At 33:40 he does a segment on deindustrialisation and electricity prices. He talks to David Turver who explains that electricity prices are so high because Miliband is “fire-hosing” money into renewables and goes on to say that the whole thing is a religion (I think it’s more malign). In the subsequent panel discussion, the leftie Michael Walker is a dead-ringer for those you describe on the Iain Dale Show. Unfortunately Matt Goodwin doesn’t manage to tackle him very well. Maybe you should try to get on his programme yourself!
Yes. Nothing will ever get through to those idiots, but hopefully an increasing number of people who are slightly less indoctrinated will finally start to see through the outrageous lies.
Iberian grid - high penetration of renewables, hence lack of inertia needed to provide the 'ride-through' necessary for the grid to maintain stability during system incidents and subsequent loss of synchronisation. You cannot beat having a 500MW coal, nuclear, gas generator spinning at 3000rpm to provide lots of inertia, nothing like a big lump of metal!
There was several system disturbance events in the 60m pre the incident. The suggestion is that with high solar penetration the grid following inverters started chasing frequency up and down until limits exceeded the protection relays thresholds and mass tripping's occurred.
On split between various mkts yesterday c600GWh was run through the transmission system of 400GWh appeared as traded volumes on Nord Pool and EPX auctions (I believe these are the two day ahead platforms) intraday trading was minimal and the BM had to ditch 10GWh. OK this is one off analysis but gives around 2/3rds on day ahead and about 1/3rd presumably on forward mkts.
Nordpool counts each leg of a transaction as volume. I suspect that EPX does likewise. That is, if a wind farm offers its output via the auction to provide a perfect hedge for its CFD, the fact that it is bought by a retailer via the auction is also counted as volume. There is of course also OTC trading at the day ahead level which provides certainty of volume whereas an auction bid or offer may not be taken up given the clearing price.
The main function of the day ahead market from the retailer point of view is to "shape" their hedges to match their anticipated hourly demand pattern. Further OTC trading ahead of gate closure refines that to the half hourly level.
A retailer will have hedged overall sales by purchases of monthly baseload contracts that have even delivery 24x7. Those get added to by peak load contracts that split volume evenly over Monday-Friday, 7a.m.-7p.m. So they end up having to buy extra volume for rush hours, and sell it for lower demand hours. There may be net sale or purchase because overall demand is lower at weekends or because of weather effects, etc. From the retailer point of view, so long as shaping volumes match they are only concerned with the price differential between high peak and low demand hours. Their hedge cost is already locked in from earlier purchases.
Current nuclear doesn't have any CFD or other subsidy aside from the Capacity Market. It is mostly sold as baseload hedges, including volumes from France via interconnectors. During the energy crisis nuclear availability was very uncertain (indeed the shortage of nuclear was a driving factor for prices that went to the stratosphere before the Ukraine war). Not being able to supply against contracted volumes meant that nuclear withdrew from the forward hedging markets, or only offered extremely high prices because the risk of having to buy in covering volume at bankrupting prices was too high. This feature is usually overlooked by those who try to lay the blame on gas.
The volume of hedging is sensitive to the requirements of the OFGEM cap. In its earlier incarnation OFGEM assumed that retailers should buy forward hedges up to 12-18 months in advance. The effect of bringing in the cap was thus to advance a very large volume of demand, pushing prices higher than they otherwise would have been. However, the energy crisis saw forward sales by generators and gas producers and importers fall very sharply. Not only nuclear was affected by the risks of bankrupting costs of failure to deliver, while the cost in mark to market collateral was of itself a risk of balance sheet collapse. Government provided some emergency loans to prevent the worst.
That is why OFGEM were forced to move the cap to a quarterly basis, but even so we are still paying for the losses on hedges, failed hedge programmes and bankrupt retailers.
From the point of view of generators, price levels in the day ahead market make surprisingly little difference, Dispatchable nuclear and CCGT and biomass will have already sold fixed price hedges. In the case of CCGT, they will also have bought gas forward to match the hedge sales, locking in a margin. Drax and Lynemouth do likewise, knowing the cost of wood chips. Intermittent CFD generators do not care what the day ahead price is (at least so long as it is positive) because they get exactly compensated by the CFD to be paid their strike price: the imperative is to secure revenue. FiT generators get their fixed price regardless of market conditions. ROC generators are very well insulated by their subsidies, designed to ensure they were profitable in a low gas cost environment: for them the priority is to ensure that they produce to harvest subsidies that normally outweigh day ahead prices.
The market design that gives renewables a guaranteed output except in conditions requiring curtailment means that there needs to be a process of adjustment to accommodate renewables volume or lack of it. This is concentrated around the day ahead market, when output is reasonably forecastable. CCGT provides the main source of flex for overall volumes. If a power station can meet its forward sales by purchasing renewables output instead of generating, and reselling fuel (or keeping it in stock against better opportunities in the case of biomass and coal) at a profit it will do so. The prices at which this occurs are largely determined by the overall volume of renewables output, which increases the competition to suppress gas generation.
Conversely during periods of Dunkelflaute and higher than normal demand, additional gas generation needs to be acquired. To some extent this may be in competition with interconnector supply and demand at the other end of interconnectors and batteries making a margin between charging up in low demand hours to supply price peaks. Again, while gas cost clearly sets a floor, it is the level of demand that really sets the price for the extra generation, particularly when available CCGT is fully utilised.
The increasing role of batteries and interconnectors is also typically ignored in looking at wholesale pricing exclusive of subsidies. Prof Gordon Hughes has done some interesting work in this area.
Of course the main point of the post is the real truth: reporting the cost of gas based hedging and showing it is related to forward gas prices should surprise no-one. But the market entirely fails to include any of the other costs of renewables, including the subsidies that are paid by the MWh of generation (let's also not forget REGOs).
Thats an extremely comprehensive response and thank you for taking the time. You are shining a spotlight again on the inner workings on pricing that if better understood by politicians and the media perhaps we would begin to move the dial. Of course the majority aren't interested in anything that undermines their NZ goal.
Sounds like a reasonable explanation. It's definitely not an extremely rare weather event as MSM would have ys believe; unless an extremely rare weather event is the sun not shining and the wind speed dropping...
Great post. I just watched Matt Goodwin’s latest State of the Nation: https://www.youtube.com/watch?v=7kPQj2gMh9w.
At 33:40 he does a segment on deindustrialisation and electricity prices. He talks to David Turver who explains that electricity prices are so high because Miliband is “fire-hosing” money into renewables and goes on to say that the whole thing is a religion (I think it’s more malign). In the subsequent panel discussion, the leftie Michael Walker is a dead-ringer for those you describe on the Iain Dale Show. Unfortunately Matt Goodwin doesn’t manage to tackle him very well. Maybe you should try to get on his programme yourself!
Thanks, always great to see the likes of David get some air time.
The obvious reaction from the greenies is going to be "we need to spend even more money on grid resiliency."
Yes. Nothing will ever get through to those idiots, but hopefully an increasing number of people who are slightly less indoctrinated will finally start to see through the outrageous lies.
Iberian grid - high penetration of renewables, hence lack of inertia needed to provide the 'ride-through' necessary for the grid to maintain stability during system incidents and subsequent loss of synchronisation. You cannot beat having a 500MW coal, nuclear, gas generator spinning at 3000rpm to provide lots of inertia, nothing like a big lump of metal!
There was several system disturbance events in the 60m pre the incident. The suggestion is that with high solar penetration the grid following inverters started chasing frequency up and down until limits exceeded the protection relays thresholds and mass tripping's occurred.
Good article again.
On split between various mkts yesterday c600GWh was run through the transmission system of 400GWh appeared as traded volumes on Nord Pool and EPX auctions (I believe these are the two day ahead platforms) intraday trading was minimal and the BM had to ditch 10GWh. OK this is one off analysis but gives around 2/3rds on day ahead and about 1/3rd presumably on forward mkts.
Nordpool counts each leg of a transaction as volume. I suspect that EPX does likewise. That is, if a wind farm offers its output via the auction to provide a perfect hedge for its CFD, the fact that it is bought by a retailer via the auction is also counted as volume. There is of course also OTC trading at the day ahead level which provides certainty of volume whereas an auction bid or offer may not be taken up given the clearing price.
The main function of the day ahead market from the retailer point of view is to "shape" their hedges to match their anticipated hourly demand pattern. Further OTC trading ahead of gate closure refines that to the half hourly level.
A retailer will have hedged overall sales by purchases of monthly baseload contracts that have even delivery 24x7. Those get added to by peak load contracts that split volume evenly over Monday-Friday, 7a.m.-7p.m. So they end up having to buy extra volume for rush hours, and sell it for lower demand hours. There may be net sale or purchase because overall demand is lower at weekends or because of weather effects, etc. From the retailer point of view, so long as shaping volumes match they are only concerned with the price differential between high peak and low demand hours. Their hedge cost is already locked in from earlier purchases.
Current nuclear doesn't have any CFD or other subsidy aside from the Capacity Market. It is mostly sold as baseload hedges, including volumes from France via interconnectors. During the energy crisis nuclear availability was very uncertain (indeed the shortage of nuclear was a driving factor for prices that went to the stratosphere before the Ukraine war). Not being able to supply against contracted volumes meant that nuclear withdrew from the forward hedging markets, or only offered extremely high prices because the risk of having to buy in covering volume at bankrupting prices was too high. This feature is usually overlooked by those who try to lay the blame on gas.
The volume of hedging is sensitive to the requirements of the OFGEM cap. In its earlier incarnation OFGEM assumed that retailers should buy forward hedges up to 12-18 months in advance. The effect of bringing in the cap was thus to advance a very large volume of demand, pushing prices higher than they otherwise would have been. However, the energy crisis saw forward sales by generators and gas producers and importers fall very sharply. Not only nuclear was affected by the risks of bankrupting costs of failure to deliver, while the cost in mark to market collateral was of itself a risk of balance sheet collapse. Government provided some emergency loans to prevent the worst.
That is why OFGEM were forced to move the cap to a quarterly basis, but even so we are still paying for the losses on hedges, failed hedge programmes and bankrupt retailers.
From the point of view of generators, price levels in the day ahead market make surprisingly little difference, Dispatchable nuclear and CCGT and biomass will have already sold fixed price hedges. In the case of CCGT, they will also have bought gas forward to match the hedge sales, locking in a margin. Drax and Lynemouth do likewise, knowing the cost of wood chips. Intermittent CFD generators do not care what the day ahead price is (at least so long as it is positive) because they get exactly compensated by the CFD to be paid their strike price: the imperative is to secure revenue. FiT generators get their fixed price regardless of market conditions. ROC generators are very well insulated by their subsidies, designed to ensure they were profitable in a low gas cost environment: for them the priority is to ensure that they produce to harvest subsidies that normally outweigh day ahead prices.
The market design that gives renewables a guaranteed output except in conditions requiring curtailment means that there needs to be a process of adjustment to accommodate renewables volume or lack of it. This is concentrated around the day ahead market, when output is reasonably forecastable. CCGT provides the main source of flex for overall volumes. If a power station can meet its forward sales by purchasing renewables output instead of generating, and reselling fuel (or keeping it in stock against better opportunities in the case of biomass and coal) at a profit it will do so. The prices at which this occurs are largely determined by the overall volume of renewables output, which increases the competition to suppress gas generation.
Conversely during periods of Dunkelflaute and higher than normal demand, additional gas generation needs to be acquired. To some extent this may be in competition with interconnector supply and demand at the other end of interconnectors and batteries making a margin between charging up in low demand hours to supply price peaks. Again, while gas cost clearly sets a floor, it is the level of demand that really sets the price for the extra generation, particularly when available CCGT is fully utilised.
The increasing role of batteries and interconnectors is also typically ignored in looking at wholesale pricing exclusive of subsidies. Prof Gordon Hughes has done some interesting work in this area.
Of course the main point of the post is the real truth: reporting the cost of gas based hedging and showing it is related to forward gas prices should surprise no-one. But the market entirely fails to include any of the other costs of renewables, including the subsidies that are paid by the MWh of generation (let's also not forget REGOs).
Thats an extremely comprehensive response and thank you for taking the time. You are shining a spotlight again on the inner workings on pricing that if better understood by politicians and the media perhaps we would begin to move the dial. Of course the majority aren't interested in anything that undermines their NZ goal.
Great info, thanks!
Sounds like a reasonable explanation. It's definitely not an extremely rare weather event as MSM would have ys believe; unless an extremely rare weather event is the sun not shining and the wind speed dropping...