Electricity prices are set by the most expensive source that needs to be ‘turned on’ at any given time – that’s usually gas.
This article could lead readers to conclude that we can decrease electricity prices by installing more wind and solar. This would be the opposite of the truth. In ALL countries where intermittent renewables have been installed electricity prices INCREASE. This increase is exponential rather than linear.
The reason for this is the very high cost of dealing with intermittency. Essentially one either needs to operate two electricity generating systems with the dispatchable one on permanent standby, or one has to have high capacity electricity storage systems, which are extremely expensive.
This is only part of the story. Your second footnote starts to explain the rest, but is not complete. Most of the offshore wind CfDs prices are far higher than £50/MWh. Some are over £200 in today's terms. Today's price on Trading Economics is £105/MWh. And of course they are index linked so go up each year with inflation. So even though the wind farm gets paid £105, we pay over £200 in our bills. I have solar panels on my roof from 2010 and now get paid over £600/MWh generated. This partly explains why electricity prices have not fallen very much even though gas prices are down over 80% from their peak.
Plus, you missed out the eye-watering grid balancing costs for renewables that amounted to over £4bn last year, compared to £500m in 2011. Index linked CfDs for renewables and rising grid balancing costs drove the increase in electricity prices in the decade to 2021. Gas prices were pretty stable.
A point missed is that electricity produced by natural gas peakers to balance intermittent solar/wind is much more expensive than electricity produced by far more energy-efficient Combined Cycle Gas Turbines that run 24/7.
For intermittent and variable sources like wind and solar, the length of three blue rectangular area on your chart which shows capacity is confusing because capacity is the maximum electricity that can be generated, but to meet demand the actual important measure is how much of that capacity is actively generating. On a still night, the dashed line for demand can stay in place, but the blue box will then shrink to zero, meaning the other boxes slide to the left causing the high marginal price to kick in and a much lower demand point. This is the folly of becoming dependent on solar and wind. Nuclear, geothermal or increased gas production with fracking would all bring down costs significantly.
I draw a weird conclusion from your article. If two neighboring countries, e.g. England and France, are both generating most of their electricity from cheap sources but both get priced by their most expensive source, then they could both benefit if, e.g. (i) france sold a bunch of their clean energy to England, so that England could be using all-cheap energy and paying low prices. Meanwhile France would need to burn more gas to make up for the cheap energy it sent to England, but this wouldn't change the high price France is *already* paying for power. If England now sent some of the money they saved on power to France, everyone would be better off. What stops this kind of "power arbitrage"?
The relative cost graphs are entirely disingenuous, they look like the cost is tiny compared to gas, because the scales are out. As noted in comments above, the strike price for wind is often in excess of the price of gas generation, and backup is needed anyway to accommodate for periods of low wind. All in, poor solutions.
Very interesting article Hannah. The marginal costing model makes sense and in a simple world would drive the expansion of renewables as super profits would be earned by renewable producers which doesn’t seem to be the case currently. The comments were extremely insightful- thanks to the authors! Clearly distribution and storage innovation are lagging primary renewable production and we read about the enormous amounts of money required to ensure the end to end supply chain for renewables becomes cost efficient. Integrated planning of this appears lacking and seems the logical area for governments and academics to focus attention. It would be interesting to read about countries that are making progress in this domain as it would be catastrophic if the sunk cost of legacy fossil fuel distribution and storage infrastructure holds back the renewables transition.
Do you have any favourite studies into a 100% renewable UK? Are these taking an integrated European super-grid approach where heaps of power can be exported and imported as needed? With HVDC only losing 3% power per 1000 km, there are papers that suggest a super-grid would do a lot better. EG: This paper on Germany-as-an-island seems to suggest they would need 12 WEEKS storage! I'm not sure what the motivation was to look at Germany alone - but 12 WEEKS!
But this next study shows inter-connectors between countries can reduce storage 30%
In a 100% renewable energy scenario of 12 central European countries, we investigate how geographical balancing between countries reduces the need for electricity storage. Our principal contribution is to separate and quantify the different factors at play. Applying a capacity expansion model and a factorization method, we disentangle the effect of interconnection on optimal storage capacities through distinct factors: differences in countries’ solar PV and wind power availability patterns, load profiles, as well as hydropower and bioenergy capacity portfolios. Results indicate that interconnection reduces storage needs by around 30% in contrast to a scenario without interconnection. Differences in wind power profiles between countries explain around 80% of that effect.
Keywords: Applied sciences; Engineering; Energy sustainability
Should we INCREASE fuel prices with a big tax? That would reduce consumption, which is what we want. It can all be made tax neutral by disturbing the fuel tax revenues to everyone on an equal basis. Result: Green and Equal.
Answered more comprehensively here:
Thanks for the post. Great summary. If you want to get more into details, check out my posts where I dive into these topics https://gemenergyanalytics.substack.com/p/solar-cannibalization-more-details?utm_source=share&utm_medium=android&r=1iiiut