Yes the location of Data centres would be driven by factors like new services if the gov planners have their way.
My 2c: A solution that trades in NY would not have the edge components in the UK, even without an architect being involved. But there will be many "workloads", etc.
We are on a very generic discussion. There are so many use cases in AI, let alone industries.
£416 of the average bill of £1,719 was taken as pre-tax profits by the major electricity generators, networks and household suppliers last year. [Guardian news based on Ofgem data]
Nice to be back on track! If we all had the interest, self reliance is an answer.
My grid "only" goes down a couple of times a year, which pushes it the same way.
Not read in detail but I thought this was interesting. Not read the actual report and I don't know how good the analysis is. Nonetheless interesting take.
The premise seems to be we have used less gas so the gas price has been lower and hence the gas and electricity price had been lower. I can see the logic due to our reliance on a constrained amount of LNG capacity, transport and storage. Our current setup wouldnt work without considerable investment if we had no renewables and used gas turbines instead for electricity I suspect.
One of the other premises is we haven't been building new gas turbines to replace end of life fossil fuel generators, we have been building renewable capability. To build, maintain and fuel a new fossil fuel generator may cost more than renewable equivalent, I don't know if that is true. The only way to compare costs is to look at the cost of a new gas turbine vs the cost of a new wind farm over the lifetime, I haven't looked at this. Comparing costs of new renewables with a say 20 year old gas turbine doesn't work, I can see some logic in that. I suspect major new gas turbines would likely need a subsidy via the capacity market or otherwise, the capacity market currently costs £24 a year on an average electric bill in the latest price cap, most of this goes to gas generators to guarantee supply. I suspect no one in the UK would build a major generation capability without a subsidy now whether that is fossil fuel, renewable, nuclear etc as the building costs, cost of capital etc are so high, coupled with the interesting political landscape... We are very fortunate that the old fossil fuel generators were built when things were simpler and the build costs long covered. It is an interesting analysis, but like a lot of things difficult to know how accurate it is with the assumptions on what would have happened without renewables.
Interesting the CfD top up payments to renewable generators is £31 a year for an average electric user. This is the pot of money that goes to renewable generators when the market price is lower than their strike price. It is useful number to see how much more expensive CfD supported renewables are as the price of electricity is set by the gas turbines the vast majority of the time in the UK. The CfD pot obviously isn't the whole story as most renewable generation is covered under ROC subsidies and these sit in another pot in our bills under Policy costs levies. These ROC subsidies start to disappear from our bills in 2027 as they had a fixed life, just like the Feed in Tarrif for homeowners with solar. ROC subsidised electricity is even more expensive than CfD. There is quite a nice breakdown of an average electric bill on this page which is updated with every price cap change, so recently updated.
Interesting to see a simple breakdown of the bills which can give some context to a lot of articles on this subject. It is one of my go to pages to get some context whenever I see an article about costs as it shows what we are currently actually paying, although even this an average due to whatever power purchase agreements etc octopus, ovo etc put in place and their overall efficiency etc. It obviously also depends on individual usage patterns, home solar, EVs and the specific tariff we pick. Some tariff are even loss leaders where suppliers like Octopus have admitted are priced below their own costs to gain market share. The nesta info also shows the balancing cost. This would be lower if we had built connectivity and storage at the same time as generation. It would also have been lower if we had varied renewable subsidy based on geography so we had generation closer to demand. It may also have been lower with some sort of local pricing mechanism to encourage storage, industrial use close to generating assets. Lots of political decisions have driven the items on the bills but I suspect it is difficult to quantify what the alternatives would have produced.
Floating wind is very high, for small seed funding to get the market going I get it, but long term obviously this isn't a goer for much capability unless costs fall in the future.
The potential £113 price for offshore wind I find more difficult to judge value. Clearly it is more than the average strike price of electricity at the moment over a year. We can clearly see that in the CfD line item in our bills. If the CfD line item was negative then renewables would be cheaper than gas which sets the market price the majority of time.
To build any new generation capacity isn't cheap. If we asked companies to bid a guaranteed index linked strike price for exactly the same amount of new gas turbine generator capacity as the AR7 auction right now I am not sure they would bid a price any lower than wind, it may be higher. The cost to hedge gas prices for 20 years which is the length of the CfD contract would not be cheap, coupled with the issue of getting enough gas into the country etc. A new gas turbine generator would have to hedge gas prices if they signed up to 20 year guarantee. There is so much noise in many articles and analysis it can be very difficult to compare alternatives.
I am confident in saying legacy fossil fuel plants are cheaper to generate electricity than new and existing wind and this is clear from our bills.
- the CfD pool
- the ROC payments
- the Balancing costs
- the transmission and distribution network upgrades.
What is less clear is what bills would be if we had no or less renewables, we can only guess what gas prices will do and we have no CfD mechanism for fossil fuel turbines to better compare what the real market would price.
What we are clearly doing is locking in potentially high costs for generation, transmission, distribution and storage compared to what we have paid historically. Whether this is cheaper than a future with more fossil fuels is difficult to assess. None of the companies are squeaky clean, the wind farm owners are just as cutthroat as the fossil fuel lobby and have an eye watering good deal with CfD contracts.
Obviously I am ignoring all the environmental stuff when I write this....
@jeff The cost of an electric motor is pretty insignificant compared with cost of electricity it consumes in its operational lifetime. The cost of installing a wind farm compared to its earning potential over its 25 year lifespan (giving its energy source is free as the wind), just why is it necessary for 20 year CfD to help pay for it?
@jeff The cost of an electric motor is pretty insignificant compared with cost of electricity it consumes in its operational lifetime. The cost of installing a wind farm compared to its earning potential over its 25 year lifespan (giving its energy source is free as the wind), just why is it necessary for 20 year CfD to help pay for it?
Without CfD no one would build a wind farm in the UK, they would invest their capital elsewhere.
Just like no company will build a major new factory in the UK without government support any more.
Just like the wind farm bidders threaten to pull out if zonal pricing was introduced.
The global environment has changed.
There is limited global capacity to build wind farms so that capacity will simply go elsewhere if the price isn't high enough.
The CfD payments have actually been increased in the last round from 15 to 20 years to try and reduce the cost of renewables. The actual strike price and how close it is to £113 will be interesting.
The government are stuck, somewhat due to their arbitrary date targets. Even the likes of Octopus are saying the government should slow down. We seem to be driven by date targets at any cost, just like network upgrades @transparent has talked about.
We saw what happened when the CfD price was too low in an auction... there were zero bids... so the risk is real, it is not the government offering too much in a free market.
As you point out.. do these wind farms really need all that money, Octopus and others have questioned this. It is a nice guaranteed income stream, unless Reform try and rip up the contracts.
At the moment the upfront cost off a new offshore wind farm is larger than the upfront cost of a new gas turbine. The CfD structure gives investors confidence to invest and enabled them to borrow money on the open market to cover these up front costs.
This post was modified 2 weeks ago 2 times by Jeff
@jeff The cost of an electric motor is pretty insignificant compared with cost of electricity it consumes in its operational lifetime. The cost of installing a wind farm compared to its earning potential over its 25 year lifespan (giving its energy source is free as the wind), just why is it necessary for 20 year CfD to help pay for it?
Investors need a return, otherwise they will invest elsewhere.
You can get a risk-free return of over 5% on a 20yr government gilt, and riskier investments would expect to yield a 10% plus return. Investors will want a high rate of return over a long time frame to invest money into infrastructure projects. They have to pay back the capital investment and provide that return to investors on top, as after 20 years (or whatever the lifespan is of a wind farm) they own a pile of scrap metal that has further decommissioning costs and you don't get your capital returned to you at the end of the 20 year period like you do investing in a government gilt.
Ultimately markets decide the price. If better returns are available elsewhere, then that is where the money will flow (I think the government have seen this in previous rounds where they set the price too low and got zero interest). For comparison, there is only one publicly listed Wind Farm resource in the UK (UK Wind [ UKW ]), a £4.2bn portfolio of 49 operational wind farms, and it currently trades on a 23% discount as investors do not consider it represents value for money despite a 9.5% forward yield that is largely inflation linked. If the market considered it a great investment, then it would be trading at a premium, not a large discount. Because it's trading at such a wide discount, they cannot raise further funds on the stock market to grow the fund (build/buy more wind farms). This is the market telling you there are better returns to be had elsewhere. It's exactly the same situation with publicly listed solar farms (BSIF, FSFL, NESF) with BSIF announcing this week they are considering de-listing as they cannot attract capital investment on public markets. So how are you going to persuade investors to build wind farms rather than invest in AI or data-centres, or whatever the latest fashion is?
Samsung 12kW gen6 ASHP with 50L volumiser and all new large radiators. 7.2kWp solar (south facing), Tesla PW3 (13.5kW)
Solar generation completely offsets ASHP usage annually. We no longer burn ~1600L of kerosene annually.
I agree @old_scientist, investing is most green stuff at the moment doesn't look great.
We can only hope that the final CfD price gets closer to the current market price of £76 when the bids come in.
At least the amount of money Ed Milliband has been given for this round is smaller than expected which will hopefully drive some extra competitive behaviour in bids.
From a purely financial perspective there is little point in locking in intermittent electricity at anything like £113 when the price of electricity on the open market is only £76.
I see a few newspapers have picked up on this.
I think Ed Milliband should have been replaced with someone who can better navigate us to net zero in the last reshuffle.
We are building wind farms that cost materially more than the gas turbines they are replacing and that is without the balancing payments and network upgrades.
A pause and a rethink is what is needed to get us to net zero rather than blind ambition...
I agree @old_scientist, investing is most green stuff at the moment doesn't look great.
We can only hope that the final CfD price gets closer to the current market price of £76 when the bids come in.
At least the amount of money Ed Milliband has been given for this round is smaller than expected which will hopefully drive some extra competitive behaviour in bids.
From a purely financial perspective there is little point in locking in intermittent electricity at anything like £113 when the price of electricity on the open market is only £76.
I see a few newspapers have picked up on this.
I think Ed Milliband should have been replaced with someone who can better navigate us to net zero in the last reshuffle.
We are building wind farms that cost materially more than the gas turbines they are replacing and that is without the balancing payments and network upgrades.
A pause and a rethink is what is needed to get us to net zero rather than blind ambition...
And therein lies the dilemma. Investing in net zero is expensive. Not investing in net zero may be more expensive in the long run. Who knows, although you clearly understand this more than most from your excellently written analysis above (and thank you for that informative read).
I note the government was recently advised to start preparing for a world with +2C warming by 2050 (sorry, I can't find a reference), as most agree that limiting global warming to 1.5C is now unachievable. I wonder how the costs of that preparation should be factored in? Should we just plan to build more flood defences to stem rising sea levels and increasing storm surges. How should we plan for more crop failures from increasing storms (flooding) and drought periods and concomitant food security issues? If we can't afford to pay for net zero, how do we think we will pay for these measures to deal with the consequences. Or maybe we just stick our heads in the sand and hope for the best.
40 years ago I studies global warming as part of my science degree at university. Back then, although I was capable of understanding the issues, I did not conceive it would be something that would affect me, in my lifetime. Now, 40 years on, I have a very real sense of the issues we may face by 2050, still very much in my lifetime. These are not issues for the next generation to solve but equally unfortunately nor are they things that get governments elected.
Samsung 12kW gen6 ASHP with 50L volumiser and all new large radiators. 7.2kWp solar (south facing), Tesla PW3 (13.5kW)
Solar generation completely offsets ASHP usage annually. We no longer burn ~1600L of kerosene annually.
40 years ago I studies global warming as part of my science degree at university. Back then, although I was capable of understanding the issues, I did not conceive it would be something that would affect me, in my lifetime. Now, 40 years on, I have a very real sense of the issues we may face by 2050, still very much in my lifetime. These are not issues for the next generation to solve but equally unfortunately nor are they things that get governments elected.
No need to worry, at least according to the person I spoke to on Saturday who was campaigning on behalf of one of the candidates at the next general election.
Climate change is (apparently) all a hoax, the climate has anyway always changed. Furthermore what we are told about climate change by the Met office is wrong, because 50% of their claimed weather stations don't actually exist. Thus repealing the climate change act will solve any financial problems we may have.
Simples!
This post was modified 2 weeks ago 2 times by JamesPa
4kW peak of solar PV since 2011; EV and a 1930s house which has been partially renovated to improve its efficiency. 7kW Vaillant heat pump.
I also care about the environment like you and you make some very good points.
It is hard to quantify what slowing down net zero investment in the UK would mean. What it would mean both locally and globally.
I agree globally and locally we need to do something.
We aren't a large global greenhouse emitter so we will make little difference if we do or don't in terms of global or local temperatures or global or local sea levels. That is very blunt rather than doing the right thing and showing global leadership but we live in strange times.
From a UK perspective I think we will need to gradually change the crops we grow anyway as I honestly believe temperatures are going to go up higher now whatever we do or don't do.
As for sea levels around the UK I think realistically we should limit sea defences and let nature take its course apart from critical infrastructure etc.
As for flood defences again obviously some investment is needed but I strongly believe again that we need to let nature find a level that is viable in many cases even at the unfortunate impact on some areas.
I am all for net zero in the UK but we need a viable route to get there which needs so much clearer communication. If we move to net zero quicker than the majority of the rest of the world we currently run the risk of a higher cost of living with no benefits of lower temperatures or sea levels or flooding locally or globally.
At the moment I don't think we have a viable route to net zero but I equally not sure what is viable.
We see it with so many things, just look at the eye watering boiler upgrade scheme £7,500!!! Non means tested!!! The government kept increasing it as the take up was so low. This is another car crash as it is unviable at scale and it is going to people who don't really even need it in many cases. This is meant to be a mature technology!
A pause, review and rethink is needed I think to get us to net zero at some time in the future that is viable.
I think you are making the mistake of thinking that there might be an easy way to reduce carbon emissions, ie either that technology is somehow going to bale us out or that politicians are missing some easy trick.
There was a (relatively) easy way which was to start seriously 30 years ago when we knew about climate change but it was largely suppressed by vested interests. Unfortunately we didn't. Now what we have is a hard way, which is broadly what we (and still much of the rest of the world is doing), or an even harder way, which is to wait even longer before taking meaningful action, which is the certain outcome of what you are advocating.
If we are to make change we have to start and have some targets. As we learn it will likely get easier, but it is never going to start easy because we have to learn about and adapt to the technology. Heat pumps are a good example, they are indeed a mature technology (although still evolving slowly) but the installation industry, which is the problem we currently see, is extremely immature and immersed in decades of bad practice 'learned' from deploying oversized and poorly configured gas boilers. With the best will in the world this takes time to change, because it involves changing people. There is no world in which you can instantaneously develop a trained workforce of the scale we need which doesn't make mistakes at first.
Targets in many fields are often stretch targets, in fact I would say that is almost essential otherwise people simply don't think hard enough. Of course stretch targets get modified, the trick is to modify them progressively so they remain a stretch. Dealing with climate change is no different.
This post was modified 2 weeks ago 5 times by JamesPa
4kW peak of solar PV since 2011; EV and a 1930s house which has been partially renovated to improve its efficiency. 7kW Vaillant heat pump.
