UK Wholesale Energy Market

[dan_b]

This is an excellent thread - a comprehensive primer!

[Mart]

They haven't even decided what to do about how storage is charged (currently paying to use the grid on both import and export, which makes it unviable) and that is just a simple change to encourage something that the grid and the country all need!

Is there any reason, other than encouraging the deployment of storage, why they shouldn't pay the grid operator bot times they use the connection?

What happens with the import-export part of domestic generation and storage, does the DNO only charge for the import?

I was pondering that too, as it is a simple change, and one I think that's really needed.

Just my opinion, but whilst using the grid twice may sound fair, the storage is providing such an important role. It allows a greater quantity/%age of RE generation, it helps to raise the minimum floor price which improves the economics of RE by adding some additional demand (at times), and it helps to reduce peak prices when discharging.

I can see a partial way around it, by having storage at the RE facility, but the problem with that is it wouldn't be as flexible as sitting on the grid perhaps at initial DNO level, and absorbing excess RE from any and all sources. And that storage placement, would also help to smooth out demand peaks across the day.

Storage just seems too important to hit it with any cost negatives, even if they are, I suppose, fair charges?

[Countrypaul]

I think if we consider all storage the same way, we are in danger of trying to put a square peg into a round hole.

Storage at a PV farm for example would help to extend a high level of output into the peak evening demand, it would also allow the connection to the grid to be smaller (and therefore less expensive) compared to exporting all the production when produced. The total storage would not need to be greater than 1 day of production, and in realiity much smaller. By using storage they might also benefit from a smaller connection to the grid as the power produced could be supplied ore slowly over an extended period.

Storage at a wind farm would have a completely differnt profile, whilst it could help balance some fluctuations i production throught the day, and possibly ensure the evening peak was met from storage, the ability to store several days of production on site (even if onshore) seems dubious with current technology and quantity of production. Things may well change in future with much higher production and proven high capacity storage.

At the usage end, obviously some storage to meet peaks in usage makes entire sense, as does storage to balance the grid. Does it make that much sense to build storage close to the point of use rather than that of production? usng the PV farm storage in winter (or cloudy weather) when the PV farm will produce much less thn normal would seem worthwhile rather than another store close to the point of usage. If there is a location where usage is, for example very high during the day, and low at night putting in local storage could alleviate the need to upgrade the grid supply in that area.

As to who pays for the import/export to/from storage, well ultimately we all know it will be the end us end user customers. I would think it much fairer to put that on the price of the electricity than on the standing charge.

Is there a real cost for import of power compared to the infrastructure needed and the actual cost of that power - the answer must be yes but how significant I don't know. Similarly for export of power there must be some sort of cost for transmitting that power.

Looking back a the three scenarios I highlighted (and there should be many more) it would seem logical that the PV farm pays for exporting its power
whether as produced or later. So importing and storing power could be seen as a bonus so it could be justified that they should indeed pay for that as any user does.

Looking at the wind farm situation today, any storage is likely to be a small amount compared to production if used purely to optimise production output. If the storage is also used at other times then again that might be seen as a bonus and charged accordingly.

In the latter scenario, if local useage storage is there to save an infrastructure upgrade, the cost of that storage must be less expensive than the upgrade to be worthwhile. That cost might be difficult to measure, how do you put a cost on the fact some people will hate seeing another line of large pylons, or that digging in an area of special wildlife interest might be required? Should the cost of buying the power as well as supplying it be charged.

In general, I think the cost of both supplying power to a storage faclity and exporting from that facility should be charged, but if using the same infrastructure then less than the two operations being seperate. I think to often costs are hidden, or obscured, and we all know the costs are there, even if you get a free power meter from your supplier, you know you are paying for it somehow.

[Mart]

Those are great points Countrypaul ..... but a thought occured to me, what exactly is the 2x use case being charged for?

If we use most services twice, we will double the wear and tear. But is that true for electrical cables? I genuinely don't know how to process this.

I assume, that the main wear on electrical infrastructure, is when it's being stressed, is that correct? Perhaps shown as heat, leading to degradation. So if the storage moves the leccy twice, does it actually result in twice the wear? I'd assume that storage, at least some, will help to balance out demand and supply, so storage at say the DNO level, may reduce peak demand on National Grid's transmission network, thus reducing wear and tear?

Of course, I'm assuming that moving an average amount when demand is low (demand plus storage, becoming 'normal') is no more damaging to move than a low amount, only high demand resulting in any 'wear and tear' ..... otherwise my idea collapses.

All complete guesses, and to be clear, I thought your post was a really good argument for why 2x costs should be applied, it just then occured to me that leccy operates in a different way to most products, so I thought I'd throw down some thoughts.

Hope this is at least partially rational, and not a load of crazy talk.

[Countrypaul]

Mart,

I generally agre with your points, and I too have no idea about answers to your questions. I am also not sure about whether wearing out the cables through high use is important or even relevant. Do electricity cables get changed due to useage, or are they changed due to old age, damage, routine etc? As far as I can tell the cable to our house is the same one installed in 1956, so how old do they let the cables go?

Note I did not say twice the cost (not even sure if that is what you mean by 2x), but if most of the infrastructure cost is fixed and not impacted by use, then part of each cost of import and export is fixed, so only the non-fixed part should be chargeable for each, this may work out at 1.5x or 1.2x or 1.8x or 2x overall - I have no idea.

[Mart]

Sorry, not you Paul, just the general talking point that storage gets charged twice by the grid, once on import and then again on discharge.

Did not expect to use so many brain cells today, should have paid more attention in physics classes instead of playing around ...... though tbf, wiring up batteries in a loop, did make the wires melt, so perhaps it was reseacrch for this very issue!

[Ken]

From memory i seem to think that all storage is not equal eg batts do not produce anything and are charged one transmission charge but stored hydro is charged 2x because it is also a producer.

[nowty]

Are renewable wholesale electricity prices to be decoupled from gas prices ?

Yes, no, or sort of depending on what you read and the timescales are a few years, a decade or never.

As I showed in my earlier post gas prices were stable and cheap for over a decade so little need to change it. Then there was complete panic as gas prices soared and we need to ungently change it. Now prices have dropped back and are stable albeit higher, the urgency has waned somewhat. We may end up with changes to parts of the system rather than a fundamental change.

The options are written about here by OFGEM.
https://www.ofgem.gov.uk/sites/default/ ... 0FINAL.pdf

For the renewables wholesale market it realistically comes down to only a few options,

Use Contract For Difference (CFDs).
This is where you agree a long term guaranteed price for the renewable asset, usually with inflation protection. Relatively simple because you don’t need to change the current system of gas sets the price. If gas is higher than the CFD price the difference must be paid back and offsets some of the levies to consumers. This is what happens now with offshore wind assets. Although its stable, over the long term the price paid may be more than gas if inflation stays high but gas prices stay low.

Enforce Long Term Power Purchase Agreements.
Similar to the long term PPA which is being used to fund the loan element of Ripple Kirk Hill wind farm, maybe 5 or 10 years in duration. These are getting more common now with large companies wanting to establish their energy costs and look green too.

Move to Locational Pricing.
This is where the renewable asset gets paid depending on where the asset is geographically situated. Is the asset in an area of high or low consumption and does the area have high or low renewable generation. The price could also be dynamic depending on the balance of generation vs consumption. There are two models used elsewhere in the world which are Zonal and Nodal were Nodal has more granularity and complexity. Sarah Merrick (CEO of Ripple Energy) is on some working group and mentioned in a webinar recently that the evidence was favouring Zonal as being more simple to implement. An alternative is to have locational and/or dynamic transmission charges based on the balance of generation vs consumption.

[John_S]

Nowty,

Thanks for this series of posts. It is most informative and it is helping me to prise open the murky world of energy pricing.

I was recently talking to someone who works for EDF UK on the retail side about energy pricing.

One point that came out was that contracts for differences and long term power purchase agreements were mutually exclusive.

For example if a wind farm operator is paid based on a CFD strike price, he would try and lower his risk by contracting to sell at as close as possible to the reference price for the CFD. As I understand it, the reference price is based on a short term period average of the day ahead price (please correct me if I am wrong). Thus the wind farm operator would prefer to sell at either spot prices or day ahead prices. I am still unsure if they contract for a particular amount of generation (having to buy shortfalls spot) or their entire generation leaving the purchaser to buy any shortfall spot.

We both agreed that Ofgem lost the plot in allowing and regulating small energy providers whose business model was to offer good fixed price deals in the spring, collect 'large' direct debits through the summer to earn interest on cash and either hope to get through a mild winter or go bust. Frankly, Ofgem were wrong to fully guarantee consumer credit balances based on low fixed contract prices and should only have guaranteed the excess over the Ofgem cap for the previous 12 months. Ie the punter would end up paying the Ofgem cap for his last year's usage.

John

[nowty]

Video about CFDs.
https://www.lowcarboncontracts.uk/