By Bill Schneider
“Why should a thermal plant spend money in a government-rigged market that threatens a reasonable profit? Why should the plant even remain in the market under these conditions?”
“For IVREs it’s a no-risk deal, with markets guaranteed and taxpayers country-wide adding profits. But what about the need for reliable power?”
This two-part post (Part II here) is a follow-up to Robert Bradley’s recent IER article, “Wind, Solar, and the Great Texas Blackout: Guilty as Charged.” His article discussed how regulatory shifts and subsidies favoring Intermittently Variable Renewable Energy (IVRE) producers resulted in prematurely lost capacity, a lack of new capacity, and upgrade issues with remaining (surviving) traditional capacity. These three factors–“the why behind the why”–explain the perfect storm that began with (or was revealed by) Storm Uri.
Part I below describes how the market was originally meant to work–but has not worked given the governmentally redesigned power market, beginning with generation. The change was caused by:
- Investment monies lured away from developing baseload capacity by government subsidies and special tax incentives, and
- Operating opportunities lured away by “first-use” mandates. First-use mandates are especially pernicious as grid operators must purchase from IVREs whenever they are producing, leaving the reliable generators idle.
The Distortion
Imagine a billion dollars on the table for building a nuclear, coal-fired, or natural gas-fired generation facility. Your financials require a return on investment (ROI) to obtain the required capital from investors and/or shareholders.
You built the facility in good faith, based on robust grid modeling that suggested a significant opportunity to profitably sell your energy over the operating life of the plant. You did due diligence on this opportunity versus the cost, and the ROI was good enough to get signoff on a Final Investment Decision (FID), so the plant received financing and was built. Great.
Assume under the business case that X units of electricity were to be sold into the grid. Based on satisfactory plant performance, the project is statistically certain to sell, say, at least 50 percent of X (obviously making up numbers here but you get the point) and to break even. At a high level, the variables to manage are: 1) Fuel price, 2) Labor costs, 3) Maintenance costs.
This is a normal market–the way it used to be. The utility had an “obligation to serve” and had the ratebase incentive to key capacity above peak-demand scenarios.
Enter government intervention….
IVRE “first-use” mandates. Not only do these mandates require grid operators to buy power from IVREs “first” if they are generating, but these mandates also often require grid operators to pay a premium for IVRE power over any other source.
Your business case has now been kneecapped with a double-whammy: not only are you losing business because IVREs must sell “first,” but there is absolutely nothing you can do to make your power more commercially attractive, since IVREs not only have very low short-run marginal costs—in that the next electron that they can generate is extremely cheap, since wind and solar (and falling water for hydro) are “free.”
In this scenario, due to other political externalities, the price of your fuel (if you are using natural gas or coal) is rising.
Doesn’t look too good for you now, does it? Suddenly the volume of power that you are competing for (that is, market demand) has shrunk because IVREs can “cut in line” in front of you at any time.
Not to mention that with few exceptions, your ability to shut down when demand has dropped—and thus limit your operations and maintenance costs (O&M)—is very limited, especially if you are expected to have power ready to sell if demand suddenly ramps up.
Thus comes the double-edged sword of IVREs: their ability to produce can drop just as quickly as it rises. When that happens, grid operators expect baseload to be ready to sell, often with only a short notice. This means that baseload operators cannot shut down when they aren’t selling; rather, they have to keep their plants warm and turbines spinning in case they are called upon to sell when IVREs cannot.
This condition that baseload operators are forced to wait in is called “spinning reserve” – meaning the plant is operating but not generating any saleable electricity. But it is piling up fuel, labor and maintenance costs (see the list above).
Therefore, if fuel costs are rising, and I am running my generation facility on a skeleton crew, what’s left for me to cut?
Maintenance
Rather than spend money on scheduled maintenance, the generator will try to shore up the red ink by deferring maintenance. The more I am forced to do this (with the alternative being bankruptcy or exiting the market), the more I am playing a game of “Russian Roulette” with my ability to operate.
Planned maintenance is scheduled on the basis of statistical modeling, so I can operate my plant safely and produce saleable energy. I can stretch these statistics by implementing condition monitoring (“con-mon” for short), but eventually I have to maintain the plant if I do not want to risk a failure.
But if I cannot afford to perform the maintenance, I’ll defer items that I think I can get away with, like equipment used to operate the plant in extremely low temperatures, since weather rarely gets “that cold” here in Texas. And I’ve heard what is said about climate change moderating winter lows….
Statistically my risk is pretty low, right?
Until the proverbial holes in the layers of “swiss cheese” line up (some may recall the safety model using this graphic) and suddenly it’s very cold, and IVREs are not generating enough to make up the gap.
And, having deferred maintenance, my plant tries to generate saleable power, but it breaks.
Whose fault?
Yes, in this example, my baseload plant broke. This is the first “why” that the IVRE advocates point out–but they dare not go further. The layers below the initial “why” all involve government having fundamentally “altered the deal” for baseload generators after the fact: IVREs attract investment dollars and are allowed to cut the line for market demand whenever they are generating.
For IVREs, it’s a no-risk deal, with markets guaranteed and taxpayers country-wide adding profits. But what about the need for reliable power?
Conclusion
Why should a thermal plant spend money in a government-rigged market that threatens a reasonable profit? Why should the plant even remain in the market under these conditions?
This is where we find ourselves today: the market is broken, and the risk is that the “insurance” for IVREs, covering the reliability gap (not enough sun or wind for prolonged periods, thus negating any advantage that battery storage might offer them) will fail. After all, the baseload plants are either crippled by deferred maintenance, or else sold on the cheap to buyers that have even less incentive to maintain them. And much needed new capacity is not built at all (phantom plants).
——————–
Note
The nature of IVREs will continue to push baseload generators out of business – and IVREs will continue to blame baseload for these problems even as its mandates kill the security that baseload provides. Authors Tom Stacy and George Taylor have written a detailed submission to FERC (the US Federal Energy Regulatory Commission) on this topic: https://elibrary.ferc.gov/eLibrary/docinfo?accession_num=20230113-5070
Australia has a different market structure. For years now the coal generators have undercut the W&S to force them to curtail by bidding energy blocks at large negative prices; well below the subsidy level so the W&S curtail for economic reasons. They have little opportunity to recover negative prices. In contrast, the coal plants bid just under the gas plants to recover daytime losses during the evening peak.
The other challenge for grid scale W&S is the amount of rooftop PV generation that does not respond to price signals. Two States can produce more rooftop PV than their total demand so have to force it out of generation by raising distribution voltage levels. All Staes will eventually have more lunchtime rooftop PV than their demand. So prices are often negative. Some retailers are offering free power through the middle of the day to take advantage of the negative prices.
Today is a typical example for SA per attached. Price negative since 8am and running at minus $55/MWh most of the day – just slightly above the $64/MWh subsidy.
Rooftop PV is a serious threat to grid W&S in Australia. The distributers are installing suburban batteries, called solar sponges, so they are playing an increasing role in the power supply system. The possibility of microgrids a serious threat to the conventional grid in Australia.
Grid power is now so expensive in Australia that no heavy industry is economic. The remains operations are on some form of government life support.
It is not easy for coal plants to survive but they are still the dominant generator for now. The next big closure are the 3 remaining sets at Liddell on 28 April – that will be interesting time for the east coast network.
Australia is probably one of the few locations around the world where rooftop owners could reasonably go off grid and reduce electricity costs.
Perhaps you can provide more detail about “For years now the coal generators have undercut the W&S to force them to curtail by bidding energy blocks at large negative prices”.
Your statement quoted says that coal generators are literally paying money to provide electricity? How much did the coal electricity generation industry pay, via these negative blocks, in say 2021?
Secondly: all of the contracts I have ever seen for wind or solar force utilities to pay for the wind/solar first – i.e. use them for base load if at all possible. This means, to date, wind and solar never have issues with selling the power that they generate unless the grid has too much power generation vs. demand. In this case, the wind and solar still get paid but the utility pays a price to break the wind/solar contract – so the net to the market is negative (i.e. curtailment cost=contract break on top of the contracted payment).
Lastly: curtailment. Your statement above implies that wind and solar are not getting paid during curtailment situations. This is contrary to anything I have seen in the US or Europe, and would mean wind and solar operators should be going out of business en masse if they were truly not able to generate income in significant periods of time.
I see zero evidence of this in Australia given the ongoing ramp of wind and solar installs.
I suspect you may have a fundamental misunderstanding of how market based electricity prices work – but maybe the NEM is some type of unusual market i.e. not a market at all. For one thing: wind and solar are fundamentally intermittent and unpredictable. Grid operators have models to try and predict wind and solar production but these models are very inaccurate on any given day and moderately inaccurate even at weekly granularity. I cannot imagine coal operators have better models, either, which means the coal operators would have to lose money not just when wind/solar are producing but would be losing money on long periods where they are not. This is simply not economically sustainable. Most markets also have different layers of futures: same day, next day and long term. Wind and solar contracts are so bad for grid operators because (again from what I see in the US and Europe) they force grid operators to accept the wind and solar as first priority in long term – subordinating coal/natural gas/nuclear to “fill in” the rest of demand in the long term market. The same day and next day markets, on the other hand, are where peakers operate (and really where wind/solar should be).
So please do provide more information supporting your statement quoted above.
coal operators would have to lose money not just when wind/solar are producing but would be losing money on long periods where they are not. This is simply not economically sustainable.
Quite true in the long run but don’t forget coal generators are legacy generators so depending on age as to how long they can live off their capital. A lot like the car owner that whilst they can afford the rego tyres fuel and annual servicing keeps driving it into the ground. When the transmission or engine fails that’s curtains and it’s the bus or train because they couldn’t put away for a new car or reasonable used update.
The capital cost of a coal plant is a tiny fraction compared to the fuel cost. So while you are correct in the sense that coal electricity plants have already depreciated their construction and permitting capital cost – this benefit is small compared to the cost of paying for coal. Which means selling electricity for negative prices would be losing money on top of the fuel cost – which again is utterly unsustainable.
I would further note that even at parity nameplate generation capacity and average capacity factors of 20% for solar and 35% for wind – bidding negative prices to drive these out of business means an appreciable fraction of the capacity factors as a percentage of the time a negative bid must exist to attack solar/wind revenue (again, I noted above that this is extremely unlikely except in curtailment situations). I doubt any coal plant can literally sell electricity for negative prices even 10% of the time and be break even, much less profitable.
But perhaps there are unique aspects to the Australia NEM grid, hence my question.
It is worth noting that academia is a woke place in Australia. University of Newcastle has a renowned coal combustion group. But they now offer a degree in “renewable energy” as well. And it is probably not surprising which area gets the young minds.
One of the issues for coal plants will be replacing retiring workers with new recruits. Hands up those who want to start their career in a dead industry!!
But how do you get this simple and obvious message through to governments who have rigged the market for inevitable blackouts and failure?
The article’s big “Why” (do gas plant owners operate under these economic conditions) wasn’t answered by the author. The answer is the petroleum/coal and other companies went along with the green idiocy and accepted being neutered. They could have been in the driver’s seat by simply demanding a profitable ROI contract at the outset. They couldn’t even be refused!
Thermal power companies can actually be blamed for the state of affairs that they let develop to the present stage. Had they simply refused to cooperate this whole madness would have ended a decade and $2.5 trillion dollars ago.
Most utilities have become completely subservient to the politicians who control their fate. The idea of publicly opposing what the politicians want is an idea they are no longer capable of expressing.
“At a high level, corruption stems from the systemic disrespect of a nation’s institutions and legal system, especially by those in power. . . .The hallmark of virtually all corruption is “playing dumb”
It gets worse. Professor Hughes covered all this back in the 2010s…I will try and see if I have his report around somewhere, but another point he made was that in the economic environment as described what made sense, apart from intermittent renewables, was extremely capital-cheap ‘peaking’ generation design, to be available at short notice to cover shortages at peak demands. Given that this is a rare event, overall, and would only be called upon to generate when prices were extremely high, the obvious solution was high emissions open circuit gas turbines, and even Diesel powered generators.
These are low capital cost and low maintenance plant. But they are fuel innefficent. In the short periods they operate they are capable of wiping out any emissions gains from the renewable generators.
This, together with the high fuel consumption of maintenance on wind turbines – always in remote locations needing crew to attend by off road capable vehicles or small boats – as well as the incresed fuel consumption of relatively efficient combined cycle gas turbines forced to operate intermittently – the equivalent of stop start motoring through town compared with smooth steady highway miles – meant that emission reduction on the (UK) grid as a whole, would be negligible, and the implementation of intermittent renewable energy would simply raise prices without resulting in any significant CO2 emission reductions whatsoever.
AS has been the case.
Yes. Destroys the idea that you can more than pay for the costs of introducing wind to a gas powered network by using the wind generation to save on fuel consumption. You don’t save on fuel, and you have all the costs and maintenance of the wind network in addition to those of the gas network which has to be dimensioned to supply full demand.
And adding wind has another crippling problem: you can’t then run your main system economically on coal, because then you have then to keep the coal on spinning reserve.
It is a most extraordinary set of delusions. First that there is some kind of climate crisis. Second that making electricity generation (in for instance the UK) net-zero would have any effect on it, if there were one. That this net zero generating system can be achieved by converting to wind and solar. And finally that its possible to do this nd also at the same time convert to EVs and heat pumps.
It really is collective insanity on the part of the political class in the US, Australia, NZ and the UK. Not however, you notice, the political class in China.
https://wattsupwiththat.com/2022/11/06/would-we-be-better-off-now-if-we-had-more-renewables/#comment-3635081
Agreed.
We published in 2002 that there was no real global warming (CAGW) crisis, and grid-connected green energy (wind and solar power) was not green and produced little useful (dispatchable) energy. In 20 years, nothing has changed. It was always a scam – wolves stampeding the sheep for political and financial gain.
See CorrectPredictions.ca
My simpler solution, published in 2018:
https://wattsupwiththat.com/2018/11/16/stacking-concrete-blocks-is-a-surprisingly-efficient-way-to-store-energy/#comment-2520849
Here’s an even better solution:
1. Build your wind power system.
2. Build your back-up system consisting of 100% equivalent capacity in gas turbine generators.
3. Using high explosives, blow your wind power system all to hell.
4. Run your back-up gas turbine generators 24/7.
5. To save even more money, skip steps 1 and 3.
The insanity in government-led power ‘initiatives’ has to be seen to be believed. In some cases, even seeing it has you rubbing your eyes in disbelief.
Here in the U.K. we have an absolute doozy. The coal-fired power station at Drax ran very efficiently on locally-sourced coal. “Ah” the government reasoned “we can’t have that. Not only are we creating CO2 but coal is not a renewable source of fuel. We need to use renewables “.
And so they looked around and found a renewable supply. In Canada. Yes, that’s right, Canada. Why burn coal from the mine just 20 miles away when you can cut down trees 3,000 miles away. So (get ready for this)…
They (expensively) converted Drax to burn wood pellets, found a supplier to chop down ancient Canadian forests, pelletise the wood, haul it to the nearest port, put it on a diesel-powered ship, sail it across the Atlantic, offload it and transport it to Drax. Insane, you say? Oh, you haven’t heard the best bit. Because when they do all this, they discover that they are generating MORE CO2 than they were burning coal!
Even when you talk to these people really, really SLOWLY and explain it all using brightly-coloured children’s play bricks they still can’t get it. There is nothing going on behind the eyes.
I have had that very same conversation with Green zealots and the most they concede is, it is renewable energy so that is good. The economics, the logistics, the base stupidity of it is all forgiven by the zealots of renewable energy, because trees can regrow so that makes it renewable, right?.
With that level of blinkered vision in play, the issue we have to overcome is not simple logic or rational discussion, hoping that will transform their thinking. We have to ensure teachers rediscover the benefit of actually educating children, rather than brainwashing them
And *that* is what is so heartbreaking about this entire climate thing.
Those trees were controlling the climate, locally, nationally and with global extent.
With them gone, as Henry 8th discovered, me, you and all of us fall into an Ice Age.
Some trees are more equal than others comrade.
Really? Cutting down trees in England caused temperatures in S. America to fall?
“IVRE “first-use” mandates”
Could someone please explain where these exist? I’m not aware of them in Australia. IVRE’s generally do sell first, because they have almost zero marginal cost, so they can outbid other sources. But I am not aware of an enforcing mandate.
Nicks ignorance is staggering
The EU has an overarching Directive to ensure that renewable generation takes precedence.
Note that nowhere in this directive are any emissions targets specified. Only the use of renewable energy.
How that is achieved, is not specified, it is up to individual member states to create legislation to ensure it.
You didn’t answer the question. Where are actual mandates implemented?
Let’s just call them hobbles shall we?
Large-scale generation certificates (cleanenergyregulator.gov.au)
Around AUD 45/MWh currently.
Terrible. Someone has not answered a question for Nick!
In grid codes. The rules of the grid.
The EU directive just requires the setting of long term targets. I can’t see where it makes any requirement on how grids operate, let alone setting a mandate for preferential purchase.
Nick cleverly plays the equanimity level playing field supply card whilst deliberately ignoring consumers require 24/7/365 dispatchability along with Frequency Control Ancilliary Services. Telescope up to left eye and kiss my ass Hardy I see no State sponsored dumping here-
EnergyAustralia records 93 per cent earnings loss – Energy Magazine
Directive 2009/28/EC established a regulatory framework for the promotion of the use of energy from renewable sources which set binding national targets on the share of renewable energy in energy consumption and in the transport sector to be met by 2020. The Commission Communication of 22 January 2014 entitled ‘A policy framework for climate and energy in the period from 2020 to 2030’, established a framework for future Union energy and climate policies and promoted a common understanding of how to develop those policies after 2020.
Under no circumstances should the national shares of renewable energy fall below those contributions. If they do, the relevant Member States should take appropriate measures as provided for in Regulation (EU) 2018/1999 to ensure that that baseline share is regained. If a Member State does not maintain its baseline share over a 12-month period, it should, within 12 months of the end of that period, take additional measures to regain that baseline share.
Regulation (EU) 2018/2001
Article 4 Para 3.
Support schemes for electricity from renewable sources shall be designed so as to maximise the integration of electricity from renewable sources in the electricity market
Couldn’t be clearer than that.
None of this substantiates the Schneider claim:
“IVRE “first-use” mandates. Not only do these mandates require grid operators to buy power from IVREs “first” if they are generating“
I do not believe such a mandate exists.
How do you MAXIMISE electricity from renewables without giving it grid priority?
You really are obtuse.
Please also note that “the grid” is not the customer for the electricity. It is the retailers who contract with generators for supply.
It’s not ignorance, it’s willful avoidance of reality.
As usual he claims to have read things when he hasn’t.
Look up ‘renewables obligation’ in the UK. Start here:
https://www.sciencedirect.com/science/article/abs/pii/S1364032121010571
Curiously enough the scheme introduced consumers to something gingerly called ‘negative gains’.
That is, they lost money!
I know about renewable obligations. We have them too. They trade in certificates over an annual period, or some such. But the claim here is that grids have an obligation to purchase IVRE power before all others, and I would like to know where that operates, and if possible some details.
Are you being deliberately naive or just plain thick?
Liable entities are required to buy renewable power each year. The total that has to be bought each year is set by the government and the number typically rises to align with the renewable power generated.
So if an electrical energy distributor is liable, then they HAVE to buy power from a renewable source. IF they fail to buy enough then they are fined. Read the article attached for a brief intro.
https://www.energymatters.com.au/carbon-trading/
That is different from the claim here, which is:
“IVRE “first-use” mandates. Not only do these mandates require grid operators to buy power from IVREs “first” if they are generating,”
Firstly you refer to an obligation on purchasing entities, not grid operators. Secondly that obligation is to balance their purchases over something like a year, not in day to day operation. Thirdly, here at least, you can expiate your obligation by purchasing certificates from someone who is generating IVRE. Here the obligation rests on generators, not purchasers.
Nick,
Stop being obtuse.
In Nevada, the utility is REQUIRED to “sell to” its customers a certain ever increasing % of its electricity that is created by mostly unreliable generation. Currently set at 29% and increasing to 34% net year, and 50% by 2030. Hydro is included, but the only hydro in southern Nevada is from Hoover dam, and the Nevada utility gets very little of that output.
SO the utility is REQUIRED to provide 29% unreliables and so MUST buy wind and solar regardless of the price, and must buy it FIRST (when solar or wind have any output) to meet the minimum requirement.
https://puc.nv.gov/Renewable_Energy/Portfolio_Standard/
And an individual homeowner’s “renewable” output is required to be given “priority”. See #6.
https://puc.nv.gov/Renewable_Energy/Renewable_Energy_Bill_of_Rights/
So, Nick, you ask questions. In one instance, Nevada, they have been answered.
Almost every state in the US that has had a Democrat Governor and legislature at the same time frame has the same requirements. Funny thing about the Nevada “Unreliable Portfolio Standard” is that it was first passed in 1997.
I have at times seen some comments from you Nick that make some sense, but this string is ridiculous.
Finally, Nick, why do you hate the poor so much as to want the excess costs of electrical generation caused by mandates such as these Nevada requirements. The so called “Bill of Rights” requires the utility to provide the wealthy who can afford rooftop solar or other unreliable generation be subsidized by those who can not, you know, apartment dwellers and renters, etc.. They can not be charged any additional fees for the added costs to the “grid” caused by their unreliable generation.
There is no doubt in my mind that Nick would be a fan of Gosplan (State Planning Committee) in the Soviet Union with its five-year plans. The entire Soviet bureaucratic edifice (very similar to today’s Bureaucratic Hegemony in the US) was always focused on implementing these five-year plans – no matter the cost to the populace.
It was these five-year plans that wound up ruining the economy of the Soviet Union and forcing the people into dire survival straits. By the 30’s food was rationed – when it was available at all. That’s where we are headed with the government 5-year plans for “climate change” – rationing of electricity. We’ve already seen in it in California where people were instructed to not charge their EV’s because of the load it placed on the grid. This was in addition to the rolling brownouts and blackouts CA residents see today.
So you acknowledge that power companies are required to buy whatever the renewable generators produce, regardless of what other plants are producing, but you merely object to calling it “first-use”. Even though that is what it results in.
“Even though that is what it results in.”
Bill Schneider referred to a very specific requirement, that the grid must at all times buy the product of IVRE before any other. And I have often seen such a rule imagined by sceptics. But, as so often with sceptics, it just isn’t true.
It is true that there are schemes whereby utilities must, over the course of a year, source a certain fraction of their purchases from renewables. But throwing in extra invented requirements (in bold) is just, well, exaggeration.
Please see the black and white text from the EU which makes it clear that that renewables are to have priority.
Regulation (EU) 2018/2001
Article 4 Para 3.
Support schemes for electricity from renewable sources shall be designed so as to maximise the integration of electricity from renewable sources in the electricity market
Couldn’t be clearer than that.
That is not the same thing at all. The claim was
“IVRE “first-use” mandates. Not only do these mandates require grid operators to buy power from IVREs “first” if they are generating”
How do you maximise the use of renewables without giving it grid priority?
Idiot.
By requiring retailers to show that over a year they have sourced the required percentage from renewables. That is a totally different mechanism (and was discontinued six years ago).
Do you really think they are given grid priority? How, and who does it? Are you really prepared to back Schneider’s claim that
“IVRE “first-use” mandates. Not only do these mandates require grid operators to buy power from IVREs “first” if they are generating”
Nick Sophist is at it again. He’s trying to claim that a requirement to buy X% from renewable sources doesn’t result in a situation where electric utilities will most of the time buy renewable energy first.
The fines for reaching the end of the year and not buying the minimum amount always result in the utilities buying whatever is being produced by renewables first, especially since they don’t know if the renewables will have the power available for them to buy later in the year. The only safe course is to buy as much as you can whenever it is available, whether you need it now, or not.
As usual, Nick tries to use fancy arguments to paper over the obvious.
It’s pretty obvious Nick has never had to answer to shareholders as to why there is such a large annual expense called “Renewable Fines”.
That would indeed be poor management. The basic requirement is to buy the quota of renewable energy. It’s all the same price in the market.
Well, I don’t think the correct description for an end-of-year scramble is “Buy renewables first”. But in Australia at least, you don’t even have to do that. We have tradeable certificates.
Especially when the maximum output almost never coincides with the maximum grid demands.
They have to buy everything that the renewable producers produce, whether they need it or not.
The difference between that and a requirement to buy renewable power exists only in your imagination.
On mandatory mandates in Australia, I know nothing about Australian power generation so simply looked it all up and came on something called the Mandatory Renewable Energy Target (MRET).
This is from here:
https://www.aph.gov.au/About_Parliament/Parliamentary_departments/Parliamentary_Library/pubs/rp/rp1314/QG/RenewableEnergy
Maybe I am not understanding it, maybe things have changed since its written. It sounds from a quick read a lot like the UK Renewables Obligation.
“It sounds from a quick read a lot like the UK Renewables Obligation.”
Yes, it is. And it is nothing like the “first use” mandates which Bill Schneider here has as his first item. That applies to grid operators and requires them to preferentially purchase IVRE if available.
Our scheme operates over a year. During that year purchasing entities (retailers) must purchase a proportion of their electricity from renewable sources. This is implemented by passing a certificate with the sale. But the certificates are tradeable. Basically, W&S generators sell heir certificates, and this is the main component of their subsidy. As the target is approached, the price of certificates goes down.
How can it *not* be a “renewables first” mandate? If you *must* meet a certain level of purchase under penalty of law then it is only prudent management to take care of that obligation *first*, before doing anything else. Risking fines by waiting and then perhaps not being able to meet requirements would soon see the management team replaced.
Yes, exactly my impression. It looks like without compulsion no-one would ever buy wind generated power. That is, no-one would ever buy such an unreliable and unpredictable supply of power. And then there’s the obligation on the taxpayer to buy the surplus when its generated but not usable. Then, given you have to buy it, you can only buy it when its being generated, so this amounts to first priority to wind when there is any.
They have to buy it first, but that doesn’t prove that they have to use it first?
Nick Sophist at his best.
They don’t have to buy it first.
THey have to buy it. Since the supply is unpredictable, the only recourse is to buy it first.
As usual, Nick uses verbal tricks to try and hide the obvious.
Over a year, they have ample opportunity to meet their requirement. But if all else fails, they can buy certificates, in Aistralia at least.
National Grid only purchases power under the Balancing Mechanism – that is in the live half hour Settlement Period and after Gate Closure. All other transactions are bilateral between market participants. BM trades are charged back out to market participants once final metering reconciliation has taken place to reflect any difference between amounts they contracted to buy or sell and metered supply and demand. Retailers are required to purchase under Renewables Obligations and Feed in Tariffs.
Retailers are required to balance their purchases over a year under the UK scheme, which was phased out in 2017. But again Schneiders claim was
“IVRE “first-use” mandates. Not only do these mandates require grid operators to buy power from IVREs “first” if they are generating”
The Renewables Obligation is very much still in existence. The manner in which it is set ensures that retailers have very strong incentives to purchase as much as they can, because the obligation is set to ensure that there is not enough supply to meet it, and therefore to avoid being fined.
The grid does not buy power. Can you not get that into your thick skull? Generators sell to retailers and large companies with market participant status directly. The EU directive requiring maximisation of the use of renewables is still part of UK law. It is enforced by the mechanisms I have outlined.
“The grid does not buy power. Can you not get that into your thick skull?”
I never said it did. I was quoting Schneider’s claim, which you seem to be totally unable to deal with:
“IVRE “first-use” mandates. Not only do these mandates require grid operators to buy power from IVREs “first” if they are generating”
Take it up with Schneider.
No matter how many times Leftist politicians and Deep State bureaucrats are told there is no such thing as a free lunch they still insist on subsidizing ruinables, shutting down reliable generation sources and trashing the economics of FF generators. Take it from an electric power expert: This will not end well for the wellbeing and security of our Western nations.
From the 2012 Hughes Report
The key problems with current policies for wind power are simple. They require a huge commitment of investment resources to a technology that is not very green, in the sense of saving a lot of co2, but which is certainly very expensive and inflexible. Markets have to be rigged in order to persuade investors to fund the investment that is required. The economic cost of fixing markets in this way, especially if there is a possibility of making mistakes, is very high. Before proceeding along this path, any Government ought to be very sure that
(a) the economic and environmental benefits outweigh the substantial costs incurred, and
(b) the risks of pre-empting better options that may emerge in future have been minimised.
In reality, neither of these conditions is close to being satisfied. To misquote another aphorism, unless the current Government scales back its commitment to wind power very substantially, its policy will be worse than a mistake,it will be a blunder.
“Why should the plant even remain in the market under these conditions?”
This essay seems to overlook the normal balancing processes of market operation. When IVRE is reduced, prices rise. Generators who can supply make good money. If some leave the market, prices in that time will rise even more, with bigger rewards for those that remain.
That is basically how the cost of intermittency is borne. IVRE sells on average at lower price than others. But its costs are lower.
On the contrary Nick, as you know very well, it is precisely the deliberate rigging of the market to distort those forces that is the subject of this article.
And as the Hughes report make clear, the effect of that rigging is not to reduce emissions, but to effectively enforce the use of renewable energy whether it results in emissions reductions, or not.
Many more honest greens have realised that it does not, and is an environmental disaster, and now advocate nuclear power instead, which is proven to reduce emissions substantially.
Time you made up your mind, Nick, whether you want to merely signal your virtue and destroy Western economies, in a Trotskyite manner, or actually replace fossil fuels.
I think we should be told.
The “Hughes report” is a GWPF screed from eleven years ago. It is not the last word in how markets currently operate.
I don’t know how this works in Australia, so this is a genuine not rhetorical question.
Are you saying that there is no obligation on anyone in Australia to buy renewable generated energy?
That the only reason wind farms are built and their output is bought in Australia is because its the best value to the purchasers?
I said something about that in response to your comment above. Yes, there is a target, and retailers have an obligation to buy W&S power to meet it.
However, this is done via certificates, which makes it more flexible. S&W generators give certificates with the sale. These are tradeable. The price depends on scarcity, and so goes down to zero as the target is reached. At that stage, there is no further subsidy.
I think in the UK the way the renewable obligation works with intermittency is that in effect there is compulsion to buy.
You have to look at the whole system. There is an obligation for retailers to buy a certain amount. But they can only buy when its available, which means that in high wind generation periods there is essentially an obligation to take what is offered.
Then there is over generation, a windy and sunny period in July, maybe on a weekend. There is then an obligation to buy via constraint payments. Not the retailer, but there is still compulsory purchase which like the other costs is in the end passed on to the consumer or the tax payer.
If you look at the total flow of funds from the country as a whole into renewables with all these different financial devices the point of the head post is very plausible. Its that adding wind beyond a trivial amount drives out reliable generation because of the financial obligations of enforced purchases.
You may be right that the form of compulsory purchase the head post is describing doesn’t exist anywhere outside of the US, which seems to be his subject of interest. I don’t know, don’t even know if it exists in the US.
But you end up, in the UK at least, in the same place. The interesting difference in the UK is the capacity auction phenomenon. They have capped the renewables obligation. But then they also go out to tender for emergency generation, which they pay to keep on standby.
What this amounts to is a tacit acknowledgment that there is a risk of it all falling over one day, and so they are commissioning long term alternative supply to have available if and when.
If they carry on with the net zero electricity generation drive we will see this shadow network called on by 2030, maybe sooner.
Its tempting to see the UK as being unequivocally on the net zero generation path. But if you look a little closer they are hedging their bets heavily.
The existence of certificates makes no difference whatsoever. The reality remains that power companies are required to buy what ever the IVREs produce, whenever they bother to produce it, and they have to keep their own plants running in spinning reserve ready to takeover when the wind and sun aren’t cooperating.
The current price is around AUD 45/LGC. Quite a useful subsidy.
Notice how Nick Sophist doesn’t attempt to refute anything the Hughes report has to say. He just claims that physics and economics have changed over the last 11 years so it no longer matters.
So what in your opinion has materially changed? The GB market moved from the pool system to bilateral trades in 2001, incorporating Scotland into the same trade clearing system in 2005. The EU legislation requiring maximisation of renewables goes back to 2001. So what is new since then that is so different?
So on that theory when there are not enough generators left the prices will be astronomical. The only problem with your logic, when it happen, a large portion of the customers will be without power. And if they have access, they can’t afford to use it.
Market distortion by government never ends well.
Generators will be reluctant to leave if the prices are astronomical.
It isn’t a market distortion by government. It is the basic way all markets operate. Supply and demand, mediated by price.
If prices are so high they can’t sell then they have no choice but to leave the market. It happens everyday to small businesses trying to compete with large, bulk retailers.
Although not an energy related, here is an example of what Tim says. I work for a small, local family owned appliance store. Our website prices are designed to match the local Home Depot pricing. This cuts down our profit margin but allows us to compete for customers. Currently, and for a time last year, Whirlpool has lowered their Home Depot retail pricing to what we pay wholesale. We cannot compete this way so our website has been modified to show “call for best price” instead of a dollar amount. The sales staff no longer points anyone to Whirlpool appliances. Fortunately we can sell GE and Frigidaire instead. If we were Whirlpool only we would be out of business.
“f prices are so high they can’t sell then they have no choice but to leave the market.”
Completely muddled. The prices are high because of demand. It is a seller’s market. That does not force sellers to leave.
What forces sellers to leave is being unprofitable. Even happens to wind farms, as with the fiasco over the last round of CFD bids at unsustainable prices.
Politicians do not allow astronomical prices for long. That’s why we have widespread consumer subsidies at the moment. Politicians are quite happy to create shortages and run rationing schemes. But high prices they baulk at.
Prices are high in order to cover costs including government mandates associated with unreliable poser, not because of demand.
Demand can be high at Walmart while the small business inventory costs remain high requiring higher prices than Walmart. It’s the Bells of Doom for the small business.
You have the economic forces exactly backwards.
“””””Generators will be reluctant to leave if the prices are astronomical.”””””
Look at what you just said! ASTRONOMICAL PRICES. Do you have any concern with the people actually paying for this? How many businesses can pay astronomical PRICES? How many poor people can pay astronomical PRICES.
Eng_lan said it well.
“””””Market distortion by government never ends well.”””””
Most religions preach caring for the poor. Nick’s religion insists on increasing the costs to the poor, thereby punishing the poor while enriching the chosen, i.e. unreliable electricity generation facility owners. Oh, don’t forget the CO2 credit traders, you know the OVERHEAD of any trading scheme.
Quote from the movie “Trading Places”:
“- Randolph Duke: The good part, William, is that, no matter whether our clients make money or lose money, Duke & Duke get the commissions.
– Mortimer Duke: Well? What do you think, Valentine?
– Billy Ray Valentine: Sounds to me like you guys a couple of bookies.”
Nick says:” It is the basic way all markets operate. Supply and demand, mediated by price.”
Did you write this with a straight face? There is no other market that I am aware of operates under a government mandate that requires a supplier to purchase a specific amount a product except those where government has interfered. Sugar, wool, corn alcohol, come to mind.
Of course governments try to achieve various objectives. Tariffs would be one example. They are designed to protect the market share of local suppliers.
But a tariff on washing machines does not mean there is no market operating. If you go out to buy a WM, you may not be aware of which has paid tariffs. No one is obliging you to purchase a local product. As in any market, you’ll buy the one that you like best, taking account of price. Makers will still rise and fall according to consumer preference.
If I had the option to buy from generators of my choice it would be a market. I don’t, and my supplier has no free choice either: they must purchase renewables and bill me for renewables subsidies and other renewables costs that are charged to them with no option.
“If I had the option to buy from generators of my choice it would be a market”
You aren’t in a market with generators. Your supplier is, and can bid freely. He has to satisfy a constraint external to the market over a year of purchasing a sufficient fraction of renewables. He has to pay tax, too.
And of course, in UK ROs were phased out in 2017, although some grandfathered obligations remain.
The supplier can only bid for what the government allows, there is no “freely” involved.
This idiocy is nothing more than the old Soviet 5-year type of plan whereby a central government mandates production – no matter what it costs.
It didn’t work out well for the Soviets. It didn’t work out well for the Maoists in China.
No, my supplier is obligated to buy from renewables producers. I cannot choose a supplier that only buys e.g. from CCGT generators.
You aren’t speaking of tariffs with the electricity generation industry. You are speaking of price/wage controls.
Price and Wage controls have NEVER worked out well. NEVER!
In the US recent history both Nixon and Carter thought they could impose price and wage controls and make it work. Both wound up as disasters.
THAT is where the government price and wage controls are headed for with regard to the electricity generation sector – DISASTER.
So government mandates to buy, are just part of market forces.
Regulators and governments do not permit such high prices to operate other than far too briefly to provide the necessary income to maintain dispatchable capacity. AEMO is a case in point – lots of market intereference from them over the past year. The reaction of regulators in Texas to the $9,000 actually being reached in Feb 21 was to cut the cap to just $2,000. Now they are looking at a form of capacity market.
You have had these things pointed out to you before several times. Why do you never learn?
You have just described the process guaranteeing system failure and blackouts Nick.
In your mind IVRE clearly stands for, Intermittent Variable Ruinous Energy
And Nick Sophist strikes again.
He focuses only on the time when IVREs aren’t producing and proclaims that as long as fossil fuel plants can make money during that period, they should have incentive to staying in the market.
The problem that Nick is trying to gloss over is that out here in the real world, fossil fuel plants have to keep burning fuel, keep paying their workers, even when they aren’t selling any power.
Nick has been told this many times, but as usual he ignores anything that doesn’t support his beliefs. The only reason why IVRE appear to be cheap, is because they are forcing others to bear the cost of their own intermittency. Exactly how this happens was explained in the article and has been explained by multiple posters.
“The problem that Nick is trying to gloss over is that out here in the real world, fossil fuel plants have to keep burning fuel, keep paying their workers, even when they aren’t selling any power.”
That is a disadvantage of fossil fuel generators. But they stay in business, and can continue as long as they get good enough prices when they can produce.
This situation has been around for a long time, because of uneven demand. Peaker generators sell power only for a few hours each day. But it is at periods of high demand and high prices, so they do well.
Wow, Nick, is there any limits to the depths of your ignorance?
This problem did not exist until renewable operators were given precedence.
As to peakers, they save money because they mean that the utility doesn’t have to build as much base load capacity. Nobody expects the peakers to make profit all by themselves. They make the system more efficient.
The reason why peakers are different from renewable sources, is that peakers are run when they are needed, they are shut down when they aren’t needed.
On the other handle, renewable producers produce energy more or less at random, whether that power is needed or not.
Peakers mean everything else can be run more efficiently.
Renewables mean that everything else has to be run less efficiently.
Any generator that operates as baseload for efficiency has to accept a zero price while renewables are being subsidised with positive revenues. That is a fast way to unprofitability. Wind benefits from high prices, often with a subsidy on top even when its output is limited. Only when it actually falls to zero through lack of wind do they lose out the way a baseload generator does.
Try to understand this chart for once. Almost all wind always gets above market price. Non renewables find themselves being taxed out of market price.
“Bigger rewards”???
You mean the whole unreliable scam is to take more money from rate payers than an uninhibited grid would charge/cost?
Cap and trade?? A % to the “traders”?? A transfer of $ from productive FF generation to unproductive unreliable “generation” owners?? An added cost for the benefit of the few on the backs of the poor??
Again, Nick, the increased costs punish the poor the most. Why do you hate the poor so much that you will defend this ridiculous system whereby excess costs, that do nothing to reduce output of CO2 since the manufacture and installation of solar and wind “generation” capacity produces more CO2 than a gas plant would per KWH output, and far more when the actual FF plants that must spin while not producing electricity to be ready for the failure of unreliables.
No, that isn’t how the market works. Most grids now run with capacity markets to compensate dispatchable generators for keeping operational or even building new capacity precisely because the subsidies to renewables mean they are unable to compete on a level playing field. Capacity markets tend to be rigged by regulators and have tended to under-procure capacity, which leads to capacity shortages and blackouts.
In the case of AEMO, it has regularly interfered in markets, particularly to prevent higher prices. Perhaps the $300 cap rings a bell? AEMO prevents markets from operating as you describe.
“Perhaps the $300 cap rings a bell?”
The emergency cap was imposed in June last year, just before the market was suspended. These were unusual events. The administered price cap that followed was doubled to $600, but does not impact on normal market operations. It only comes into force following a declaration that the market has averaged over $600/MwH for a week. And, of course, that has not happened since.
The capacity market is a real market which compensates FF generators for providing a service that the grid wants, but which they would not find profitable enough otherwise.
You prove the point. AEMO interferes with markets rather than letting them compensate generators.
I finally dug out the Hughes Report from 2012 or earlier that covers all this in more detail.
Nick called it a “screed” above’ You know, a blasphemous hate piece against his religion.
The Cmbridge dictionary just defines it as
“a long piece of writing, especially one that is boring or expresses an unreasonably strong opinion:”
the world is bankrupt and the subsidies can’t continue – what then – guess the greenies never heard the phrase – if it ain’t broke don’t fix it
Leftists in general believe that since the world doesn’t produce the outputs they want, it is broken and must be fixed.
That’s what Stalin thought. It’s why he introduced five-year plans as developed by the State Planning Committee known as Gosplan. Anyone that didn’t learn enough history to know what this did to the populace is doomed to repeat it – which is exactly what we are seeing today.
We have seen a sharp increase in downtimes (failures) of French thermal plant in the last decades; could it be because they are used in an absurd stop and go way causing wear and tear?
Rhetorical question no doubt.
Really enjoyed the detailed Ferc Submission. Terrific material. Thanks!
Thanks all for the kind words about this article.
I note that one person in the threads seems to be hung up on my use of the generic label, “the grid” – which I did on purpose because the intended audience is not someone who works in electricity markets.
A first use mandate can be one or more of the following:
* Must buy from IVREs whenever they are operating, regardless of any other available power or prices
* A requirement by non-IVRE generators or users to purchase credits that benefit IVREs
* A requirement to pay IVREs a minimum price regardless of any other available power, if they are able to sell into the market
Those of you in Australia will recall the debacle when the Gillard government was forced to abandon the original REC market and move to the LTC/STC scheme. I was working at a major energy user in WA at the time, and I recall fondly getting a letter from ORER in 2012 that required me to hire a consultancy firm to figure out the bloody exposure to the revised scheme; and then realizing that what had been a ~$360K annual tax (the REC scheme annual fee) had morphed into a $1.36M tax.
Of course this $1M increase was not budgeted, and I had to give this news to the owners and JV partners.
I did stop by the office of a guy there who was pushing people to get residential solar rooftop PV thanks to government handouts, and asked him who was going to pay the $1M additional bill I just received, or if we were going to make 5-7 people redundant to cover the cost. Oddly enough, I didn’t get an answer to that one…
“A first use mandate can be one or more of the following:”
Well, this is a bit like saying words mean whatever I want them to mean. These could reasonably mean:
1) Must buy from IVREs whenever they are operating, regardless of any other available power or prices
It could also reasonably mean
3) A requirement to pay IVREs a minimum price regardless of any other available power, if they are able to sell into the market
But my challenge was to say where in the world do any of these schemes operate. No-one could say. Can you?
To say it means
2) A requirement by non-IVRE generators or users to purchase credits that benefit IVREs
just makes it meaningless. Or, it could mean anything. People have pointed to the current RO scheme in Australia, where LGC users have to demonstrate that over a year they have sourced 18% (currently) from renewables. That actually has nothing to do with the grid.
deleted. I’ve reposted on the newer atricle thread