Archive for electricity

Energy 2020: Decentralised energy

Posted in Climate policy, Energy markets with tags , , , on June 30, 2008 by Dan

Benet Northcote, Greenpeace. The energy system we have today is incredibly wasteful, because energy is generated a long way from where it is used. That means that a huge amounts of heat is lost from power stations. Some electricity is lost in transmission and a large quantity is wasted in the home. People are not aware of how much energy they are wasting.

It’s the heat being wasted at the point of generation that we need to look at. The vision for 2020 – where microgenerators are on every home and CHP plants are used everywhere – is within our reach. We just need the will!

Energy 2020 – Bulk Energy Production

Posted in Energy markets with tags , , , , on June 30, 2008 by Dan

Gaynor Hartnell, REA. Bulk energy is unique in that is has been considered (at least the electricity side – less the heat side) in detail and we know the issues. The big issue is obvious: we have large, electricity only plants rather than heat and power plants integrated with the build environment.

Key issues for renewables are:

  • Getting quick access to the National Grid – renewable generators must be connected when they need to be connected
  • Getting planning permission – Merton (a required to include microgeneration with new developments) is a good development but much more is required
  • Getting the right incentives in place. The Renewables Obligation should be seen as a temporary thing – the end game is for the economy to deliver clean energy

Policy Exchange on CCS

Posted in Energy markets with tags , , , , , on June 17, 2008 by Dan

Policy Exchange has published a report arguing that carbon capture and storage (CCS) is essential to meeting our emission reduction targets. The report explores various ways that the government could support CCS.

If there is a strategic case for CCS the mechanism that I believe to make most sense is:

5. Government underwrites the EU-ETS minimum base price.
This involves a risk for Government, to provide baseline funds of €30 to 60/ton CO2 if the EU-ETS market remains low. It is not clear how the Government recoups its money, except by waiting to sell EU-A at a high price some years later, or by cross-subsidy from the new Phase 3 Auction revenue.

I would argue that the base price be set by auction. The CCS developer that offers the lowest base price would be given by Ofgem the difference between that price and the EUA price for each tonne of CO2 it avoids. This approach is economically similar to the feed-in tariff that Policy Exchange favours but is more likely to determine an appropriate subsidy. Unlike Policy Exchange’s other preferred option – allocating one or two free EUAs to plants for each tonne of CO2 they capture – it maintains the environmental integrity of the EU ETS (see this post for more on multiple EUA allocation).

The government would risk depressing the EUA price by subsidising CCS and thereby inflating the subsidy it would pay for further CCS generation – but this cost would also be borne in the feed-in tariff model. The reduction in the EUA price would filter through to the wholesale energy market, making the feed-in tariff represent a larger subsidy.

The real question is whether there is a strategic case for CCS. New CCS will not create net emission reductions in the short term (unless CCS remains unrecognised in Phase 3 of the EU ETS), so it should only be supported if it is considered integral to decarbonisation in the long term. As Policy Exchange points out, it looks like we will be dependent on coal for decades to come. Perhaps our resources should be concentrated on reducing our dependence.

Renewables – what incentive is there to build back-up capacity?

Posted in Energy markets with tags , , , , on June 13, 2008 by Dan

E.ON is arguing that Britain will need lots of fossil fuels for a long time in the future, even if we hit our 15 per cent renewable energy generation by 2020 target (which will mean 30 – 40 per cent renewable electricity generation). Gas is a particularly good partner for renewables because it can be switched on and off quickly and balance out the volatility of renewable generation.

E.ON has a fair question about this: what incentive is there to build back-up capacity?

“If we are to meet the European target, we need to back that up with fossil fuel generation that can be turned on quickly when the wind does not blow,” explained a spokesman for the company. “But the issue is who pays for that. If we spend half a billion pounds on a gas-fired power station that is not turned on very often, we need to look seriously at how that investment is rewarded.”

Renewables generally have low marginal generation costs, so fossil fuels will lose when there is lots of electricity being generated by the new wind farms (assuming they ever get built).

Carbon capture and storage needs a kick start, but not through double crediting

Posted in Carbon markets, Energy markets with tags , , , , , , on May 7, 2008 by Dan

Chris Davies, a Lib Dem MEP, is pushing the EC to adopt a directive that would require all coal power plants built from now on to have carbon capture and storage by 2030.

He recognises that the market alone will not deliver CCS and public support will be required. The EU budget is locked down to 2013 and he thinks member states are unlikely to pay.

He supports a “double credit system” within the EU ETS. This means that each tonne of captured carbon dioxide is not counted as an emission and the power plant is allocated an additional allowance (or even two). The allowance has a market value and can be sold or used by another of the company’s power plants.

This type of intervention might make sense if there were fears of non-compliance and unenforceability in Phase 2 of the EU ETS, but there are not. If double crediting is sufficient to get CCS off the ground, it will cause a net increase in emissions and a reduction in the allowance price as the additional allowances are sold or used.

Other types of public support (such as a direct subsidy) for CCS would be likely to reduce the allowance price too, but they wouldn’t increase emissions – rather they would move reductions into coal from other sectors.

Coal generation accounts for an estimated 24% of European greenhouse gas emissions. This proportion will increase over the next 20 years. A successful double-credit scheme could more than wipe out the reductions that will be made in the EU ETS.

Government seems unsure whether it wants a domestic renewable industry or not

Posted in Climate policy with tags , , , on March 31, 2008 by Dan

The UK supports an EU target that will require it to generate 15 per cent of its energy (which is likely to mean 30-40 per cent of its electricity) from renewables by 2020. The UK has a low baseline of renewable generation and the target will be stretching and expensive – which is why the government has been trying to open loopholes.

According to The Guardian, the government is pushing for carbon capture and British developments in other (cheaper and less regulated) countries to count toward the target.

This is a pretty silly suggestion. The EU wants the target because a) renewables are thought to be a key part of the European response to climate change and b) the renewables industry is not considered capable of getting on its feet with an outcome based mechanism (i.e. one that is based on lower emissions rather than the type of solution) alone. The target is a type of command and control, which has been used because European governments are sure that we need significant renewable generation within Europe, even if the market won’t deliver it.

Allowing non-European or non-renewable generation to count toward it does not make sense.

Green tariffs under fire … again

Posted in Energy markets with tags , , , on March 7, 2008 by Dan

A clamber of quangoey energy/green groups – Energy Watch, the National Consumer Council, the Renewable Energy Association and the Energy Saving Trust – have written to Defra to suggest that electricity suppliers be required to provide information on the fuel mix used in each of their customers’ tariff. Their issue is that green tariffs are not transparent.

The real issue with green tariffs is that most suppliers allocate, or ‘match’, their renewable generators with green tariff customers. Because the suppliers purchase or generate a proportion of their electricity from renewables regardless of the tariffs their customers are on, they are able undertake this ‘matching’ exercise without building any new renewable capacity.

Mandatory disclosure of individual fuel mixes would not address this issue (and in fact wouldn’t really make much sense, given that electricity is delivered through a shared grid). Disclosure for the supplier as a whole would, and it would also make green tariffs unworkable. This might not be a bad option. A better option still would be to regulate green tariffs (or clearly accredit them, if regulation is not feasible) so that they must deliver extra investment in new generators.