SEPTEMBER 17, 2021
By Paul Homewood
Alarm bells have been ringing in European and UK power markets this month, as electricity prices surge to record levels. Here day-ahead prices are triple those of a year ago, and European markets are seeing the same happening, a sign of serious instability in European grids.
The immediate trigger has been low wind speeds across much of Europe in the last few weeks, meaning reduced outputs of wind power. This has led to a shortage of power on the grid, and a consequent spiking of prices. This sort of thing occasionally happens in winter when demand is high, but is unheard of in summer months, indicating that something is going badly wrong.
But this problem is not a one-off. It is much more deep seated, and has been building up for years. UK wholesale electricity prices have doubled since this time last year. There are many factors, including rising demand for natural gas from Asian countries as they rebuild their economies. Normally this would incentivise higher production of gas, but this has been discouraged in Europe in recent years, and seemingly now also in the US.
But most of the problems in power markets have been self inflicted. Arguably the biggest factor this year has been the doubling of EU carbon prices, deliberately engineered by the EU to force fossil fuels out of the mix, in favour of renewable energy. UK carbon prices have followed suit.
As coal has the highest carbon footprint, this has encouraged the switch of generation from coal to dearer gas power, thus increasing demand for natural gas already in short supply. Both coal and gas generators have to pay this carbon price, forcing up their costs and consequently prices even further.
On top of that comes the £12bn a year cost of renewable subsidies, currently added to all of our electricity bills, equivalent to £440 per household.
Meanwhile huge tranches of reliable, dispatchable generation have been shut down both here and in Europe. In the UK, for instance, coal and oil generating capacity has dropped from 29 GW to just 6 GW in the last decade. To put this into perspective, UK demand peaks at around 50 GW, so we have lost half of this, leaving our reserves perilously low. The remaining 5 GW of coal power will also be gone in three years time.
The plan of successive governments was that new gas power plants would be built to take up the slack, but this has not happened. Gas power capacity is no higher today than it was in 2010. Because of the obscene subsidies paid to renewable generators, as well as rising carbon prices, new gas power plants are simply not economically viable. We still have 35 GW of gas capacity, the same as ten years ago, but much of this is old plant, due to close in the next decade, and there is little sign that it will be replaced.
The situation in Europe is similar, and will be exacerbated further by the forced closure of all nuclear power in Germany next year, where it still accounts for a tenth of electricity. France is also planning to phase out much of its nuclear power.
All this at a time when demand for electricity will soar because of the enforced switch to electric cars and heat pumps.
There are the inevitable calls to solve this problem with yet more intermittent renewable energy, but this can only make the power system more unstable still.
And how is Britain planning to cope with this crisis? Rely on interconnectors to import electricity from Europe!
The National Grid’s Future Energy Scenarios are based around up to 25 GW of interconnector capacity, which amounts to playing Russian Roulette with our energy security. As we have seen this month, when we are short of wind power, the rest of Northern Europe tends to be as well.
What guarantees are there then that France, say, will allow its power to be exported when they themselves are short of it. Indeed, last week Ireland shut down the Moyle interconnector to Britain, built to export surplus Irish wind power. The reason? They too were short of electricity!
To cap it all, a fire has just taken out the 2 GW interconnector between Britain and France, and it is expected to be out of action till next March.
Russian Roulette with a fully loaded pistol might be a better description!