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Electricity price predictions

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Jeff
 Jeff
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Posted by: @transparent

Volatility in the market cuts both ways. It can make the job of an electricity buyer very much more difficult. The pressure is greatest in the UK wholesale market because to have settlements every half-hour. Almost all the rest of Europe operates on hourly settlement periods.

During a trading period, an Energy Supplier will first draw on the electricity already secured through their Power Purchase Agreements (PPAs). They are then legally required to cover any shortfall by bidding on the open market, a process which must be completed 10mins before the start of the next half-hour supply period.

The rules of the open market trading state that the last trade of that period sets the price of all electricity purchases in that round. The generator (or their agent) selling the last unit of energy to meet the demand in the market sets the price for all energy in that period.

I illustrated this graphically on a OVO Forum a couple of years ago when there was a video-debate with one of their senior managers. Let me adapt that to be more generic and post it here in two parts, referring to the residential electricity supplier as OneBill. Their fictional buyers team is the Joule Traders.

The imaginary OneBill offers its customers a 100% renewable-energy tariff. Whenever electricity from renewable sources is generated and exported to the grid, it created a Renewable Energy Guarantee of Origin (REGO) certificate. These have a notional value, and can be traded any time after the electricity has been supplied.

 

Illustration One:

Once upon a time, OneBill wanted to buy 10MWH of electricity for their merry band of customers.

The wind blew strong in the North Sea and they picked up 4MWH from Ørsted and 3MWH from Eneco under their shiny new PPAs. At 63 and 61 Spondulicks respectively, the Joule Traders were very pleased with their progress so far.

image

Looking around the market they noticed Vattenfall were very rich in solar MWH, which was a perfect match for OneBill’s green credentials. But 3MWH were already committed to Red-Bug Energy, leaving OneBill able to secure only 2MWH.

It was almost the close of trading for the next half-hour period and the Joule Traders were still 1MWH short of their requirement.

Thankfully they were approached by a man in a fur coat who offered them his business card. He said his name was Sergei and could sell them the final 1MWH for 90 Spondulicks.

With time running out, the Joule Traders shook hands on the deal.

It was going to be more expensive than they’d hoped. The deal with Sergei was the last trade of the session. So his price of §90 wiped out all their hard work of securing the cheaper green electricity. Their PPAs weren’t strong enough to give them the lower-cost wind-energy they’d been hoping for.

Worse still, Sergei’s electricity had been generated by GazRU and came loaded with tonnes of carbon dioxide.

With their green energy guarantee at stake, the chief Joule Trader went online and found what he was looking for.

With a few quick clicks of the mouse, he’d bought himself a freshly-minted 1MWH REGO Certificate.

And since the customers never realised how the system worked, everyone lived happily ever after.

The Energy Price bill which has gone through parliament is looking to address some of this and following consultation is expected to  be in place in 2023 via the Cost Plus Revenue Limit.

---------

"Currently in the UK market, wholesale electricity prices are set by the most expensive form of generation – presently gas-fired generation, which are significantly higher in light of Russia’s appalling invasion of Ukraine and Putin’s subsequent weaponisation of gas supplies. Low-carbon electricity generators are therefore benefiting from abnormally high prices, while consumers are having to pay significantly more for energy generated from renewables and nuclear, even though they often cost less to produce.

To further protect consumers, new powers to help sever the link between high global gas prices and the cost of low-carbon electricity have also been introduced through a new temporary Cost-Plus Revenue Limit in England and Wales. This will reduce the impact of unprecedented wholesale prices on consumers and the taxpayer by introducing a revenue limit, curbing the amount generators can make.

The precise mechanics of the temporary Cost-Plus Revenue Limit will be subject to a consultation to be launched shortly. The government has been working closely with industry on the detail of the proposal, ahead of it coming into force from the start of 2023. It will ensure consumers pay a fair price for low carbon energy and has the potential to save billions of pounds for British billpayers, while allowing generators to cover their costs, plus receive an appropriate revenue."

This post was modified 2 years ago 2 times by Jeff

   
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Transparent
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Stand by for a legal challenge to the Energy Price Bill as it affects existing long-term contracts between Generators and Suppliers.  😮 

The last two Secs of State for BEIS spent months trying to get these contracts renegotiated behind the scenes. However, I would fully expect that they received advice from the then Attorney General that their attempts were not supportable in law.

Moreover, the UK can hardly impose its own enforced re-working on energy-supply contracts whilst it still relies on electricity via overseas interconnectors and must continue to trade on the European Energy Market. We can't hide those trades. We stand out like a sore thumb due to our half-hourly settlements!

In a nutshell, why sell to the UK when they could get 30% more by selling to another country?

Save energy... recycle electrons!


   
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@transparent

Your example was the pricing model adopted when the electricity supply industry was first privatised, but led to manipulation of the market by some of the generating companies.

Some years later it was changed, so that if a power station had 4 x 500MW generating units, power was offered for each 30 minute period the following day from each individual generating unit. So the company could offer 500MW from Unit 1 at £25/MWh, 400MW from Unit 2 at £25.50/MWh, 500MW from Unit 3 at £26/MWh and 450MW from Unit 4 at £26.50/MWh. NG would normally select the cheapest generation first, and the generating company would be paid the price that they bid in, not the highest price on the bars.

This was a much fairer system, in that if generating companies bid in too high a price, they would not be called to generate and would not receive any payment.

If a generating company failed to supply the contracted amount of power, they were required to buy power on the open market to make up the deficit, this tended to ensure that companies only bid in the amount of power that they were reasonably confident that they could supply.

Obviously with the advent of more and more renewable generation, whose output cannot be guaranteed, there would need to ways to accommodate any over or under generation from the anticipated amount.

I am at a loss to understand why the pricing arrangement reverted back to the original flawed model. 🙄

 

This post was modified 2 years ago by Derek M

   
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Transparent
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I don't think the system reverted for the original generators connected to the National Grid.

Difficulties emerged once hundreds of smaller renewable energy companies required connections to the Distribution Grid, sub-132kV. Those contracts also include agreements with the DNOs due to network constraints. The prices have to include a varying DUoS (Distribution Use of Service) element, both in terms of the volume in MWh and the physical ability to add that generation into the grid.

The present contracts do bear a resemblance to the older-style NG-level contracts. But it seems worse than it is in my illustration, which is simplified to aid clarity.

 

Save energy... recycle electrons!


   
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Transparent
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Illustration two:

That evening the Joule Traders were at their usual bistro, Watts Cooking.

They were joined at the table by a colleague from their sister-company, Kolaborate.

How’s your day been?” asked Ampz?

They told him of their successful PPAs with the wind-turbine operators, but how the deal with GazRU had pushed up the price of the solar power from Vattenfall because Sergei’s had been the last trade of the session.

I can help you with that,” Ampz replied. “What’s the weather like tonight?

Well that’s the problem,” said the senior Trader. “It’s blowing a gale, but we only need 6MWH of the ten being generated by Ørsted and Eneco.

No problem, guys” retorted Ampz. “Kolaborate’s running a couple of trials with Storage Batteries and Vehicle to Grid EV chargers. I’ll take the extra 4MWH and store it for you!

 

That would be great,” replied the Joule Traders. “And OneBill gets to take advantage of the lower prices too!

 

The next day the Traders were back at their screens in the office, looking for another 10MWH for their customers.

The wind had died down, but the sky was still overcast and Vattenfall had only 1MWH to offer Red-bug Energy. With Ørsted and Eneco having just 7MWH between them, it looked like both OneBill and Red-bug were going to fall into the clutches of GazRU.

At that moment the door opened and in walked Ampz.

Hi guys,” he said cheerily. “It’s time to raid the energy stores.

 

Ampz tapped a few keys on his smartphone and the energy recovery was in place.

They even had 1MWH surplus to sell on to Red-bug at a profit.

Sergei was furious. He’d been all ready to cash in on the lack of sunshine and sell his dirty energy at §97. But now he was going to lose out entirely.

This post was modified 2 years ago by Transparent

Save energy... recycle electrons!


   
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(@derek-m)
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Posted by: @transparent

Stand by for a legal challenge to the Energy Price Bill as it affects existing long-term contracts between Generators and Suppliers.  😮 

The last two Secs of State for BEIS spent months trying to get these contracts renegotiated behind the scenes. However, I would fully expect that they received advice from the then Attorney General that their attempts were not supportable in law.

Moreover, the UK can hardly impose its own enforced re-working on energy-supply contracts whilst it still relies on electricity via overseas interconnectors and must continue to trade on the European Energy Market. We can't hide those trades. We stand out like a sore thumb due to our half-hourly settlements!

In a nutshell, why sell to the UK when they could get 30% more by selling to another country?

Paying 30% more for 3GW of energy via interconnectors is what is called 'market forces', supply and demand. But why should the UK consumer have to pay 30% more for all 30GW consumed, which is just filling the pockets of the energy supply companies?

I have noticed recently, that more often than not, French companies have been buying up to 3GW of energy when the UK price is low, but then selling the UK up to 3GW of energy when the price is high. Maybe French companies are helping to push the price higher, since they are heavily involved in the UK power industry?


   
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Jeff
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Posted by: @transparent

Stand by for a legal challenge to the Energy Price Bill as it affects existing long-term contracts between Generators and Suppliers.  😮 

The last two Secs of State for BEIS spent months trying to get these contracts renegotiated behind the scenes. However, I would fully expect that they received advice from the then Attorney General that their attempts were not supportable in law.

Moreover, the UK can hardly impose its own enforced re-working on energy-supply contracts whilst it still relies on electricity via overseas interconnectors and must continue to trade on the European Energy Market. We can't hide those trades. We stand out like a sore thumb due to our half-hourly settlements!

In a nutshell, why sell to the UK when they could get 30% more by selling to another country?

I am sure there will be lots of conversations and tweaks, especially as the Bill was introduced under a different PM, Chancellor and BEIS minister (Grant Shapps is my MP and now heads up BEIS) 

We may yet end up with a windfall tax falling on some but not all parties. Perhaps we will hear more in the budget regarding the direction of travel. 

The direction of travel is definitely to break the link however that is done and however long that takes. 

I actually feel more positive than i have in a very long time that the government will want to grind through these issues to stop the price of electricity being inflated for no good reason other than historical process. It  won't be perfect. 

The Bill was looking to target the old non fossil fuel contracts that were far more generous than the recent CfD contracts that would remain intact. Of course whether this applies to PPA contracts for non fossil fuel providers not on the more recent CfD contracts, interconnectors etc complicates conversations. 

A proposal on voluntary CfD contracts for fossil fuel generation is also in the bill and generally the industry was interested given that they could secure a very long contracts. Whether that is good for a consumer is another matter. The funding mechanism for new nuclear also always prompts debate. 

Of course there will always be complications. Even now there is political pressure on the pricing of electricity via the interconnectors to the UK given the taxpayer support to EDF in France.

None of this is particularly easy with all the private companies involved. 

This post was modified 2 years ago 2 times by Jeff

   
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Posted by: @transparent

Illustration two:

That evening the Joule Traders were at their usual bistro, Watts Cooking.

They were joined at the table by a colleague from their sister-company, Kolaborate.

How’s your day been?” asked Ampz?

They told him of their successful PPAs with the wind-turbine operators, but how the deal with GazRU had pushed up the price of the solar power from Vattenfall because Sergei’s had been the last trade of the session.

I can help you with that,” Ampz replied. “What’s the weather like tonight?

Well that’s the problem,” said the senior Trader. “It’s blowing a gale, but we only need 6MWH of the ten being generated by Ørsted and Eneco.

No problem, guys” retorted Ampz. “Kolaborate’s running a couple of trials with Storage Batteries and Vehicle to Grid EV chargers. I’ll take the extra 4MWH and store it for you!

 

That would be great,” replied the Joule Traders. “And OneBill gets to take advantage of the lower prices too!

 

The next day the Traders were back at their screens in the office, looking for another 10MWH for their customers.

The wind had died down, but the sky was still overcast and Vattenfall had only 1MWH to offer Red-bug Energy. With Ørsted and Eneco having just 7MWH between them, it looked like both OVO and Red-bug were going to fall into the clutches of GazRU.

At that moment the door opened and in walked Ampz.

Hi guys,” he said cheerily. “It’s time to raid the energy stores.

 

Ampz tapped a few keys on his smartphone and the energy recovery was in place.

They even had 1MWH surplus to sell on to Red-bug at a profit.

Sergei was furious. He’d been all ready to cash in on the lack of sunshine and sell his dirty energy at §97. But now he was going to lose out entirely.

Great example Transparent, the problem is that we as yet don't have the ability to store electricity, or even energy, in bulk. Even if we did have bulk storage available, at present it would not necessarily be under the control of NG, so that they could balance supply to demand in the most efficient and cost effective manner.


   
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Transparent
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There certainly are Electricity Storage facilities available to NG ESO on demand. Statera Energy is one company pioneering such sites in GB.

There are two 49MWH sites being constructed within 30 miles of me, and a third site with planning permission granted for 30MWh.

Storage companies normally try to get just under the 50MWh level. That means they can operate under G98/G99 certification, and may not unreasonably be refused a connection to the Distribution Grid by the DNO.

The Xlinks Project to import solar/wind-generated electricity from Morocco, includes a number of possible battery storage facilities where the cable connects to the national Grid lines at 440kV. The battery options under consideration range from 5GWh to 20GWh. (Note - that's Gigawatt-hours)

The new RIIO-ED2 contracts between Ofgem and DNOs include strategies to increase the distribution of electricity storage. DNOs must liaise with Community Energy Groups and assist them to become aggregators/suppliers. They will obviously want to avoid importing from the grid anything which they haven't generated in the first place. So distributed mass storage is essential.

 

Save energy... recycle electrons!


   
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Jeff
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What the energy costs would have been without government support from 1st Jan

£4,279 for average customer 12000kWh gas 2900 kWh Electricity 

It was £3,549 on 1st Oct

https://www.ofgem.gov.uk/publications/latest-energy-price-cap-announced-ofgem

This post was modified 2 years ago 3 times by Jeff

   
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Yep,

Then Mr Sunak aannouncing last night that after 2023, they'll be no government support whatsoever for Energy and tells us we need to learn to conserve it.

Not like those that can't afford are not doing that already. I'm sure Cornwall Insight had predicted £5400  in January earlier in the year.

https://news.sky.com/video/ellwood-putin-wants-to-expand-war-12752878

Curious comments at 4mins into that Interview.


   
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Jeff
 Jeff
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@diverted-energy Earlier they projected £5400 from 1st April 2023 rather than 1st Jan 2023

Then they said £4,649.72 for 1st Jan so pretty close to the actual all things considered. Since we have had a mild winter so far, some price controls announced etc. 

Given the price controls, full Europe storage and dramatic fall in gas price, the 1st Jan figure is now at least projected to be the peak. 

This is the £5400 older announcement now out of date and looks very high given what has changed. 

https://www.cornwall-insight.com/cornwall-insight-release-final-predictions-for-octobers-price-cap/

This post was modified 2 years ago by Jeff

   
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