Sunday, June 12, 2022

ELECTRICITY, STORAGE, RENEWABLES AND NUCLEAR

                   

Sir Christopher Llewellyn Smith presented an important paper on energy storage to the 2022 Oxford Energy Day, of vital relevance to the UK’s net zero ambitions. The methods and findings also have implications for, and should trigger similar analysis in, many other countries planning to rely on weather dependent forms of low carbon generation. The basic question is how best to combine the storage of surplus output from low carbon sources (nuclear or renewable) when output is high and consumer demand is low, with the need to draw down when demand is high and output low. 

 

Drawing on material prepared for a forthcoming report to the Royal Society, and previously also presented to BEIS[1], he outlined both the complexity of the choices that lie ahead and the information, assumptions and methods necessary to resolve them. In principle the storage issue is not confined to renewables, but applies to any system with less flexible generation, eg baseload nuclear, if output is not immediately controllable to exactly match load. 

 

A precondition for understanding the economics of storage is to appreciate the significance of both the frequency of the charge/discharge cycle and the scale involved. It’s often widely assumed by commentators that solutions are simply a matter of advancing battery technology, thus reducing the cost per kWh stored of battery capacity, together with more pumped hydro storage facilities. Batteries, plus pumped hydro and a few other technologies for short term storage at similar cost, together with measures to persuade consumers to spread their loads, are likely to be sufficient to managing short term balancing and the average within the day mismatches between consumer demand and variability in renewable supply.

 

But these are not not nearly adequate for a renewables based system of the nature currently envisaged for the UK. One reason is the frequency or infrequency of the charging/ energy release cycles. It is relatively easy to justify £ 75-100 per kWh of storage capacity for a battery[2], or a similar capital investment in pumped storage[3], when there is a daily or more frequent charging cycle and the fixed cost of the capital investment is therefore spread over up to 365 days a year. This is not the case for seasonal storage, or, for provision against extreme weather events. With an annual or less frequent cycles for a single charge and discharge, such a high capital cost is unaffordable. 

 

The other factor is scale. The scale of summer/winter compared to daily imbalances is an order of magnitude greater, up to 2000 times greater than daily imbalances, although for the UK this can be substantially reduced with the right mix of wind (winter) and solar (summer) renewables.[4]  The bigger issue is weather variability. This goes well beyond daily volatility and including both “wind droughts” that can last a couple of weeks and very substantial multi-year variations.

 

This scale necessitates much lower capital cost storage solutions, even if the “round trip” energy conversions are less energy efficient than batteries. On current knowledge this implies some form of chemical, thermal or large scale compressed air storage (ACAES).  “Green” hydrogen produced by electrolysis is currently seen as the leading option, and the working hypothesis in the study for the Royal Society. 

 

Renewables generation in the UK is currently based mainly around wind and solar, and their weather dependent nature largely defines storage requirements.  Most significant are “extreme” weather events, such as an extended “wind drought” when the wind is not blowing anywhere in Northern Europe, and big variations driven by the North Atlantic Oscillation in annual renewables output – years with less sun or less wind. 

This highlights the importance of meteorological data. Substantial variations in annual output, and sustained deviations from average, mean that looking at just a few years of data does not reveal the scale of the problem. Llewellyn Smith uses “middle of the road” projections for consumer load, and “real weather” meteorological data over 37 years for his assessments, though expert meteorological opinion is that even this may not be enough to capture extreme events. In itself this is an important observation and is compounded by uncertainties over the future impact of climate change on UK weather.[5]  

Importance of the right mix of renewables

 

A first, and surprising, result is that, for the UK, and at least with projections of current load patterns, the need for storage is dominated by weather volatility not (as often asserted) by seasonality per se. In other words what matters is extreme weather or unusual weather patterns, eg two or three weeks of no wind or whole years with poor renewables output.

Typical or “average” seasonal storage requirements could actually be largely managed by having the right mix of wind and solar, with an 80/20 wind solar[6] split as one feasible option on the basis of the particular assumptions in the study.

 

However one of the findings of the study is that even the seasonal imbalances between summer and winter can vary substantially from year to year, reinforcing both the need for much more concentration on weather volatility, and the conclusions on the need for substantial long term storage provision.

 

Exactly how much storage is required will also be an economic choice based inter alia on the relative costs of storage and renewables capacity, and on conversion capital costs and efficiencies, but initial indications suggest numbers in the range 130- 200 TWh, serviced by 80-120 GW of electrolysers. The TWh of energy storage is very substantially higher than simply seasonal balancing needs, and represents over half total current annual consumption, while the electrolyser capacity in GW comfortably exceeds current peak demand. 

 

The result demonstrates the system importance of managing the mix of weather dependent renewables. Bringing baseload nuclear power and fossil generation with carbon capture into the choice of technologies also offers further options, but at least for a system with substantial renewables content, the analysis has essentially similar characteristics with respect to storage investment choices.

 

Most analysis has ignored capacity required for both input to, and extraction from, storage.

 

In the past reliability provision has been dominated by the need to meet “needle peaks”, to have sufficient kW capacity to meet extreme conditions perhaps experienced in only one half-hour of the year, with adequate kWh of energy reserve provided by stored coal, oil or gas. In the future reliability will depend much more on use of a kWh energy reserve without use of fossil fuel.

 

An obvious but hitherto mostly neglected element in the calculation is the capital investment in the energy conversion capacity required for putting kWh of energy into storage and taking it out for final use. Both require significant high capital cost capacity – electrolysis for the production of hydrogen as input to store (when renewables output exceeds demand), and then use of that hydrogen to generate useful energy, as electricity or heat, when demand is high. Both these types of conversion capacity will also have to operate at relatively low load factors, and the scale of electrolysis capacity will likely need to match that of current generation capacity. The loss of energy in this “round trip” – 41% efficiency for hydrogen - is often discussed, but not the amount or cost of capacity required to charge or discharge from store. This should be sufficient capacity to match either surpluses or shortfalls in renewables output, but there will be a trade-off between the extra costs implied by “wasting” or spilling renewables  output, the size of storage requirement, and spending more on electrolysis capacity. Identifying this gap in the analysis is another important result from the Llewelyn Smith analysis.

 

Policy Implications

 

There are also further general policy conclusions to be drawn from this work. 

 

The first is that there is a clear need for whole system coordination, over and above what can be delivered by markets alone. There is no visible mechanism by which uncoordinated responses to market signals can be guaranteed to provide a credible approximation to the right seasonal balance of renewables, notably wind and solar. Nor is this deliverable through collaboration between localised, decentralised systems. Similar considerations apply to getting the right amount of conversion capacity to ensure an economic and reliable infrastructure for storage – including both the stores themselves and the conversion capacity for inputs to store, electrolysis, and outputs as eventual use of the stored energy. This coordination is essential both at the investment stage and in system operation

 

A related policy conclusion is that the fundamental decisions on power sector investment and infrastructure need to be closely coordinated with decisions for the heat sector. Reliance on heat pumps for example will substantially increase the seasonal imbalances and introduce weather related volatility on the demand as well as on the supply side. 

 

A third is that we need to re-examine and discuss the treatment of reliability and risk in power sector policy and planning. A disturbing message from the meteorological data is that we do need to consider the possibility of very occasional crises, even if perhaps only one every few decades, when there is an extreme and sustained shortfall in energy provision. Such crises are of course not confined to renewables systems. The UK experienced the 3-day week of the 1970s, induced by industrial unrest, and the petrol rationing of the 1956 Suez crisis, and could experience, for example, type fault issues with nuclear power. The issue is how we plan against extreme events. The answer is not necessarily excessive and unaffordable investment in spare capacity, but to accept that from time to time we will have to face major crises which are disruptive but can be managed without societal collapse. The recent pandemic is just one such example.

 

What this might imply for managing some future energy crisis might be deduced from the 3-day week[7]. A temporary shutdown of energy intensive industries, for example, might also be interpreted as the realisation that much of our “store” of energy can in fact be more cheaply held in the form of stocks of the energy-intensive products themselves. There are in reality many ways of managing energy and many other risks. What is required is identification of what the risks are and the development of good coping strategies.

 

Perhaps a final observation Is that we cannot assume historical weather patterns, even over many decades, are not necessarily a perfect guide to what weather we might experience as climate change has an increasing impact on weather patterns, introducing additional uncertainty and additional risks. So climate change adds further risks even to the measures that need to be taken in mitigation.

 

Expect more discussion of these issues as they increasingly impact on our strategic choices. 

 

 

 



[1] The main conclusions (subsequently refined) were presented in April 2021 www.era.ac.uk/Medium-Duration-Energy-Storage and were communicated to BEIS in May 2021.

[2] A credible target given the pace of current advances in battery technology. Peter Bruce’s assessment of battery costs at the Energy Day suggested an estimate of this order.

[3] Dinorwic pumped hydro in North Wales stores about 8 GWh output of energy. It cost c £425 mn in 1990, or about £ 100 per kWh in 2022 money. Current lithium battery costs have recently fallen to this level and can be expected to fall a little further, perhaps to around £ 75 per kWh. 

[4] We can define a hypothetical storage need for “flattening” a load curve as the storage needed assuming 100% conversion efficiency, 100 % load factor of generation output which exactly equals total consumption. On this basis daily load curve flattening, historically, needs a mere 80 GWh, about 10 Dinorwics.  But a notional flattening of the annual curve, calculated from monthly seasonal pattern, needs about 17,000 GWh or about 2000 Dinorwics. In fact as the analysis shows, this need not depend entirely on storage and, for current seasonal patterns, could be largely managed by seasonal balancing (wind/solar mix) of renewable  capacity. Current UK annual consumption is of the order of 300,000 GWh. (Seasonal balancing needs can be checked from data at statista or other data sources)

[5] The Met Office suggest this does not provide a sufficient sample of “rare” weather events, indicating the need for contingency provision.

[6] Readers may be surprised that a smaller solar percentage actually requires storage of winter output for use in summer.

[7] It is interesting that at least one commentator has suggested that Germany, given the risks of its high dependence on gas, might usefully learn from UK experience in 1973/74 measures.

Sunday, December 12, 2021

DECENTRALISED POWER GENERATION. DOES IT INCLUDE A FUTURE FOR COMBINED HEAT POWER? AND WHERE DOES THE BALANCE LIE?

 

Decentralisation is one of the three D’s for the future of low carbon energy sectors. It sits with decarbonisation as another factor driving smaller scale renewables generation, and digitisation, potentially enabling more localised control. But how much does the future lie with smaller local systems? Will a centralised National Grid remain at the core of the power sector? And will there be a resurrection of the prospects for localised combined heat and power schemes?

One organisation pushing a decentralisation agenda is the Association for Decentralised Energy (ADE). However their recent report makes some extravagant and misleading claims about the waste of energy in the “centralised” and “legacy” power systems that the UK currently enjoys. The report implies easy routes to eliminating waste, implicitly through combined heat power (CHP) schemes.

“Inherited from the public system of the 1960s and 70s, less than 10% of UK power stations currently recover waste heat, and this represents a missed opportunity to save £2 billion annually.”

The apparently obligatory deference to supposed virtues of the UK privatised power model, and the assumed culpability of a distant public sector past, are contradicted by historical fact. Almost all current power generation, both in renewables and combined cycle gas turbines (CCGT), is from plant built after 1990, within a supposedly “market driven” privatised power sector. About 2.1 % of November 2021 generation was from the nationalised industry “legacy” of coal, and none is baseload.

Wastage and CHP

ADE adopt the rather tired and misleading argument that electricity generation from fossil fuel “wastes” heat energy, and that combined heat power, essentially a decentralised operation, could therefore provide a substantial contribution to a low carbon economy, with considerable cost saving and efficiency gain.

This subject requires some understanding of the thermodynamic principles of energy and entropy. Not all energy is "useful" in the thermodynamic sense of its availability to perform real work (or even to heat homes effectively). “Waste” is an emotive and misleading way to describe the truth that conversion from “low grade” energy (eg coal) to something useful, like electricity, consumes energy en route. An internal combustion (ICE) vehicle may “waste” 75 % of the fuel in the tank but no-one imagines this waste heat is easily captured by the driver for useful purposes[1]. (Switching to electric vehicles offers three times the notional efficiency at point of use, but will of course incur upstream heat loss if from thermal generation.)

Combined heat power (CHP) schemes aim to make use of the heat content lost in fossil fuel generation to improve the overall efficiency, either through use of high temperature heat in industrial processes or lower temperature heat for buildings in winter. This is a laudable aim but it has an increasingly limited economic or carbon reduction potential for several reasons.

First, a much more compelling case for CHP was made, but without much success, in the 1970s, when the best fossil generation had thermal efficiencies in the 35-40 % range, and domestic gas boilers were about 60 % efficient. CHP offered theoretical overall efficiencies of 80 % (before distribution). The 1990s development of combined cycle gas turbine (CCGT) generation, with best in class efficiencies of around 65 % in baseload operation, and domestic condensing boilers with 90 % efficiencies, eliminated most of the theoretical cost and energy savings from CHP.

Second, efficiency claims for CHP systems were, even then, frequently overstated. Heat is lower-quality energy than electricity, and only at high temperatures does it become close to comparable utility. The number of such high temperature applications is limited, largely to industrial process heat, and was not helped by UK de-industrialisation. The more modest efficiency gains with low-temperature waste heat use, with potentially wider application to residential heating, carry heavy retro-fitting costs, and don't necessarily lead to substantial improvement in overall energy use, due to lower thermodynamic efficiencies, particularly if heat network and distribution losses are taken into account.

Third, and most crucially, a zero carbon economy requires rapid elimination of virtually all fossil fuel use, starting with its use in power generation. Renewables such as wind and solar, at whatever technical efficiency, do not in any case generate “waste heat”. There may be a plausible future role for heat networks fed by smaller scale modular nuclear reactors, but otherwise the potential for fossil-based CHP schemes seems to be confined to a very few niche applications.

“The UK could save the equivalent of £23 per household just by upgrading our electricity network's efficiency to match that of Germany's.”

International comparisons are often dangerous guides to reality. Losses in developed economies are a function of geography and economic structure as much as efficient network management. A casual inspection of energy statistics indicates that in Germany industrial consumption is nearly double that of domestic, while in the UK the reverse is true and domestic use exceeds industrial, reflecting the demise of much of UK heavy industry under the Thatcher governments of the 1980s and 1990s. Since heavy industry is almost invariably connected at much higher voltages, and much larger percentage losses occur in medium and low voltage distribution networks, Germany’s lower figure tells us little.

A good case can be made for additional capacity investment to reduce UK network losses, and even more so to support the stronger networks needed to cope with the big increase in electricity’s role in a low carbon economy. Some of the network companies regularly make that case, but of course investment has to be paid for, and loss reduction does not therefore automatically lead to lower consumer bills.

Centralising or decentralising factors in a low carbon economy.

The future balance between decentralisation and centralisation requires a much more nuanced analysis. It will of course be geography specific, but we can note a number of factors, in the UK at least, tending towards centralisation and a strong transmission grid:

·         A high proportion of currently projected low carbon sources of power are either intrinsically large scale, like conventional nuclear, may depend on a substantial network infrastructure, like carbon capture, or are remote from consumer load, with long transmission lines, and require central coordination to exploit weather diversity, like offshore wind.

·         Inflexibilities or variabilities in output – for nuclear or renewables – mean that larger interconnected, and inevitably to some degree centralised, systems enjoy major advantages in reducing the cost of reliable supply. Small systems, perhaps with a single source of renewable energy, need interconnection. And the UK system benefits from international interconnection.

·         The importance and relevance of energy storage for power systems can accentuate the above.

On the other hand, there are forces for decentralisation.

·         There is demonstrably an essential need for much more consumer involvement in the operation of power systems. Low carbon generation gives rise to much more complex needs, including the management of overall demand with more sophisticated tariffs having a major role. 

·         There is a plausible role for heat networks, as one alternative to heat pumps, of which CHP associated with modular nuclear is one possibility. These may be the more suitable option in some urban environments. They require substantial investment in retro-fitting and communal maintenance and strong local governance structures such as local heat authorities.

·         Changing patterns of electricity generation and use may create new and localised problems in the management of lower voltage networks, so that more control, management and governance systems are required at lower voltage levels, but without reducing the importance of the high voltage transmission grid.

…………………………………………….

Some of these issues can be explored in much more detail elsewhere.

The future of low carbon networks. Heat networks. Enabling Efficient Networks For Low Carbon Futures | The ETI

The future of consumer and network tariffs in a low carbon economy. How must energy pricing evolve in a low-carbon… | Oxford Martin School

 



[1] though the internal heater may recover a small fraction of that in winter

Tuesday, November 2, 2021

HOPES AND FEARS FOR COP 26

 

Alok Sharma, acting as President for COP 26, will no doubt do his best for positive outcomes from this climate summit, not least by announcing his personal conversion to vegetarianism in the interests of our planet, or rather human and animal life on it. 

Climate politics has shifted. The rapid increase in public awareness and concern, both in the UK and internationally, and resulting pressures on governments, make the very real issues impossible to ignore. And as I indicated in my last post, the current government deserves some plaudits at least in respect of the late conversion of its members to acceptance of the climate science, its proposed general direction of travel to net zero, and against the many residual sceptics and deniers in its own party.

But there are big areas for concern.

UK leadership. The Brexit legacy is a first order disaster.

More than most general international agreements, progress and action on promises of emissions reduction depend heavily on a high degree of trust between major players. For COP 26 the behaviour and standing of the host nation are important. We have come a long way down since Tony Blair put the UK on the moral high ground as the first nation to enshrine serious climate targets in law. In particular the UK has    

·         shown a willingness to break solemn treaty commitments (the NI Protocol) within months of signing

·         seeks trade deals with major climate culprits Australia, without climate conditionality, and

·         ignores consequence of substantial additional carbon emissions from shipping, with such deals

·         chosen to support an extremist Polish government of climate denialists against the EU

·         has been at best ambivalent over development of its own coal, oil, and gas resources.

·         chosen in the last week to reduce taxation on internal flights

·         wasted time and goodwill on an irrelevant and trivial spat over fishing rights with a supposed ally

The Big Emitters. China, India, Russia and the USA.

China and India have huge populations and the potential for disastrous levels of future emissions. The USA, as the biggest historical emitter, remains an equally serious concern, mainly because of the irresponsibility of Trump and the American Right, while Russia is another major power with huge fossil fuel interest. But for all these countries COP 26 sits in the frame of other internal and external political agendas.

If the world’s biggest polluters – America, China, industrial Europe, India, Russia and others – meet their responsibilities fully then the worst of the climate catastrophe can be averted. (Independent)

And there are causes for hope. India and China are also among the countries at the greatest risk from the impacts of climate change, and are perhaps making more progress than is normally recognised in the Western media. Russia has a 2060 net zero target and argues correctly that cumulative emissions matter more than arbitrary dates for zero. Whether all this translates into meaningful headline commitments at Glasgow is much more doubtful.

All about the money. Jeffrey Sachs: ‘I see no financial obstacles to getting to net zero by 2050’

A consistent theme in international climate negotiations has been the necessity for large scale financial transfers to the Global South. Since the responsibility for limiting climate change to 1.5o or 2.0o will ultimately and inevitably fall on the wealthier countries with the deepest pockets, aid to support low carbon initiatives will turn out to be more cost effective, for the donors of aid, than the ultimate alternative of direct carbon capture. The issue here is not whether those transfers happen, but how large they need to be, division of the burden, and how we can be sure the resources are deployed effectively.

The other financial dimension will be domestic resources for low carbon infrastructure – for decarbonising power, electric vehicles and low carbon heat systems. But, as discussed previously, the scale of this is of similar or lower order than many other challenges such as late 20th century oil price shocks. There will be similar “Who pays?” questions but they sit within the wider framework of policies to limit inequality and protect the poor.

One easy win. But will we get it?

Bitcoin and other crypto-currencies impose huge carbon footprints for activities with no real value. International agreement in Glasgow to discourage these should be a simple win-win agreement between governments. But will it happen?

The last chance saloon?

Huge hopes are invested in COP 26, but whether it succeeds or fails, itself hard to measure, it will not be the end of the story. With "success" it may perhaps be the end of the beginning. But "failure" will just mean the issues will just need to be pushed with even more persistence in the years ahead.

 

Thursday, October 21, 2021

TWO CHEERS FOR UK GOVERNMENT’S NET ZERO STRATEGY.

 

Many observers will rightly point to gaps and perceived weaknesses or inadequacies in the the Net Zero strategy. But the general direction is better than we might have expected from a collection of former science deniers, and will need to be defended against sustained attack from groups of Tory backbench reactionaries.

“More joy in heaven over one sinner that repenteth ….”

The transformation of some of our political leaders from positive hostility to the findings of climate science, to at least a grudging acceptance of its realities, or even apparent enthusiasm for a Green future, is remarkable and welcome.

Let’s not forget, though, the past role of such as Nigel Lawson and the Global Warming Policy Foundation, or “think tanks” such as the Institute for Economic Affairs, among many others, in obscuring the issues, and delaying general acceptance and understanding of the truths that have been evident to most scientists and intelligent observers for at least twenty years. This historic guilt can certainly be found in the present Cabinet and there are many unreconstructed MPs in the governing party who cannot be relied upon to support net zero policies when the going gets tough, as it will.

Even our PM’s recruitment to the crusade against greenhouse gas emissions is, he admits, recent. It is not so long since he himself was querying the scientific consensus, dabbling in crackpot theories about sunspots, and disparaging windfarms. The real test will arrive when he has to confront opposition from the climate sceptics within his own party. That will start soon. 

Defeated on the science, the sceptics and fossil fuel lobbyists are now regrouping under the banner of climate action as “too expensive”, and we can expect to hear more from that caucus of MPs – the “net zero scrutiny group” – as the requirements become more apparent.

Two Cheers.

It’s quite clear, and not just from the Net Zero paper itself, that the government does grasp the main priorities for policy, unsurprising since they have the benefit of years of reports from the Committee on Climate Change. Decarbonising the power sector, through some combination of nuclear and renewables, is the crucial first step. The ambition to fully decarbonise by 2035 is welcome.  Then comes the switch from internal combustion (ICE) to electric vehicles (EV). This is now gathering momentum, and not just in the UK.

But the third major building block has to be residential heating. This will be slower, more expensive and more difficult, and will be more contentious while heat pumps remain expensive and largely unproven. Slower progress in this area is the only realistic prognosis, and household fears for the cost and efficacy of low carbon heating are already surfacing. Progress here will necessarily be a marathon not a sprint. This is the area with the most problems to be resolved and where we are most in need of more coherent plans.

Economics and Finance. The Gaps.

The government’s ideological position emphasises the role of the market. Important though this may be, every innovation, from heat pumps to small nuclear reactors, will also depend on government financial commitments. Indeed that commitment is already necessary to ensure sufficient generating capacity of any kind. A solid regulatory framework is also necessary to underpin private investment and provide consumer tariffs that allow consumers to make low carbon choices.

“Public money is essential to kickstart the net zero journey and turn expensive new technology into affordable everyday infrastructure.” (The Guardian) There are signs of tension between the Treasury and other departments over the pace and cost of the government's net zero plans.

The Net Zero Review does not appear to have given too much ammunition to government critics by overstating costs of a net zero transition. The final version of the report, while not presenting a formal cost-benefit analysis, argues that a well-managed net zero transition can deliver net economic benefits to the UK. “Global action to mitigate climate change is essential to long-term UK prosperity," the review states. However this is unlikely to deter the dedicated opponents of any effective action to counter or mitigate climate change.

Political battles ahead

Indeed the “net zero scrutiny” group are already busy inventing their own facts, as I demonstrated in a recent post on infrastructure requirements for EVs, and making extreme claims about the supposed injustices of policies, such as those on EVs, to promote decarbonisation. We should expect a spate of scare stories and misinformation related not just to EVs but to any new technology that moves us away from fossil fuel. These are likely to focus on heat pump plans in particular, where there are some real practical and financial issues, and net zero aspirations are most vulnerable, or may at least take longer to achieve.

Despite whatever reservations there may be as to the sufficiency of the government’s plans, however, the immediate challenge will be to maintain and strengthen the wider public consensus that recognises the gravity of the climate crisis and the need for action.

Monday, October 4, 2021

ELECTRICITY TARIFF REFORM. SHIFTING THE BURDEN FROM ELECTRICITY TO GAS IS A START

 

Plans to shift green surcharges from household electricity bills to gas bills are an overdue and welcome reform. With the necessity to shift consumption away from gas to low carbon power, taxing electricity but not gas has been perverse. In particular it conflicts with policies to shift residential heating to electricity-based systems, especially heat pumps. It was one of several key recommendation of the 2019 report, on network tariffs for a low carbon future, that I prepared for Energy Systems Catapult. So it’s satisfying to see the proposed change.

However this shift is probably not enough on its own to provide a clear incentive for consumers to switch from gas to electric systems, including heat pumps, even if the present surge in gas prices is sustained. A more fundamental recasting of the structure of electricity tariffs will be essential, notably a significant change towards recovering far less of the fixed costs of network infrastructure through the kWh charge. This is a profound change, and may require additional measures to prevent the regressive effects of a larger burden on lower income households. But it can be done in ways that are consistent with equality or levelling up agendas.

The flaw in current tariffs

The incremental costs of supplying energy are the right basis for any price and tariff comparisons that consumers make when choosing a heating system. Costs should ideally include all environmental costs and these may be expressed for example as a carbon price. Energy costs are however only a part of the story for the tariffs faced by consumers. For residential consumers, up to 50% of total costs reside in the fixed costs of the networks, concentrated in the local distribution networks. The marginal cost of accommodating extra throughput is, at least in uncongested networks, very low. But the fixed cost still needs to be recovered. How best to do it poses some difficult questions in terms of reconciling considerations of equity and income distribution, on the one hand, and the efficient allocation of economic resources on the other.

Current UK practice for smaller retail consumers is simply to average most fixed costs over all units of energy sold. This seems fair, and prima facie results in those who consume most (and might broadly also be those with higher incomes) paying the most towards the fixed costs. However it distorts the economic message, that the actual marginal or incremental cost is much lower. This leads to at least two major problems.

1.       It exaggerates the incentive for individual consumers to instal their own forms of power generation, even if these incur high resource or environmental costs, simply in order to avoid network charges. There is no saving in overall fixed cost and, while individual consumers with own generation may benefit, a larger share of fixed public network costs is then picked up by others. Total societal costs increase. Incidentally, this also tends to benefit the wealthier households who are more likely to instal their own generation.

 2.       Policies for a low carbon economy rest on persuading consumers to use large amounts of extra electricity for heating (eg with heat pumps). The high unit kWh rates that result from the current practice of spreading the fixed costs over all kWh then become a very serious obstacle, particularly when the consumer choice is between electricity and gas. This is reinforced by the matter of high per household capital costs for retrofitting heat pumps.

 

For household consumer, a higher fixed charge in the tariff, and a lower unit energy charge, transforms the choice between using the low carbon solution (electric heat pumps) and traditional fossil fuels (gas or oil).  I examined this in my 2019 report, but it is worth recalculating in the light of recent price trends. Assuming 10,000 kWh per annum consumption, a coefficient of performance (COP) of 3 for heat pumps, and 90% efficiency for modern condensing boilers (both slightly optimistic), the message is clear.

 

Economics of Heat Pump vs Gas [Energy Cost Only]

 

elec tariff p/kwh

Elec useful heat p/kWh

Gas tariff

p/kWh

Gas useful heat p/kWh

Heat pump

saving £ pa

Current tariffs[1]

 

14.50

4.83

3.86

4.29

-54

Current tariffs

and + 1p/kwh CO2 tax on gas[2]

14.50

4.83

4.86

5.40

57

Reform tariffs + CO2 tax.[3]

 

7.50

2.50

4.86

5.40

290

Reform tariffs + CO2 tax + permanent high gas price[4]

7.50

2.50

8.00

8.89

638

 

With current tariffs, heat pumps struggle to be competitive with gas even on running costs. A 1p per kWh carbon tax on gas, or its equivalent, helps to shift the balance (to a small advantage for heat pumps). Tariff reform has a much larger impact (2.5 times), and this is of course hugely reinforced if we assume permanently higher gas prices. This takes us at least part of the way to compensating households for the higher capital costs of heat pumps.

Disadvantages to poorer consumers

We noted above that some wealthier consumers benefit from current tariffs through the arguably excessive implicit subsidies to own generation. Other beneficiaries include second home owners with very low annual consumptions. However the regressive impact of a necessary tariff reform cannot be ignored. But there are many different options available.

One is to change the basis for applying standing charges to consumers. One proposal put forward has been to collect contribution to fixed costs through tariffs based on property values, akin to traditional approaches in water based on rateable value, or property tax band.

Another is to limit the application of the lower tariff rate to consumption for heating, but not for other purposes. Modern technology makes separate metering, as well as the detection of any metering fraud, a very plausible option.

………..

The conclusion must be that tariff reform will be an essential component of any national strategy for the decarbonisation of the heat sector.



[1] Average kWh rate for UK, and recent variable rate British Gas tariff for gas.

[2] Set at 1.0 p/kWh as first approximation to likely impact of transferring environmental cost burden to gas. I used a higher number in the original report

[3] Assumed future average wholesale power cost of 7.5p/kWh

[4] Assumed winter gas price of 170 to 210 p/therm, deduced from recent reports

Tuesday, September 21, 2021

ENERGY CRISIS? MARKET FAILURE, INCOMPETENT GOVERNMENT, COVID, OR JUST ANOTHER MANIFESTATION OF BREXIT.

 

Nothing better illustrates the complex interdependencies in modern economies better than the cluster of interrelated threats now hitting the UK with high gas prices, gas company failures, HGV driver shortages and supply chain problems, and shortages of CO2 – all interacting and impacting on food supplies, supermarket and fuel deliveries, and retail price inflation. So looking for the OBE – One Big Explanation – is a mistake.  But the explanations, excuses and blame shifting currently in evidence are interesting and various. As usual they will include personal prejudices and ideologies as well as informed analysis. Here are a few from the last few days, and an attempt to give a considered, but still personal, verdict on each. The perspective is examination of UK response to both global trends and UK circumstances.

In energy at least it’s just the global gas market and supply shortage. There are multiple causes, and all we can do is try to mitigate the impacts. This contains an essential truth, with a well-established willingness to pay much higher prices (for LNG) in Far East markets, together with more immediate and temporary factors such as weather or low renewables output triggering dramatic spikes in gas prices. But in spite of meeting up to 50% of demand from domestic production, UK prices remain highly exposed to international markets and possibly have surged more than elsewhere in Europe. Decisions to leave the EU's single market for energy, and to make Britain more “independent”, plus reduced reliance on storage, are additional factors that may be exacerbating the UK crisis. Verdict. Global and more regional, European, factors and trends are real and substantial; but the obvious criterion for judging UK government and institutions is UK performance in comparison with other EU countries, most of which are significantly more import dependent.

Covid? It is hard to see why the fading impacts of the covid pandemic should be very different in the UK from the impacts in other countries which have suffered very similar levels of infection. Verdict. Covid will have affected everything in the last 18 months, but as an all-purpose excuse, this is starting to sound rather tired.

It’s all down to our obsession with climate change, and trying to go green, at the expense of energy security. So, if we had doubled down on our dependence on gas, we would be better placed to manage a global tightening of gas supplies? Prima facie, earlier moves to low carbon sources, renewables or nuclear, would have reduced gas import dependency and mitigated the current crisis. One might also more justifiably argue, in relation to the related CO2 shortage, that Osborne’s highly controversial 2015 cancellation of carbon capture projects (essential components of global low carbon climate strategies) deprived us of an obvious alternative source of CO2. This would at least have reduced the risk to food production that was an indirect consequence of the gas price spike, and avoided the need for a government subsidy to CO2 production. These potential supplies might well have been in the wrong place or lacked delivery infrastructure, but this is at least a logical response to a silly argument. Verdict: blaming Green policies to reduce fossil dependency is both counter-intuitive and, in this instance, simply wrong.

Turning to the transport sector, other long term trends, including demographics and an ageing HGV workforce, are to blame. Other countries face the same HGV problems. These are exactly the trends markets are supposed to anticipate, manage and remedy, eg via higher wages and industry training initiatives? The UK has been particularly badly hit, largely due to the post-Brexit exodus of EU drivers. Verdict. These are trends that should have been anticipated, so this is a partial explanation or excuse at best. Comparison with other European countries, which do not have empty shelves or petrol queues, is instructive.

Failures in the design and regulation of UK energy markets. UK electricity trading arrangements do not deal adequately with reliability. Consequently, in the power sector, government has already assumed de facto responsibility for capacity planning. But the current crisis is primarily in gas and responsibilities for security are less clear than in other parts of the energy sector. Traditionally, public utilities supplying essential services like gas were regulated monopolies for a reason. Competition, the Tory and Thatcher mantra for decades, should have been fine provided there was a means of enforcing an obligation to supply on all market participants. Absent that, together with a weak regulatory framework and no clear responsibility for delivering reliability, and problems begin. There is every incentive for aggressively competitive suppliers to undercut more prudent suppliers who have covered their commitments to consumers by contracting for firm future supplies, sometimes at a higher but guaranteed price. This can lead to gambling on permanent excess capacity and the assumption that spot prices will always be low. Failure to anticipate price spike risk puts some companies in trouble and leads to systemic risk for the sector and government bailouts. Verdict. This is a regulatory and policy failure by the UK government, over decades, but it is also a major factor in the current crisis.

It’s Brexit, stupid! Brexit adversely affects both transport and the energy sector.  Undoubtedly the loss of EU drivers is a major factor, probably the biggest, in reducing HGV capacity. But Brexit has also made haulage less efficient. It limits the cabotage rights which made UK (and EU) haulage more efficient. A truck from Spain dropping fruit in Glasgow could pick up dairy in Glasgow for delivery in Hull, then fish in Hull for delivery in Madrid. Ending cabotage is equivalent to reducing effective HGV capacity.  

Trade with Europe in both gas and power remains important for our security. Brexit inevitably puts more friction into that trade, though this may have so far had at most only a limited impact on exchanges of power or on energy security. But it could become a significant factor in a more serious energy crisis, just as in other supply chains. Verdict. Brexit consequences, positive or negative, inevitably impact on almost every aspect of the economy and this includes energy, transport and trade.  

It is the downside that is currently in evidence, summed up in the following quote. “Energy price hikes, empty shelves, chronic labour shortages, tax rises, rampant inflation and that’s before we start talking about farming, fish or the motor industry. Where is the Brexit Wonderland we were promised?”

 

Friday, August 6, 2021

COSTING AN ELECTRIC VEHICLE FUTURE. IGNORE THE ALARMISTS.

 

Contrary to recent claims from a group of our MPs, EV demands on our power system infrastructure do not lead to national bankruptcy.

The All Party Parliamentary Group opposing government policy on electric vehicles claim in a new report that the required investment in electricity generation will “bankrupt UK plc”. Unfortunately for this claim, it is based on some major errors of fact and understanding. These exaggerate investment costs by a factor of 25 or more, even on the basis of a rather pessimistic cost assumption that is the authors’ starting point.

Thirteen MPs and Lord Lilley have endorsed a new report[1] from the All Party Parliamentary Group[2] for Fair Fuel for UK motorists and UK hauliers. The press release describes it as ground-breaking. However the report consists largely of a stitching together of questionable “facts”, opinions and arguments from multiple sources and special interest groups, and contains major and consequential errors, of both fact and understanding, for electricity in particular.

Inevitably a central focus of the analysis, and for press headlines, is the additional investment cost required to service the additional electric vehicles implied by government targets. It is this estimate of required investment cost that has provoked the “bankruptcy” claim and headline, so it is worth examining its credibility. The  calculations are set out quite unambiguously in the report.

“FairFuel UK and the ABD have also analysed the economic consequences of dumping ICEs and concur with ... [the] prodigious cost conclusions shown here, to all our lives. The Government’s unilateral decision to commit UK to 75% reduction in carbon by 2030-2035 will increase our national debt by £2.17 trillion.[3]

2020 Consumption of petrol, diesel, bio diesel, bioethanol was 30 million metric tonnes per year. … A 75% reduction target by 2030 -2035 or whatever target date is chosen, means finding enough energy to replace 22.5 million tonnes of fuel per year.

The average energy density of the fuels: petrol, diesel, bio diesel, bioethanol is 12.5 kWh per kilo. That [equates to] 281.25 TWh pa.

Considering one nuclear power station generates about 4 TWh/year, [this] means 70 nuclear power stations are required to offset the 75% reduction in petrol and diesel.

A nuclear power station costs £22 billion, so 70 nuclear power stations =  £1.54 trillion.”

Order of Magnitude Error 1. The calculation ignores efficiency in use.

What matters to the consumer, and hence for aggregate energy consumption, is the efficiency with which different fuels can provide useful energy to deliver the service required.  Internal combustion engines (ICE) have very low efficiencies in the delivery of useful energy compared to electric vehicles (EVs), but the report assumes they are the same.

A typical claim made for EVs by charging networks is that EVs are 85-90% efficient while internal combustion engine cars 17-21%. If accurate, this implies we should divide the APPG estimate of 281.25 TWh by a factor of 4 or 5.

Calculating an equivalent electricity requirement is not just a matter of comparing technical parameters. The reality will depend on many factors including speed, driver behaviour and driving conditions, so there is no single universal answer. Hence it is worth comparing alternative sources and informed assessments. The following quote is from the Australian Energy Council[4]

“EVs convert over 77 per cent of the electrical energy from the grid to power at the wheels. Conventional gasoline vehicles only convert about 12 per cent – 30 per cent of the energy stored in gasoline to power at the wheels,” according to the US Department of Energy. …. Particularly in city driving, IC engines waste fuel while idling or operating at very low outputs compared to their design capacity, and engines at low output achieve very low efficiencies. … And, unlike EVs, most conventional vehicles do not recover the energy wasted to heat by braking for traffic lights.

The well-researched Committee on Climate Change (in its Sixth Carbon Budget[5]) uses an efficiency multiple of about 3, less than the above, but recognises that the nature of EV load also implies a less than proportionate requirement for additional capacity, a view shared by the National Grid.

Carbon Commentary also provide a first approximation estimate[6] of total requirements, for cars, based on an intuitively reasonable calculation from official transport statistics.

A 2017 electric car will typically get 4 miles from a kilowatt hour of energy.[NB 40 mpg for a typical petrol driven car would be equivalent to about one mile per kWh] The average car in the UK travels about 8,000 miles a year. That means that a typical electric car will use about 2,000 kWh a year.  In 2016 there were 36.7 million cars on the road in the UK. The total amount of energy required to power these cars if they were all electric would be about 75 TWh a year.  The total consumption of electricity in the UK last year was about 300 TWh. So if all car and taxi transport was by electric vehicles, the total amount of electricity needed would rise by approximately 20%.

This of course is an estimate that covers only cars and taxis, but assumes 100% rather than 75% replacement. The National Grid[7] likewise does not seem to be unduly concerned with the issue and suggests that “even if the impossible happened and we all switched to EVs overnight”, peak demand[8] (measured in GW not TWh) would only increase by around 10 per cent, or about 6 GW. One reason for this rather low number for peak capacity requirement is that vehicle charging load can be managed so that incremental TWh can potentially be met by much less incremental capacity than would be required for other consumer loads.

Order of Magnitude Error 2.

The report is also at odds with reality in its depiction of the scale of output expected from a 3.2 GW nuclear plant. It takes as its cost benchmark the reported numbers projected for the construction cost of EdF’s 3.2 GW Hinkly Point C nuclear plant (over £ 20 billion), but assumes an electrical output of 4 TWh for that plant. Hence it deduces the need for 70 Hinkly Point C equivalents, or 224 GW of additional capacity. However EdF have quoted an annual output (assuming 90% load factor) of 25 TWh, a scale confirmed by the government in its evidence to the Public Accounts Committee.[9] A more accurate statement of the expected output from this benchmark 3.2 GW plant therefore reduces the scale of investment by a factor of 6.

The error factors are multiplicative, and the result is that the implied 224 GW of capacity calculated in the report, for a 75% switch to EVs, exceeds the more realistic 6 GW suggested by National Grid, for a 100% changeover, by a factor of 37.

Is the Hinkly Point nuclear plant a reliable cost benchmark anyway?

There are several reasons to suppose it is not. The Public Accounts Committee was critical of government procurement performance, and clearly feels the cost of this contract was excessive. It is also generally assumed that subsequent nuclear power plant of similar design would be cheaper. Not least, not everyone will agree with the assumption that all-nuclear is the least cost route to expanding power generation, the implicit assumption that underpins the report’s cost estimates.

Dieter Helm[10] and others have also argued that about 50% of the estimated very high cost of Hinkly C is entirely attributable to the very high return to be earned by EdF over the life of the project. If this were indeed to be financed through addition to the national debt, one might surely expect to apply a much lower rate of return, closer to government borrowing rates. Helm argues for rates as low as 2 or 3%, halving the cost of a station such as Hinkly C. By implication Helm’s arguments alone would imply a further cost reduction by a factor of 2.

………………….

The misunderstandings in the report, at least on relative efficiency and likely cost, and an overall error factor of perhaps between 25 and 50, even on the basis of its own assumptions and methodology, are all the more surprising given that the House of Commons Library has just published (June 2021) an analysis, Electric Vehicles and Infrastructure[11], on the same subject. This is a brief but well-researched source of basic information on the subject under discussion. One might assume it was available to MPs.

In reality, if we do proceed successfully with low carbon generation, electric vehicles have a major positive role to play in helping to balance power systems associated with less flexible generation from nuclear or renewable plant. This makes them an economically net positive option in any low carbon future. But that is a bigger subject to which we can return, and which I have addressed elsewhere[12].

………………

Updated on 3 September 2021 to include additional sources and references

[2] Readers should note that these informal groups of MPs do not have the official standing of parliamentary Select Committees.

[3] This number seems to be the national debt in April 2021, as referenced later. It is intended, one assumes, to be the £1.54 trillion calculated by the APPG researcher.

[8] In large power systems, it is important to distinguish between the additional energy requirement, kWh or TWh, and the amount of additional generation capacity required. The relationship between the two, for different types of consumption, is a crucial element of system economics.

[9] Hinkley Point C - Committee of Public Accounts - House of Commons (parliament.uk). The Department (BEIS) is recorded as stating that Hinkly Point C is expected to supply about 7% of UK requirements, ie about 20-25 TWh.

[10] Energy Policy: What happens next? - Dieter Helm

[11] CBP-7480.pdf (parliament.uk). Electric vehicles and infrastructure June 2021

 [12] Enabling Efficient Networks For Low Carbon Futures | The ETI

......................

ADDENDUM. 19 October 2021

This APPG report has been modified since the above was posted, but the fundamental errors remain.

The relevant paragraphs have been revised to suggest that the output of a nuclear plant of the same scale as Hinkly C could be between 8 (not 4) and 25 TWh, and therefore that the EV requirement is for “between 12 and 35 new nuclear power stations” (not the more realistic 3 that use of more conventional arithmetic would imply).

CHANGES

previous

current

Estimated energy requirement (c 4x factor error)

281 TWh

281 TWh

Output of “a Hinkly C” – a 3.2 GW station

4TWh

8 -25 TWh

Number of such stations required

70

12-35

Cost of a station (presumably a 3.2 GW station)

£ 22 bn

£ 10-50 bn

  

So what has happened.

·       The author has continued to ignore the ICE/EV efficiency issue, which creates an error factor of about 4,

·       and has also taken the point that EdF are claiming an expected 25 TWh for Hinkly C, but simply made this one end of a wide range. As far as I can judge from correspondence, the 8 TWh figure seems to have been constructed in rather an odd way, by looking at the maximum output of any current UK nuclear power station, ie about 1.0 GW, and multiplying by 8000 as the approximate number of hours in a year. But of course Hinkly C is a planned 3.2 GW, and Sizewell B, which is the most recent of existing nuclear plant has a nameplate of 1.2 GW, ie about a third of the size. This has all the hallmarks of someone who does’nt understand the basic units of measurement, or indeed what they are doing at all.

·       The author has also invented a new figure of £ 50 billion as the upper end of the cost range for “a nuclear plant” – implicitly another Hinkly C. This implicitly acknowledges my comment that a £ 22 bn cost of Hinkly might be over the top anyway (and not just because of cost of capital issues), but only by putting in a lower end of £10 bn. The £ 50 bn is sufficiently large, when combined with top end of the range on stations required, to give a high final number that even exceeds the previous estimate of total cost. But both bits are absurd numbers which remain unexplained.

John Rhys.