsidy for wind power in the UK costs the country almost nothing. The reason is that when the wind blows, wholesale electricity prices are lower than they would otherwise be. On the typical day when wind is producing about 7% of the UK’s electricity, the market price of power is about £7 per MWh less than when the air is completely still.

If, on average, wind power depresses the wholesale price of electricity by £7 for each megawatt hour consumed in the UK, the total impact over the year is about £2.3bn. [1] The total subsidy for renewable electricity paid by electricity consumers this year is capped at £3.3bn. This includes solar and other technologies such as landfill gas, not just wind. The subsidy cost for wind - about £2-£2.5bn - may well be less than the downward impact wind has on electricity prices. The net impact on consumers may therefore be close to zero. In effect, the whole burden of wind subsidy falls on the fossil fuel generators because they obtain lower prices than they otherwise would. 

There's one obvious objection to this glib analysis: most electricity isn't traded just before it is needed. Much of the power that drives your home or office has been bought or sold months, or perhaps years, in advance. However, in the long run lower prices for immediate delivery seep through to the wider market. If you were an electricity retailer and noticed that power traded at perhaps £45/MWh just before it was needed, would you buy electricity months in advance at a higher level? 

How do I get to the conclusion that wind depresses prices by an average of £7/MWh? Every half hour, National Grid has to balance the electricity market by buying or selling electricity. Total generation must match total demand, including losses in transmission, or otherwise the voltage on the UK network would move outside the strict limits that are set. The price that National Grid pays or the price it receives in the open market is recorded.[2] 

Also recorded each half hour is the amount of wind power that is generated by the major wind farms as well as the output of all other power stations. We can easily calculate the percentage of total generation that is provided by wind farms, offshore and onshore. Then I drew a graph that compares the price the National Grid paid to buy electricity with the percentage of the UK’s power provided by turbines.

This is what the chart looks like for the period between June 2012 and 19th January 2015 (the middle of last week).

Chart 1

Source: Elexon data for System Buy prices June 2012 to 19th January 2015, Elexon data for wind power and total generation

Source: Elexon data for System Buy prices June 2012 to 19th January 2015, Elexon data for wind power and total generation

This graph summarises 45,000 lines of data or records from almost a thousand days. The trend is clear: when the wind is hardly blowing the typical price of power that the National Grid faces is about £58/MWh and it falls as wind power increases. On those relatively few occasions that wind is providing more than 20% of electricity, the price is about half this level. On the average day over the last year, the main wind farms give us about 7% of total power needs. The typical buying price at 7% wind power is £51 per megawatt hour, £7 lower than when the wind isn’t blowing at all.

Has this trend varied year by year? A little, but the basic pattern is the same. When the wind is turning turbine blades, wholesale prices are relatively low. (There are only 19 days data for 2015 so we shouldn’t take much notice of this year’s figures).

Chart 2

Source: Elexon data for System Buy prices June 2012 to 19th January 2015, Elexon data for wind power and total generation

Source: Elexon data for System Buy prices June 2012 to 19th January 2015, Elexon data for wind power and total generation

As the number of wind turbines rises, we’ll see more and more days when this source of power rises to 20% or more of total UK generation. If current trends persist, this will take the price of power down to £30 or below. This is, of course, is exactly the phenomenon we see in Germany today, with prices often going close to zero or below on high wind days.

If the numbers in this note are true, they suggest that the subsidy paid to wind is balanced by a lower wholesale price in the electricity market. That’s the good news for consumers, and largely reflects the balance of supply and demand in the UK electricity pool. More wind means fewer high cost generators have to be incentivised to enter the market by greater than average power prices.

However the effect of this shift in the relationship of supply and demand had profound consequences for the profitability of fossil fuel generators. At the moment low power prices mean that many gas-fired power stations aren’t covering their full costs. And, as a natural result, few investors will want to build new fossil fuel plants. This is no bad thing, you might say, but it does mean that without massive intervention – in effect a renationalisation of energy generation  or a guaranteed price for electricity – the rising number of wind turbines will inevitably destroy fossil fuel generation and eventually produce a highly unstable electricity market. This sounds an obvious point but it seems ignored by policymakers (and indeed by protagonists of renewable power).

Note about method

National Grid Buy and Sell prices are not precisely the same as 'market' prices. Each half hour, the Grid works out what demand is likely to be and what each generator has said it will produce. Then it estimates whether the whole UK system is likely to be in deficit or surplus of power. If the position is a deficit, it buys additional electricity to balance supply and demand. If there's a surplus, it does the opposite. When it is buying, it directly sees the prices but it doesn't exactly know what it would get if it were selling electricity. So it uses an estimate from the electricity  market.

In a separate analysis, I have also looked at the System Sell price and the impact of different levels of wind generation. The curve is the same. When the wind isn't blowing, prices are about twice the level when wind is generating 20% of the UK's need. And, perhaps importantly, when wind generation rises above about 12% of UK generation, the price that National Grid obtains for the surplus electricity begins to fall sharply. We've seen, for example, several instances in the last few weeks of near-zero selling prices. In other words, in order to get someone to buy greater volumes of power National Grid had to accept very low prices indeed. 

 

 

 

[1] Assumes total UK net generation plus imports less exports equals about 330 TWh.

[2] These are called the System Sell and System Buy Prices or SSP and SBP. 

Wind doesn't cost anything: the subsidies are balanced by the impact on wholesale prices

As the number of wind turbines rise, we’ll see more and more days when this source of power rises to 20% or more of total UK generation. If current trends persist, this will take the price of power down to £30 or below. This is, of course, is exactly the phenomenon we see in Germany today, with prices often going close to zero or below on high wind days.

If the numbers in this note are true, they suggest that the subsidy paid to wind is balanced by a lower wholesale price in the electricity market. That’s the good news for consumers, and largely reflects the balance of supply and demand in the UK electricity pool. More wind means fewer high cost generators have to be incentivised to enter the market by greater than average power prices.

However the effect of this shift in the relationship of supply and demand had profound consequences for the profitability of fossil fuel generators. At the moment low power prices mean that many gas-fired power stations aren’t covering their full costs. And, as a natural result, few investors will want to build new fossil fuel plants. This is no bad thing, you might say, but it does mean that without massive intervention – in effect a renationalisation of energy generation  or a guaranteed price for electricity – the rising number of wind turbines will inevitably destroy fossil fuel generation and eventually produce a highly unstable electricity market. This sounds an obvious point but it seems ignored by policymakers (and indeed by protagonists of renewable power).

Note about method

National Grid Buy and Sell prices are not precisely the same as 'market' prices. Each half hour, the Grid works out what demand is likely to be and what each generator has said it will produce. Then it estimates whether the whole UK system is likely to be in deficit or surplus of power. If the position is a deficit, it buys additional electricity to balance supply and demand. If there's a surplus, it does the opposite. When it is buying, it directly sees the prices but it doesn't exactly know what it would get if it were selling electricity. So it uses an estimate from the electricity  market.

In a separate analysis, I have also looked at the System Sell price and the impact of different levels of wind generation. The curve is the same. When the wind isn't blowing, prices are about twice the level when wind is generating 20% of the UK's need. And, perhaps importantly, when wind generation rises above about 12% of UK generation, the price that National Grid obtains for the surplus electricity begins to fall sharply. We've seen, for example, several instances in the last few weeks of near-zero selling prices. In other words, in order to get someone to buy greater volumes of power National Grid had to accept very low prices indeed. 

 

[1] Assumes total UK net generation plus imports less exports equals about 330 TWh.

[2] These are called the System Sell and System Buy Prices or SSP and SBP. 

The 'hog cycle' will eventually mean a much higher price for oil

If, like me, you learned your economics in the 1970s, you know about the ‘hog cycle’. When pork prices fall, farmers decide to raise fewer piglets because their business is unprofitable. A year or so later, there’s a shortage of pork and price rise again. Agricultural commodities, particularly those with long gaps between planting and harvesting are subject to regular and broadly predictable swings in price. (Today's economists, who are taught that rational expectations mean that farmers will predict the eventual rise in price, seem never to be taught about the hog cycle because it now disturbs the standard economic model). 

I suspect we are seeing a hog cycle in crude oil. The current low prices will stifle investment, unproductive fields will be shut and exploration will atrophy. The logical and entirely forecastable result will be a sharp rise in the cost of crude when the slow decline of output from existing fields ends inexorably in demand exceeding supply, perhaps in three or four years time.

Of  course this is a not a new idea. The economist Paul Krugman said exactly the same in 2001 as the oil price slide from $30 to $17 a barrel. (Recommended reading). And he was right. As we know, by early 2014 the price was over $100. They’re not fools, these Saudis, they are simply trying to recreate the hog cycle for the oil market again. 

Despite protestations, multinationals don't yet understand the pace of energy technology

(This post was republished on The Ecologist site on January 23rd 2015)

The World Economic Forum (WEF) report on electricity generation makes depressing reading. Perhaps the pessimism about new technologies is predictable given that Davos represents large companies, not the innovative companies at frontier of energy transformation. Even so, to say that renewable power sources, excluding hydro, are projected to generate less than a quarter of OECD electricity by 2040 is a strikingly conservative. (The percentage is probably about 8% today).

Part of their pessimism seems to derive from a very outdated view of the economics of solar power. Take a look at the chart below. It shows WEF’s estimates for the costs of electricity generation now and in the future. The line at the top, starting off the scale, is solar PV. A megawatt hour is said to cost well over $200 in 2016 (about £130). Even by 2030 it’ll be over $110.

From the 2015 WEF report

From the 2015 WEF report

I think the people in Davos may have been imbibing too much of the local homebrew. Today, in overcast Britain, groups of installers are racing to put panels on the ground as fast as they can across the southern counties to ensure that they get the current subsidy rates. The price they get for a medium-sized commercial field? A subsidy of about $100 a megawatt hour (6.38 pence per kilowatt hour) plus the wholesale price of electricity. Let’s call that $70 a megawatt hour in addition. So even in one of the least attractive parts of the world, PV is already cheaper than WEF says, and by a large margin.

More tellingly, one of the latest auctions for installing PV, in Dubai in November last year, produced a figure of about $65 a megawatt hour. That is, an installation firm promised to install a large PV farm if it was paid less than a third of the price that WEF says is the underlying cost of solar in 2016. Prices being paid today are below the costs of PV that Davos assumes in 2040. 

Open a newspaper in most parts of the world today, and you’ll see optimistic references to the prospect of ‘grid parity’ for the best suited renewable in the local market, whether it is biomass, onshore wind, storage or PV. A business-oriented organisation like WEF should spend more time in the outside world, sensing the excitement about the rates of progress of low-carbon technologies rather than unquestioningly repeating the five year old wisdom of its leading sponsors.

Perhaps most surprisingly, WEF’s cost figures are approximately 50% higher than those produced by the International Energy Agency, long a sceptic about the progress of PV. And its figures for onshore wind are equally wrong. By now, I would have thought that at least parts of big business would have recognised the inevitability of the transition to renewables (with storage) and begun to look at how it could profitably participate.

 

Addendum: a couple of quibbles about the WEF report

None of the projections, estimates or calculations in the report are given a source. We cannot check their accuracy or even the provenance of their figures. I’m sure that the writers of the document have tried to use reasonable data. But the report is stacked full of statements made without any support or justification, many of which look highly contentious. We are expected to believe, for example, that ‘wholesale electricity prices are expected to continue to rise by 57% in the EU’ between now and 2040 at the same as retail prices are expected to stay the same. It doesn’t need an economist to say that such a combination is impossible.  

My confidence in the report’s recommendations was further shaken by WEF’s assertion that the EU had wasted $100bn by siting wind and PV in the wrong countries. ‘It is obvious to most European citizens that southern Europe has the lion’s share of the solar irradiation while northern Europe has the wind’, the report writes, before concluding that Germany has installed too much PV and Spain too much wind.

2013 estimates from the IEA suggest that the average productivity of a Spanish turbine was 26.9% of its maximum capacity, but only 18.5% in Germany. Spain’s wind turbines are almost 50% more productive than Germany’s. In fact Spain managed slightly more than the worldwide average and was only just below the UK or Denmark in average output.

Actually, it isn’t that ‘northern Europe has the wind’ but rather that westerly coasts have high wind speeds, making Spain and Portugal’s Atlantic turbines better than almost any inshore areas in northern Europe. There’s a second reason why Spain should have wind turbines: wind speeds are relatively poorly correlated with the winds in northern Europe. For a more secure European supply, turbines in Spain have a high value, particularly when interconnection with France is improved.

 And in the case of Germany, which does have much lower output from PV than Spain, the argument that it should have left the solar revolution to its southern neighbours is a remarkably ahistorical conclusion. Without Germany’s very costly support of PV a decade ago we would not currently be looking at grid parity for solar across much of the world.

 

 

 

 

 

 

 

 

 

Climate change won't kill the petrol car. Urban pollution and falling battery costs will

Almost the world’s new cars will be electric in 20 years, whatever happens to the price of oil.

Queen Victoria was also worried about climate change. Her Majesty drove an electric car.

Queen Victoria was also worried about climate change. Her Majesty drove an electric car.

A couple of weeks ago an owner of the Nissan electric Leaf spoke of her affection for her car. In the morning she goes outside and gets into the vehicle. Despite the low temperatures, it is already warm and the windows are free of ice. She drives silently and smoothly to work and once there plugs it into a free charging point and hasn’t even had to pay for the petrol. At the end of the day, she steps out of the office and walks the short distance back to her fully replenished car. Like many others employers, her place of work has given privileged electric commuters parking places closer to the main building.

Another friend is in a different class of electric car owner. He has a new Tesla and took me for a ride a few weeks ago. At first one assumes this is just another well-padded luxury car. As he eased the vehicle out of the driveway he needed to take as much care as anybody else to avoid running into small children or loosely driven delivery vans. Things changed as he hit the open road. Although the pitch of the electric motor barely changed, the speed increased sharply. ‘No other car’, my friend said, ‘has acceleration as fast - except a Bugatti Vitesse’.

I didn’t have the knowledge to question him. A later look confirmed that the Vitesse can manage a maximum of about 1.4g (1.4 times the acceleration of a body under the influence of the earth’s gravity at sea level without air resistance) and his Tesla could match it. The difference is the price. The Bugatti will take €2m off your bank balance. The electric equivalent costs about £85,000. Not that anybody notices, but the Bugatti also has CO2 emissions of about four times the average new car in the UK at well over 500 grams per kilometre, even when driven below the speed limit.

Another person I know really wants an electric car. He drives hundreds of miles a day in his London taxi and pays for the petrol himself. Since much of his day is driving in slow moving traffic, his stop-start driving makes his engine extremely thirsty. He dreads the daily stop at the petrol station.

These three case histories illustrate the reasons why electric cars are now unstoppable. Whether it is middle aged speed fans, careful commuters or cab drivers, battery-powered vehicles deliver a mixture of comfort, acceleration and cheapness to drive that will eventually appeal to almost all types of motorists. Add increasing range, and within a decade there won’t be a single reason to spend money on an internal combustion engine. A century or more ago, the first motor cars were often battery powered. It’s taken a long time but electricity will end up as the eventual victor, powering all the light vehicles on the road.

Two things will push the internal combustion engine into oblivion. Neither are what one might have expected five years ago when the renaissance of the electric car was just beginning. The first is the growing concern – almost panic – about the impact of nitrous oxide and tiny particle pollution in urban streets, mostly coming from diesel engines that for decades were encouraged by governments looking to reduce greenhouse gas pollution.

It took a while for politicians to accept the truth of this conclusion but London’s one mile long Oxford Street is possibly the most dangerous road in the western world. Every year pedestrians get run over as they step into the paths of buses. Far more lethal is the invisible but more pervasive effect of nitrous oxide on the health of pedestrians, residents and drivers. Latest estimates suggest 25,000 people die from the effects of traffic pollution in the UK, perhaps fifteen times the numbers killed in traffic accidents.

Policymakers spend weeks and months in massive international conferences on greenhouse gas reduction. Little happens. But most weeks in the last year a major city has taken its own independent decision to put the brakes on internal combustion engines because of urban pollution. And, as usual unnoticed by the West, China is moving as fast as anywhere.

A few weeks ago, Shenzhen put in place a policy that means that 20,000 of the cars bought by its residents this year will be battery powered. That’s more than the whole of the UK last year, even though Britain’s electric car sales quadrupled in 2014. Other Chinese cities have instigated similar rules.

In Europe, Paris mayor Anne Hidalgo has decreed that some of the key routes in the city will be open only to electric cars by 2020. Boris Johnson’s response to the growing threat of massive EU fines has been to enact rules that from 2018 effectively ban all new taxis that aren’t electric. In Rome, new rules block all but electric cars on Sundays in the city centre. This is an unstoppable move: pollution fears will push the internal combustion engine out of cities within a decade or so.

Of course the other force at work is the declining price of electric cars. The underlying competitiveness of these vehicles has been long disguised by the shockingly high price of batteries. Although an electric vehicle is far simpler and cheaper to build than its petrol equivalent, all this advantage was swallowed by the cost of the power pack sitting under the driver’s feet. There’s no engine, powertrain, coolant system, lubrication or gearbox to worry about. Just a surprisingly small motor and two axles. Insurances and maintenance costs should be lower as well.

When the history of the battle against greenhouse gases is written in a century’s time, two groups will have their own chapters: the German politicians who decided to heavily subsidise solar power ten years ago, bringing PV today to approximate cost parity with fossil fuels in sunny countries, and Elon Musk and his engineers at Tesla. And the Tesla chapter won’t be about the car, but rather about the way in which Musk’s investment in lithium ion battery storage pushed the price down to levels that made electric cars competitive with petrol. Power packs coming out of his ‘gigafactories’ will priced at figures possibly as low as $100 per kilowatt hour, down from $250 at the moment.

A kilowatt hour in a well-engineered electric car might give four miles of driving. So a battery pack with a range of 200 miles will cost little more than $5,000 or so if Musk’s dream is realised. (This is also roughly the target of GM’s newly announced electric Bolt). Combined with fast chargers that are springing up on motorways around the world that can fully charge a vehicle like this in an hour or so, the barriers to the adoption of electric cars will disappear. To misuse an expression, batteries will be at ‘grid parity’, much like PV in the south west of the US. Needs for subsidy will disappear, complicated government rules will be avoided. We won’t even need a carbon tax.

One last point. Many people are questioning the future of the electric car because of the precipitate fall in the price of crude. Take a look at the comparison below. Even at £1.10 a litre, petrol is about twice the price of electricity per mile travelled in an equivalent battery car. A good electric vehicle turns over 80% of the energy in its power pack into motion. A petrol car manages about 25% on a good day. Electric cars are simply more energy efficient. It doesn’t matter much what happens to the price of fossil fuels.

In the table, I assume a figure of 9kWh per litre of conventional petrol and a car that consumes 1 litre of petrol per 12 miles, a figure that is slightly better than the average of UK cars sold in late 2014. (Source: SMMT, New Car CO2 report 2014, extrapolated to late 2014 using Chart 3 in that report).

*Domestic electricity is about this price in the UK, and this number will fall alongside petrol costs over the next months.

In a book I wrote seven years ago I foolishly called the early end of the internal combustion engine. (As well as raving wildly about wave power and ethanol from trees). Tesla’s early cars were just appearing and the absurdly ugly G-Wiz was creeping onto London streets encouraged by the first free electric chargers. Now, some years later, I think that the momentum behind electric cars cannot be stopped. And it isn’t worries about  climate change that are driving the switch to electrons for motive power; it is clear air and the attractions - financial and otherwise - of the cars themselves.

 

 

The UK capacity auction: a backdoor way of staving off the utility death spiral

(This article was carried by the Guardian web site on 24.12.2014).

A mantra is inscribed on the walls of the UK Treasury. It reads ‘No subsidy without additionality’. In layperson’s language, this strange phrase means that the only justifiable purpose of handing a business a cheque is to get it to do something it wouldn’t otherwise do.

This golden rule was spectacularly flouted in the UK electricity capacity auction that was concluded last week. A billion pounds will be handed to generators in 2018 in return for doing precisely what they would have done anyway. Negligible amounts of new electricity generating capacity was drawn into the market and existing plants will not change their behaviour. Later in this article I’m going to look briefly at two successful participants in the auction – the pumped storage reservoirs and the nuclear fleet – to show why this is so.

The capacity auction got few headlines in newspapers. It sounds technical, abstruse and probably a nasty mixture of economics and physics. Actually, it was quite simple. All the electricity generators in the UK, plus quite a lot of owners of generating capacity that nobody quite knew existed, got together to offer to promise to keep their equipment working over the 2018/19 financial year.

The government wanted commitments from about 50 gigawatts of power generation (about the maximum demand likely to be placed on the National Grid in the winter of 2018/19) that the plants would be available during a ‘stress event’, or the couple of hours on a mid-December early evening when the lights might otherwise go out. Having got us all worried whether enough generating capacity will be available in the UK to meet peak demands later in the decade, the auction drew bids from far more generators than were actually needed.

Each generator, including all the nuclear power stations and the gas and coal station, put in its figure for the minimum price it would accept and these bids were ranked from zero upwards. The government looked at the price that was offered by the generator that just pushed the auction over its target of 49 gigawatts and agreed to pay that price to all the bidders. This was around £19 per kilowatt of capacity. In other words, if you have a 100 kW diesel generator at a factory, you will get a fee of £1,900 a year to guarantee that the generator will be available at all times. If it actually produced any power, it would in addition get paid at prevailing market rates for that electricity. Failure to respond to the call for power would cause the diesel generator to lose some (but not a lot) of its payment.

The supply and demand curves in the UK electricity capacity auction of December 2014. The generators are put in ascending order of their bids up to nearly 70 GW of capacity. Source: DECC report  on the operation of the auction.

The supply and demand curves in the UK electricity capacity auction of December 2014. The generators are put in ascending order of their bids up to nearly 70 GW of capacity. Source: DECC report  on the operation of the auction.

When DECC first had the idea for a capacity auction, observers hummed with sympathetic approval. It sounds a very good way of keeping the lights on and incentivising new supply. If investors thought that they’d get a guaranteed yearly payments for a new gas turbine plant, they’d be more likely to stump up the cash to build the generating station. 

Unfortunately the plan failed. Only a tiny amount of new capacity ‘won’ in the auction. When the full history is written, it’ll be seen that the failure occurred because, perhaps paradoxically, the price was too low. £19 a kilowatt a year may mean that consumers will have to pay an extra billion pounds for their electricity but it isn’t enough to get shareholders to stump up, for example, £800m or so for a new 1 gigawatt power station, earning about £19m a year from the capacity auction.

And why was the price so low? The reason is that existing power plants can easily offer to cover 49 gigawatts of need. Because these plants won’t actually have to do much - if anything - beyond their normal activities to guarantee to produce power at times when electricity is in shortest supply, they didn’t actually need any incentive. In fact, about 30 gigawatts of electricity generation was offered for virtually nothing. (But the rules of the auction said that the price that they will actually be paid is the price offered by the last winning bidder. This is a conventional feature of auctions).

Consider two important sources of electricity at the times of greatest demand at 5pm on mid-winter weekday evening: nuclear and pumped storage reservoirs. EdF put in bids to the capacity auction offering 7.9 gigawatts of power. (I mustn’t digress but I don’t think that EdF has actually delivered 7.9 gigawatts from its nuclear power stations at any stage of the winter so far, so its ability to deliver on the commitment must be questioned). Nuclear power station are meant to run all the time. It costs money to shut them down or run at a reduced load. No operator would ever voluntarily not have its nuclear stations working. There was no point whatsoever in allowing these power plants into the capacity auction and paying them about £150m a year to carry on doing what they want to do anyway.

Pumped storage plants, principally the fabulous Dinorwig plant in north Wales, present an almost equivalent absurdity. The role of Dinorwig is to buy electricity when it is cheap at 4.30 am, use it to pump water up hill and sell it when it is expensive at 4.30 pm by letting flow downhill through turbines. This is largely what the plant does every day of the year. Yet it is now being paid extra to perform what it is already very heavily financially incentivised to do.

In the case of Dinorwig’s owners, GdF Suez, the extra booty is about £35m a year. This is on top of the reported profits for last year of well over £100m for the mainstream operation of the plant. A plant, incidentally, that was built with state (CEGB) money initially and then sold at what must now seem a knockdown price in the flurry of privatisation twenty five years ago.

In all probability, Dinorwig and its three smaller cousins will not adjust their business tactics one iota as a result of the extra profitability they have been gifted by the capacity auction. So the UK has not gained any security of supply. And, we should add, the penalty for not being to deliver power at a ‘stress event’ in the early evening in December is just one month’s capacity payment of about £1.60 a kilowatt. Should Dinorwig’s owners spot a price spike that they can sell their power into for several hours, thus losing the capacity to provide electricity for a ‘stress event’ later in the same day, they may well choose to do so and pay the penalty.

This leads us to the most fundamental failure of the capacity auction; the almost complete absence of new electricity generation that has been successful in getting extra money to enter the UK electricity market. One obvious example is the proposed new pumped storage plant called Quarry Battery, located not far from Dinorwig in North Wales, which backed out of the auction before it finished.

Quarry Battery, which will cycle water between two old slate quarries at very different heights on a mountain, is a small (50 megawatt) generator that is exactly the type of new capacity the UK needs. For this plant, £19 a kilowatt probably isn’t enough. It has to raise private finance of over £160m and the annual capacity payment of about £1m would not make much difference to its cash flows, particularly since the 2018/19 auction would have meant a costly speeding up of its construction. The capacity auction has simply added to the income of existing generators, without pulling any new storage plants into the market. This is despite repeated assurances by government that enabling new storage to be constructed was a principal aim of the capacity auction.

Over on the continent observers frequently say we are watching ‘the utility death spiral’. As renewables gain in importance, power stations using fossil fuels are working fewer and fewer hours each year. The old generation companies are losing money. New coal and gas plants are almost impossible to finance. Eventually the old utilities will die. In the UK it looks as though the major generators have staved off the death spiral a little by capturing another billion pounds from consumers. That billion could have gone into energy storage units, power to gas facilities or renewable generators, such as anaerobic digestion plants, that can modulate their output to help match supply and demand, thus easing the transition away from carbon-based fuels. Unfortunately, the auction just bought off the large generators instead. 

Food consumption is falling in the UK, fastest among the very poor

(The research in the second half of this post was used as the basis for an article in The Independent of 28th December 2014) 

Recent reports have commented on the quite rapid fall in energy use in the UK, even in a period of economic growth. In ‘Peak Stuff’ I advanced the suggestion that all developed societies will eventually use fewer material resources and energy. I hypothesised that the UK had already begun to ‘dematerialise’ and its demand for energy, for minerals and for food had actually started to fall in the early part of the last decade.

The evidence in support of ‘Peak Stuff’ in respect to food, as well as energy, is now very strong indeed. The latest edition of the long running official survey of food purchasing suggests that average consumption of calories from all types of food and drink fell another 0.7% in 2013 and is now about 9% below the level of the early years of this century. People in the UK are unambiguously eating less food than they used to. To make the obvious point, as the economy has begun to recover, food consumption hasn’t gone up, any more than energy use has increased. Environmentalists who call for an end to growth are pushing an out-of-date thesis; increased economist prosperity isn’t incompatible with a decent world for all 10bn to live in.

Chart 1

 Source: Family Food ONS, 2014

 

Source: Family Food ONS, 2014

Chart 1 gives the average calorific value of food purchases per person per day from 2001/2 until 2013. Survey of the calorific value of people’s food have been going on for much longer and we have reasonable, but incomplete, UK data from about 1945. The early surveys only measured food bought for home consumption and excluded meals out, as well as confectionery and alcohol.

Chart 2 (copied directly from Family Food, 2014)

Nevertheless, the overall pattern is very clear: people in the 1950s ate much more food than we do today. The chart below suggests that average calorie intake from food eaten in the home (and excluding external purchases of food, alcoholic drink and confectionery) was over 2600 a day until the mid-1960s. The comparable figure today is less than 1900. The higher figure a generation ago is unsurprising because jobs much more frequently involved manual labour, homes were not centrally heated (raising the metabolic rate needed to keep warm) and individuals had much less access to cars for their transport needs.

Food production, manufacture and distribution probably accounts for about 20% of the global warming footprint of a developed economy, with the single most important contribution arising from the manufacture and use of nitrogenous fertilisers. We might hypothesise that the slow decline of per capita consumption is tending to reduce the impact of agriculture on the ecosystem.

But to get closer to certainty, we need to be sure that the reduction in the overall amount being eaten is not counterbalanced by a rise in the consumption of the most resource-intensive food, beef and other meats. If meat eating were going up sharply it might more than balance the cut in average calorie intakes because it is so much more ecologically damaging that other forms of food production.

Chart 3

Is meat-eating going up? No, and the fall is as fast as overall food purchases. Meat eating fell 10% in the period from 2001/2 to 2013. These figures are expressed in grams of food purchased per week rather than calories.

UK data on falling food consumption always surprises people because of its apparent conflict with rising obesity. Most of us assume that we are typically consuming far more food than we actually need and, as a direct result, people’s weight is continuing to increase. This may still be true but the rate of increase seems to be levelling off.

Chart 4

What else does the latest official survey in Family Food show? Some of the conclusions are extremely surprising. Although overall energy intake, averaging around 2192 calories per person including children, is about 5% higher than the amount that would leave people neither losing nor gaining weight, the pattern among different demographic segments is strikingly diverse. The top conclusions are

·         Poorer people are now eating much less than richer groups. In 2001/2, average energy intakes didn’t vary very much between income groups. The poorer half of the population had calorie consumption 99% of the richer half. By 2013, that had changed. The poorer 50% now eat significantly less than the wealthier half. In 2001/2 the difference between the average food intake in the poorer and richer halves was 27 calories. In the most recent year it was 165.

·         The greatest difference is between the bottom and the top 10%. In 2001/2, the poorest decile had a calorie intake of 97% of the richest decile. In 2013, this had fallen to 87%.

·         This wouldn’t matter very much if everybody still had enough to eat. But by 2013, the poorest decile’s food intake was less than 86% of what it was in 2001/2, meaning that the people in this group are not eating enough – on average – to maintain their weight. The government says that the average person (this mixes young and old, male and female so is only an approximate measure) should have an intake of about 2080 calories. The poorest 10% now only get 1997 calories, or 4% less than typically required to maintain weight.

·         By contrast, the top decile eat 110% of what is needed to keep weight constant.

Chart 5

Deciles.png

To summarise, poorer people used to eat almost as much as richer groups. This is no longer the case. Although the numbers aren’t entirely consistent from year to year, we appear to have seen a significant relative and absolute fall in the food consumption of the less well off. Perhaps this is because of rising food prices, perhaps because of falling incomes. The percentage of their income that the poorest decile use to buy food has barely changed at around 16%. This is, of course, a much higher percentage than for richer groups.

Also striking is the swing in food consumption between young and old.

·         In households headed by a person under 30, the average calorie intake is now less than 1750, including food eaten away from home. This far less than is likely to be needed to maintain of the average person in that household.

·         The average calorie intake of people in this group has fallen by over 22% since 2001/2, much faster than the 9% cut among the population as a whole. We cannot know for sure whether this is because of choice or because of a shortage of income. But this age group has seen the greatest contraction in income over the last decade or so and it is not unreasonable to suggest that falling incomes are meaning some young people do not have enough cash to eat as much as they need. 

·         Contrast this with the experience of household headed by someone from 65-74. People in this group are eating an average of 2600 calories, greatly in excess of what they need for a stable weight. And this may be related to the fact that this demographic segment has experienced the greatest increase in income over the last decade or so.

·         People in households headed by someone over 75 are actually eating more than they did in 2001/2 and their consumption is now also well above the recommended level.

Consumption is swinging away from the younger and poorer groups and towards the older and richer.

How does these cuts of the data affect the ‘Peak Stuff’ hypothesis? The obvious riposte is to say that food consumption is falling because of declining disposable income. As (if?) the economy returns to providing rising living standards for people, food intake will start rising again. My response is to say that a) all income groups are cutting their calories, not just people who are income constrained and b) calories consumption has been trending downwards for fifty years or more, through GNP growth and GNP stagnation.

What about the marked difference in calorie trends between young and old? Here I’d say that although much of this bifurcation seems to be do with income differentials (with the old substantially increasing their share of the income cake over the last decade) it probably also reflects a change in food culture. Perhaps the young don’t binge: the data shows their food and their alcohol consumption falling sharply. Whether the Peak Stuff theory is right or wrong, young British people are certainly acting as though material consumption is less important to them than in the past.

Crossing the void: robotic insulation in the gap under older houses

Old houses often have very cold floors. Most homes built before 1914 have uninsulated floorboards and under these boards is usually a void into which cold air flows through ‘airbricks’ in the walls of the building. Suspended floorboards help keep old houses free of damp but they leak large amounts of heat. 

The slow flow of colder air into the ground floor rooms from the void under the house not only cools the downstairs rooms but adds to the sensation of cold discomfort in winter. The gentle internal breeze carries heat away from the unlucky occupants. Since the temperature of the feet is lower than that of the head,  people have a sensation of particular cold. Better floor insulation and reduced drafts would make a big difference to the perceived warmth of the older homes.

What we can we do to achieve this? Applying a clear sealant to the gaps between the boards can assist in reducing in the air flow and it slightly improves the insulation. But a significant change requires that the homeowner takes up the floor boards and applies an insulating backing, then replacing them all. This is difficult and disruptive and few people do it.

Things may get bettter. A new London company has developed Q-Bot, a robotic machine that can get into the void through the airbricks, carry out a thorough survey and then apply a coating to the underside of the boards. Results from the first trial of Q-Bot have been impressive with occupants recording a very much improved level of comfort in their homes.

The robot working underneath a London home

The robot working underneath a London home

Described as a ‘miniature JCB’, Q-Bot is said to be ‘highly manoeuvrable, capable of pulling heavy loads and .. designed to operate in tight spaces and harsh environments. The robot can be folded to fit through restricted openings, such as a core hole, air vent or access hatch, and then remotely deployed to carry out the mission’. Q-Bot is a lovely piece of engineering, robust and intelligent. The inventors even claim that in most cases, the skills of the robot mean that insulating the floorboards of a home can be done when the occupants are out. Q-Bot gets into the void through an airbrick, does all its surveying and then applies the insulation without noise or damage.

 

The visual results of Q-Bot survey

The visual results of Q-Bot survey

The developers of Q-Bot have their eyes on the 6 million or so homes in the UK build before the First World War. Most of these  - about 4m – are in the hands of owner occupiers, some of whom will pay well to improve the sense of warmth of their homes in winter. Social housing providers– with perhaps 1m homes of this age – will see the Q-Bot as a useful means of reducing the fuel bills of tenants and upgrading the properties. Government schemes imposed on the energy companies, such as ECO, have produced vociferous complaints from the utilities that they are running out of houses to improve. Q-Bot is the least disruptive technology to employ and the target houses are easy to identify and to treat. I suspect that industry enthusiasm for this rugged robot will grow.

What do the economics look like? These machines are expensive to make and will be leased to companies that deploy them for insulation purposes. Q-Bot’s makers gave me a quote of approximately £1,500 to £2,500 for each property that their robot treats. These numbers seem high and I suspect the cost will have to come down. But let’s consider whether today’s quote makes sense financially.

How much is the average pre-1914 home likely to save? A UK home typically loses about ten per cent of its heat through the floor. This is the green slice in the chart below.  Much of this loss – perhaps 80% - will be saved by really good insulation. A more significant heat loss is from what the Domestic Energy Fact File calls ‘ventilation’ and we usually term draughts. The brown slice shows that about a quarter of all heat is lost through draughts.

 (The chart measures the loss of the average house in watts of energy for each degree of temperature difference between the outside and interior of the house. The figure is a total of 290 watts per degree, meaning that a house that is ten degrees warmer than the exterior loses 2900 watts or almost 3 kilowatts of energy to the outside world. That’s 3 kilowatt hours an hour).

Heat losses from the average house in watts per degree of temperature difference

Source: The truly compendious DECC Domestic Energy Fact File, table 6n

Source: The truly compendious DECC Domestic Energy Fact File, table 6n

Older houses shed more energy than newer buildings. The average heat loss for each square metre of space in a pre-1914 house is about 35% above the UK average, meaning that the boiler has to work that much harder to keep the temperature up. Some of this extra heat requirement comes from the poor floor insulation compared to modern homes.

It’s  only a guess, but I suspect that really good floor treatment might save 20% of the total heating bill, including both the insulation and draughtproofing  elements. For a detached Victorian house this might mean 5,000 kilowatt hours a year, or about £200 in saved gas costs. For a smaller terrace, the figure is probably half this, or around £100. These figures aren’t overwhelming compared to the costs of installation, but occupiers will also get the improved sense of comfort. 

And, second, compared to the costs and benefits of other expensive measures, such as double glazing or external wall insulation, better floor insulation is cheap, non-intrusive and visually acceptable. For example, the UK’s truly remarkable refusal to allow visible double glazing in the ‘conservation areas’ of many towns and cities means that Q-Bot is especially valuable.

Q-Bot’s owners are currently raising £400,000 in new shares to fund the further commercial development of the company. 

 

 

Concentrating Solar Power takes another step forward

The Spanish power company Abengoa opened another enormous concentrating solar power (CSP) plant in the south-west of the US this week. Covering over 700 hectares of the Mojave Desert and costing over $1.6bn, the site captures energy using parabolic mirrors that focus the sun’s rays onto a thin tube of liquid that rises in temperature to over 600 degrees. The big advantage of CSP is that this liquid is that it can be used to store energy overnight. In reliably sunny places, the technology can therefore provide ‘dispatchable’ electricity.

An Abengoa Concentrating Solar Power plant

An Abengoa Concentrating Solar Power plant

The 280 MW project in the Mojave is intimidatingly expensive at about $6,000 per kilowatt of maximum power. The average output over a year will be about 25% of the peak production, meaning that capital cost is about $24,000 per kilowatt of average output. That puts it perhaps three times the price of the proposed nuclear plant at Hinkley Point.

Of course, a nuclear plant requires fuel and a lot of people to run it. Nevertheless, CSP is still much more expensive than many other sources of power. My rough calculation is that it is delivering electricity at a cost of around 12p/19 cents per kilowatt hour in the American South West or in Spain. PV is much cheaper but of course photovoltaics cannot provide power at night.

So is there any reason to be optimistic about CSP? I think there are two important points to be made. First, concentrating solar power will see substantial cost reductions as the number of plants grows, particularly in the US. The US Department of Energy has a carefully reasoned support plan that targets a cost of electricity from CSP of only 6 cents (4p) per kilowatt hour in 2020. Even if this level is not achieved and the figure is 8 or 9 cents, concentrating solar power may roughly competitive with fossil fuels by the middle of the next decade.

The US Department of Energy's cost projections for CSP

The US Department of Energy's cost projections for CSP

In its plan for 2020 the DoE sees substantial reductions in all four elements of the cost of concentrating solar power – the field of mirrors, the fluid-filled tubes on which they focus light, the containers that hold the extremely hot liquids and the electricity turbines that are rotated by the steam generated from these liquids. These reductions look feasible to me. CSP farms will benefit from scale and learning effects, much as PV has done over the last ten years.

(By the way, my estimate of 19 cents for the new Mojave plant is not inconsistent with the 13 cents suggested for 2013 by the DoE work. Construction of the Mojave plant began when costs were higher than they would be today).

The second cause of optimism is very different and it is to do with the capital markets. These giant anonymous pools of money are going to be the engine which drives decarbonisation, not governments or international conferences. In its amoral and unreflective way, Big Finance is beginning to really dislike fossil fuels (and probably nuclear as well). Money is now nearly impossible to obtain in many parts of the world for the construction of new fossil fuel power stations.

It is not climate change or ‘unburnable carbon’ worries that are driving this. It is the growing sense among banks and investment managers that the fall in the cost of renewables is unstoppable. This will leave their large investments in centralised power stations looking very sickly as the fossil fuel plants are called on to work fewer and fewer hours each passing year and at lower prices.

We saw more evidence of this last week in E.ON’s decision to split its financially weak coal and gas power stations into a separate company while putting its future emphasis on renewables and on smart grid infrastructure. Make no mistake, the old company will eventually go bankrupt, or be completely restructured. Other big generators, such as NRG in the US, have made similar corporate splits that puts coal power stations into separate companies that can be allowed to die without affecting the financial health of the renewables companies. Abengoa’s new CSP plant in the Mojave is an important part of the Spanish company's so-called ‘YieldCo’, a self-standing company that can find its own finance cheaply and offer a relatively small but reliable and steadily growing income stream to investors.

This is what Big Finance wants now and CSP plants provide a good asset to hold. These sun-following power stations are extremely reliable, very long lasting and their storage capacity means that they can bid in the electricity markets to provide guaranteed power throughout the day and most of the night.

These are the good things about CSP. There’s always a ‘but’ and in the case of concentrating solar power it is the high level of water use associated with the plants. Abengoa claims that the fresh water absorbed by its Mojave plant is only a fifth of what it would be if its 714 hectares was used for agriculture. Not good enough, I’m afraid. Nobody in their right mind would even consider agriculture in the desert. In most places where CSP will work well water is very scarce. Until different cooling systems are found CSP will not achieve the widespread success we need. 

 

(Note for real energy geeks. The new Abengoa plant has an energy intensity of about 9 watts a square metre. MacKay estimated a slightly higher figure for desert CSP of about 15 watts)

Coal-fired power stations will have to cough up for the costs of their pollution.

 

The European Environment Agency estimated the costs of industrial air pollution in the EU at between €329 and €1,053 billion in the four years to 2012. For the UK alone, the figure was about £32-£105bn, of which a large fraction came from coal fired power plants. The higher figure is about 1.5% of annual GDP.

And, perhaps surprisingly, most of this cost isn’t ascribed to the long run impact of adding CO2 to the atmosphere. No, the real culprits are the tiny particles (‘PM’) and polluting gases that cause respiratory and cardiac illness and early death. In the case of Drax power station – of which more below – the expected impact of its CO2 output is less than a quarter of its overall effect from 2008 to 2012. The more we hear about coal, the nastier the immediate impact on human health seems.

You can quibble with the EEA numbers. It uses figures of between £7.50 and £30 a tonne for CO2 emissions and ascribes costs to the other pollutants that reflect their likely impact on life quality and life expectancy. Although it is at pains to stress otherwise, the higher cost estimates from the EEA reflect very high values on an extra year of human life.

But the crucial point is this: even at lower levels, these estimates mean that proper accounting will make burning coal (and oil) for power uneconomic. These figures are the strongest possible support for the campaign for the divestment of coal mines and power stations.

Possibly the best way of showing this is to look at the pollution costs imposed on the UK by its largest single source of electricity, Drax power station in Yorkshire, which generates about 8% of the country’s power. Drax was very largely fuelled by coal until 2012 when it began a long switch to biomass in the form of wood pellets. It is also the leading light in a consortium that is attempting to build the one of the UK’s first two carbon capture and storage (CCS) schemes.

Look at the EEA figures and you can see why Drax is so keen to clean up its operations. For 2008-12 it sits at number 5 on the European list of shame. Its pollution is estimated to have cost, primarily in the form of shortened lives, between £700m and £1,600m a year. That’s between £11 and £26 per person in the UK.

Another way of expressing the number is to compare it with the value of Drax’s electricity output. That figure is about £1,800m a year. So, at the higher estimate, the cost of pollution is almost as high as the financial value of the power station’s output. To cover the cost of the CO2 and other pollutants, Drax would have to add between 40% and 90% to the cost of its electricity. Coal-generated electricity suddenly doesn’t look as cheap.

There’s another way of looking at these numbers. What is the stock market value of the entire Drax business, which is a separate public company listed on the London Stock Exchange? Today, that number is about £2,000m. In its old incarnation (prior to switching to burning wood pellets), Drax’s yearly pollution cost was between a third and four fifths of its market value. If the shareholders were ever forced to bear the full environmental cost of its output, they would be handing over most of the value of the company to those affected by the unseen pollution within three years, even if we use the EEA’s lower figures.

The argument for divesting shares of companies using coal cannot be put more clearly. At some point in the future those who mine and burn coal will be forced by regulators or courts or governments to cough up (to use an appropriate metaphor) for the full cost of what they do. When that happens, the entire value of the assets will disappear overnight.

Just for full accuracy, it’s worth pointing out that the UK’s second most polluting power station, Longannet in Scotland, would actually be even less economic if the full cost of pollution was included in its price. And, as far as I know and unlike Drax, Longannet isn’t switching to wood or capturing its emissions via CCS.


A few background numbers

Approximate value of Drax’s electricity output per megawatt hour          £65*​

(Underlying assumptions – Drax output 27 TWh, CO2 output per MWh, 784 kg, total sales value £1,800 a year for 2008-2012)                                         

Fully costed, Drax’s coal output needs to have been priced at between £91 and £124. These prices are greater than the cost of onshore wind, nuclear and large scale PV. They are probably lower than burning biomass.


Boost for domestic fuel cells

Ceramic Fuel Cells (CFCL) announced a partnership with a Scottish installation company to put 65 of its micro combined heat and power units in schools, university buildings and social housing across the UK. The British/Australian company’s world-leading BlueGEN product will generate electricity and hot water using mains gas. This deal will virtually double the number of BlueGENs in the UK,complementing growing sales in Germany. Similar deals with UK public sector institutions are expected in the next year.

A refrigerator-sized Blue|GEN fuel cell generating electricity from gas

A refrigerator-sized Blue|GEN fuel cell generating electricity from gas

CFCL has one of the most developed fuel cell technologies in the world. But at £17,000 for a machine that will generate about 1.5 kilowatts of electricity and 500 watts of heat, the BlueGEN is still extremely expensive. Very roughly, it costs ten times as much per kilowatt as a gas-fired power station. So why should we be interested in this apparently uncompetitive product?

First of all, the BlueGEN is another example of a generation technology that sits at the end of the electricity network. But unlike solar or small wind, it provides genuine baseload power. The unit sits in storerooms or garages and works with high reliability every hour of the year. At over 60% efficiency in converting mains gas to electricity, it matches or exceeds the largest new gas power plants. And it captures another 20% of the energy in gas and stores it as hot water. If we are going to continue to use gas, this is perhaps the most efficient technology in the world for converting it to useful sources of energy. BlueGEN is the best way of using ‘green’ gas produced from sewage waste, anaerobic digestion or biological methanation. Combine it with a well-installed heat pump in a properly insulated home, and it makes for a truly low-carbon option.

On the Dutch island of Ameland, BlueGENs also operate as grid stability aids, modulating output in response to variations of the power coming from a local 5 MW solar farm as clouds pass over the sun. In the UK, it may be that BlueGENs will also eventually work to help stabilise local arms of power grids as PV penetration increases. But the underlying economics today work best if the machines operate at full tilt all day and every day.

In the transition to fully decentralised generation, CFCL’s product will play an important role. The company has now sold about 500 units in Europe, most of which are in Germany. As it expands its sales, prices will come down to more reasonable levels, meaning it can eventually compete with large power plants. But even at the moment, BlueGEN gets a relatively low feed-in tariff of about 13p a kilowatt hour, no more than small scale domestic PV. And fuel cells only get this fee for ten years, half the length of time of PV. Th

Second, the recent contract win in the UK demonstrates a vital requirement for sales of some lower carbon products. Often, the buyer has to be an extremely credit risk and thus, almost inevitably, in the public sector. The point is this: few users are likely to be able to afford the full cost of this machine. It has to be financed by private capital and then leased to the institution getting benefit from it. Unless that institution is secure in its ability to pay its debts, no source of capital will provide money for investments that need decades to repay their financing. The same is true with on-building PV. Hence the rush to put solar on social housing, with several large financing deals announced in the last weeks.

Third, the returns for the funders of a UK BlueGEN are not overwhelming but are nevertheless good enough to secure financing from outside capital . The feed-in tariff payments will pay not quite pay back the cost of the device over the course of the ten year tariff life. (However, the actual amounts paid in FITs will rise by RPI, and this is a vital feature of the BlueGEN financing deals, as suggested in the last paragraph of this note). The other dividend to investors comes from the difference between the cost of electricity generated by the BlueGEN and the standard commercial price. This is shown in the table.

BlueGEN economics

A.      Purchase

Cost price to retail purchaser of 1.5 kW unit -                                                                  £17,000

Hours of operation a year -                                                                                           8,500 plus

kWh produced in typical year -                                                                                           12,750

Value of FIT payments at 13.24p per kWh -                                                                       £1,688

FIT payments over ten year life of FITs, assuming no RPI inflation -                             £16,880

B.      Electricity cost savings

Amount of gas needed to produce 12,750 kWh of electricity at 60% efficiency - 21,250 kWh

Cost of gas at 3p/kWh -                                                                                                   £637.50

Value of electricity produced at 10p/ kWh -                                                                      £1,275

Saving -                                                                                                                             £637.50

£600 or so is a slim yearly margin to a provider of up to £17,000 of capital. (The end user will get roughly £200 of free hot water, slightly bumping up the total returns to the parties in the deal). There’s maintenance costs to consider on top. However the most interesting thing about the deal just announced by CFCL is that so far unnamed capital providers have been prepared to stump up the £1m+ that is required to install 65 BlueGENs. This is another example of how negative real yields on government bonds are diverting some investors into apparently low-return, but inflation protected, assets. It may also be relevant that FITs rise annually by RPI, which is an artificially high measure of inflation, helping make small scale generation more attractive. Perhaps we should welcome this. However perhaps we should be troubled that many low carbon investments are now nothing more than financial instruments reliant on low interest rates.

'Grid Parity'

  I gave a talk in Prof. Chris Llewellyn Smith’s course of lectures at Oxford University in late October. The SlideShare presentation is at the bottom of this article. This is the key chart from the lecture.

Oxford talk core slide, October 2014
Oxford talk core slide, October 2014

My primary purpose in the lecture was to suggest that assumptions about the relatively high cost of solar PV (and onshore wind and some other technologies) were based on errors. Correct these errors and PV gets to grid parity - usually assumed to be below £50/MWh or 5p per kWh- in the UK within a few years.

The chart merges the effects of three forces pushing solar PV costs lower.

1. UK policy makers are using almost ludicrously high figures for the cost of capital. And because solar PV is, in essence, a financial annuity, assumptions about the right rate are critical. A reduction from 7.5% to 2.5% in the real cost of capital will cut the levelised cost of electricity from PV by over a third. Is 2.5% a reasonable figure? I contend it is, based both on Fraunhofer’s figures for Germany and, second, on a small number of confidential transactions for which I have been given details. (These deals involved pension funds putting up 80% of the capital required for solar farms in the form of debt)

2. Second, PV panels probably have much longer lives than assumed. The evidence is mounting that we can reasonably assume that panels will last for more than 30 years. This is also vital to the economics of solar. Any asset that costs nothing to operate – which we can assume includes PV as a first approximation – will produce something much more cheaply if it lasts twice as long.

3. PV panels costs continue to fall in line with the predictions of a 20% 'experience curve'. Most manufactured item costs follow an experience curve that produces a reasonably predictable percentage decline for every doubling of accumulated production volume. The world has now produced about 200 gigawatts of PV panels. When we get to 400 accumulated gigawatts, costs will be 20% lower than today. And so on. Since even the dark-suited people at the International Energy Agency are now forecasting almost 5,000 GW of installed capacity in 2050, we can predict with some confidence that costs will fall to less than half the level of today. (1)

Taken together, I believe that today’s published ‘Levelised Costs of Electricity’ for PV are likely to fall to about 3.3 pence per kilowatt hour on the south coast of the UK by 2020. The most important driver is likely to be the reduction in the assumption about the required rate of return on capital. (And, please, may I politely say that I am often guilty of naïve optimism about progress in clean technologies but there is nothing in this forecast that assumes discontinuous change or particularly swift developments in manufacturing techniques. If we are able to coat silicon PV with perovskite semiconductors by 2020, progress will be even more rapid).

UK index linked government bonds (‘gilts’) are now trading on a yield of about MINUS 0.5%. (2) A solar farm with government guaranteed feed in tariffs, inflating by RPI, for the next 20 years is the nearest equivalent. The central point I tried to make is that any sensible analysis assumes that solar PV’s cost of capital has been dramatically pulled down in the wake of the unprecedentedly low interest rates in the world economy as desperate investors look for the safe yields provided by near zero operating cost capital assets such as PV farms or the Swansea tidal lagoon.

1. After the talk I was asked whether the ‘balance of plant’ costs can be expected to fall at the same rate as PV panels. I suggested that costs have been declining at an experience curve rate less than 20% but still very rapidly. I have been promised numbers to confirm this by a very large installer of UK panels with five years cost data and will update this article when the information arrive

2. This yield is calculated on the Retail Prices Index, which is currently running at 1.0% p.a. above the better designed Consumer Prices Index. So, at current rates, index gilts are offering about 0.5% real above CPI.

Why we need to phase out halogen light bulbs

I have embedded a SlideShare presentation at the bottom of this page which was delivered at Cambridge University as part of its energy saving week in November 2014. In it, I try to make the point that the bulge in electricity demand at around 5pm in the UK winter represents a risk to the stability of the National Grid and an unnecessary cost to consumers and electricity supplies. The bulge arises because of a rapid increase in power demand in domestic homes as the light falls, particularly in December and January.

I contend that the simplest, cheapest and most effective way of shaving peak demand, and thus reducing household power bills and decreasing the risk of power cuts, is to replace domestic halogen bulbs with their LED equivalents. Halogen bulbs now flood modern kitchens and other living areas with bright light, but a very substantial cost in peak power demand and annual electricity bills. Other schemes to cut peak demand, such as automatically turning off freezers for two hours, increasing the use of induction hobs for cooking and utilising battery storage devices are interesting but more expensive and more difficult to implement.

I argue that the time is now right for a national campaign, possibly starting in universities such as Cambridge.


Construction about to start on the world's first tidal turbine farm off northern Scotland

The tides move unimaginable quantities of water through the Pentland Firth four times a day. With speeds that can reach 5 metres a second (11 miles an hour) and relatively shallow waters, the narrow channel between Scotland and the Orkney Islands is probably the best place in the world to install underwater turbines. Best, that is, in terms of available energy. Worst, on the other hand, in terms of the mechanical stresses on a seafloor rotating machine. Map of Pentland Firth 11th November

Construction work will begin here early next year on one of the world’s first multi-machine installations to turn that energy into electricity. The turbines will go onto the sea bed in early 2016 and electricity will start to flow. The money is finally raised for the MeyGen project, the technology chosen, permits granted and the infrastructure planning is done.

£51m of capital will put four 1.5 MW turbines onto the sea bed, three or four times the cost of an equivalent amount of offshore wind. This is a hugely costly experiment but, as Dan Pearson the CEO of MeyGen points out, this seed money is nothing compared to the expense of a large tidal lagoon or other highly promising, but unproven, energy technologies.

The attractions of the Pentland Firth have been obvious for a decade or more and under-researched claims have been made for the potential. I think I remember suggesting in a book of 2008 that it might provide enough electricity to power London. As time has gone on, the difficulties of exploiting the tides have become clearer and calmer souls have begun to introduce some reality. It looks as though 1 or 2 gigawatts might eventually be extracted from this stretch of sea. The tides don’t flow all the time and a tidal turbine will deliver approximately the same capacity factor (40%) as an offshore turbine. This implies the Pentland Firth might deliver a couple of percent of UK electricity supply. Not quite London’s requirements - more like Oxfordshire’s - but still worthwhile. And there are many other locations, including around the Channel Islands, where tidal flows are fast and widespread.

The MeyGen plan is eventually to put almost 400 MW of machinery in to this part of the Pentland Firth.

MeyGen full licence area marked in red

The patch of sea for which it has a licence has relatively shallow, but not too shallow, water and a gradual incline up to shore. The substation and other infrastructure will be on flat land near to the sea. It will take until the early part of the next decade for enough grid capacity to be provided for the larger part of this project. So even if this early 6 MW experiment is wildly successful, we’ll only see a gradual rollout of turbines over the period to 2022.

The developer is using turbines from Hammerfest, a Norwegian company that has had machines in development for almost two decades. Why Hammerfest, I asked? Because of the rugged reliability said Dan Pearson of MeyGen. ‘Every system in the turbine is replicated three times’, meaning that the developer doesn’t have to keep fishing turbines out of the water to replace failed parts. Fans of the graceful and sleek modern wind turbine will be disappointed by the Hammerfest machine. If wind turbines are ballet dancers, tidal turbines are night club bouncers. But consider the enormous forces that will buffet the underwater machines, and I think we’d all prefer squat and burly types under the waves. After all, water is almost a thousand times heavier than air.

It is an unfair question, but I asked Dan Pearson why investors and governments should back Meygen when tidal current projects seem to be so expensive at the moment. Pearson said he hoped to bring the cost per megawatt down by 70% over the period of construction of the full 400 MW project. Hammerfest Strom’s costs will fall as it starts to construct multiple turbines and MeyGen gets better at digging in the holes in the sea floor needed to anchor the turbines. There are also economies of scale in the shore infrastructure, meaning that the second half of the project will be much cheaper than the first.

Will MeyGen get tidal turbine costs below offshore wind, usually seen as the most expensive low carbon technology that the UK and Scottish governments will support? Pearson was understandably a little cagey. It’s far too early to tell how costs will fall. But he recognised that if doesn’t become financially competitive even the utter reliability of tidal power isn’t going to be enough to ensure private investment.Hammerfest machine 11th Nov

The current 6 MW project will deliver about 20 GWh a year, if the company’s projections are correct. The output earns 5 ROCs, or about £250,000 a GWh and is pre-sold to Smartest Energy under a power purchase agreement, probably for about an additional £50,000 or so per GWh. If things go to plan, this means yearly revenue will be approximately £6m. Even though about a quarter of the £51m development cost has been given in grants from UK government bodies, the finances of this experiment aren’t overwhelmingly attractive. As we all know, few underdeveloped technologies that will move us to a low carbon circular economy are.

At completion, MeyGen will put 400 MW of tidal turbines in a space that would only accommodate 40 MW of wind. When I give talks, I’m always asked about whether the UK can physically accommodate all the sources of low-carbon energy it needs. (Of course this problem would be become irrelevant if we could find a way of exploiting nuclear energy cost effectively). Tidal current systems, and their distant relation tidal lagoons, help us because they use little onshore land.

There are many unknowns still. Dan Pearson admits that we cannot accurately predict how densely we will eventually be able to pack turbines in the tidal races between Scotland and the northern isles. But this is quibbling. The UK has access to more fast flowing tidal races than any other country and it must make sense to invest in trying to see whether it can be exploited cost effectively, and then exported to Canada, Chile, China and other countries with strong tidal flows.

We know that wind turbines have declined in cost by a factor of at least five in the last thirty years and progress might well be as rapid with their underwater cousins. At that lower price, they can compete with offshore wind as well as having the major advantage of predictable, reliable output. MeyGen is one of the most exciting projects in the UK today and we should salute its owners, the first group to get all the pieces in place to exploit one of the world’s densest sources of renewable energy.

Tidal current resources