Ed Davey Risks Sleepwalking Into Blackouts, Britain Warns!!
By Paul Homewood
Well, some of us have been warning about this for years!
Dear little Emily writes in typically uncritical fashion:
Britain risks “sleepwalking into brownouts and blackouts” because of a proposed overhaul of energy regulation that could lead to the closure of many small power plants, former energy secretary Sir Ed Davey has claimed.
The warning from Sir Ed, who was in charge of UK energy policy from 2012 to 2015, is the starkest intervention yet into a fierce industry debate over plans by regulator Ofgem to change the way Britain’s power grids are paid for.
Under the current, highly complex, network charging system, small generators enjoy certain benefits that are not enjoyed by bigger power plants – both by tapping extra revenues, and avoiding costs.
This has led to a boom in small power plants, including polluting diesel generators, which have been able to undercut big new gas plants to secure subsidies through the Government’s “capacity market” scheme to help keep the lights on.
The Government, which wants big new gas plants, has said the small generators may be enjoying an “unfair advantage” and backed an Ofgem review. The regulator is currently considering curbing or scrapping the extra revenues the small, “embedded” generators receive.
Ofgem is considering changes to the way the UK power grid is paid for, but is stopping short of a full review that Cornwall Energy has called for Credit: Peter Lawson / Rex Features
But Sir Ed pointed to a new report by consultants Cornwall Energy, which warned that the changes could jeopardise Britain’s security of supply by causing “the early closure of a potentially significant amount of distribution-connected generators”.
While he acknowledged the need to deter diesel, Sir Ed warned Ofgem against "using a sledgehammer to crack a nut".
He said: "This rushed change will hit exactly the flexible plant such a biomass, CHP [combined heat and power] and energy-from-waste that the Government says they want. And its impact could be much larger than they currently admit, resulting in Britain sleepwalking into brownouts and blackouts."
Under the current network charging system, the amount industrial energy users pay is determined by how much power they draw from the grid at peak times. Many avoid the charges by paying for small power plants to fire up and effectively cancel out their usage.
Nigel Cornwall, chairman of Cornwall Energy, said many small plants currently depended on these payments, which accounted for up to half of their revenues.
He said Ofgem’s changes could adversely affecting the economics of up to 8 gigawatts (GW) of existing small plants and 2GW of new small plants due to be built in coming years.
Britain’s spare energy capacity this winter is forecast to be just 3.4GW including emergency schemes.
Unveiling the report, funded by companies that own small plants, Mr Cornwall said: “Over the short term, there will be reduced security of supply, and over the longer-term capacity market prices and the costs of balancing the electricity system could increase significantly.”
He called for the regulator to conduct a wide-ranging review of the entire network charging system instead of the current “rushed changes” which could be “potentially dangerous”.
An Ofgem spokesman said: “We believe that the size of payment that embedded generators get during the periods of highest demand may be distorting the outcome of the capacity market and putting them at a competitive advantage. Any market distortions need to be addressed.
“When making a decision on any changes to the charging regime, we will take a number of factors into account, including any potential impact on security of supply.
“In doing so we will consider whether transitional arrangements, such as phased or delayed implementation, may be appropriate. We set out our position in an open letter in July and are now considering the responses that we received.”
It does not appear to have crossed little Emily’s mind that it is Ed Davey’s policies which are endangering security of supply.
The Cornwall Energy report can in no way be regarded as objective, as it is financed by six operators of this embedded plant, who benefit from the existing arrangement.
The current network charging system is complex, but here are a few basics:
1) The cost of running the national grid is passed onto regional Distribution Network Operators, who in turn charge electricity suppliers. Electricity consumers naturally end up paying the bill.
2) This cost is billed to DNOs via Transmission Network Use of System (TNUoS) charges. OFGEM describe it thus:
Transmission Network Use of System (TNUoS) charges recover the cost of providing and maintaining shared (or potentially shared) electricity transmission assets, ie assets that cannot be solely attributed to a single user. TNUoS charges are recovered from all generation and demand users of Britain’s electricity transmission system. These charges vary by location, reflecting the costs that users impose on the transmission network to transport their electricity.
3) TNUoS are calculated on the basis of Triad demand periods. Quite simply, these are the three half-hour periods during each winter, when, looking back, electricity demand was highest in the UK.
Network costs are therefore shared across the DNOs according to how much each one’s demand was at those times.
4) However, so called “embedded generators”, such as diesel generators, are deemed to only produce electricity for the local region, and do not use the National Grid to export electricity around the country.
As a result, they are not charged TNUoS. KRR Pro Stream describes how it works:
As an embedded generation site, the electricity exported is not delivered via the National Grid and so the registered generator is not liable for the supply-side TNUoS tariffs. This is highly beneficial for the large number of Scottish wind farms that have registered with the National Grid – without this exemption, these wind farms (which are highly limited in their location by prevailing conditions) would need to pay the high supply-side TNUoS typical in Scottish regions, as they are a long way out from the centre of demand.
In addition to this exemption, registered generators receive a bounty for the electricity produced during the Triad periods; since they are not connected to the national transmission system, by producing local electricity they decrease the net power demand of their region, lowering peak load on the system. In recognition of this reduced load, the National Grid pays them a subsidy equal to the negative of the regional demand-side TNUoS.
[The comment about Scottish wind power is especially relevant. You may recall that one of the reasons given for the closure of the Scottish coal power plant at Longannet last year was that it was forced to pay towards the cost of building new transmission lines, which took wind power from the Scottish Highlands down to England, where the demand was. While Longannet was forced to pay for infrastructure that it did not need, it now appears that many wind farms, solely for whom it was built, did not pay a penny].
The bottom line in all of this is that, regardless of how it is shared out, the cost of operating the grid is still there. Part of this cost, of course, reflects subsidies paid out to renewable generators and capacity payments to provide back up.
If embedded generators don’t pay it, somebody else will have to.
All of this debate stems from DECC’s consultation on how the Capacity Market operates, set in motion back in March. This was designed to address the very real problem that the Capacity Market mechanism had so far failed to procure any new CCGT capacity. (The only plant so far contracted is the one at Carrington, which was already under construction before the Capacity Market came into operation. One other CCGT plant at Trafford was awarded a contract, but has since failed to obtain finance).
New build CCGT is absolutely necessary once existing coal plants have shut down. For all the talk about diesel generators, they still provide only a tiny amount of capacity. According to DECC, installed capacity at the end of 2015 was only 138 MW.
In their consultation, DECC stated:
Thermal generators are experiencing lower utilisation levels as a result of increasing renewable capacity and coal plant, in particular, are facing large losses. In consequence, we have seen several closures announced and other plant may be at risk. We therefore need decisive action now to ensure energy security…..
As a result we have been reviewing the CM mechanism to ensure it remains fit for the purpose of bringing forward the new capacity we need, particularly gas plant, as older plant such as coal come off the system.
With relation to diesel generators, they say:
Finally, we have heard a number of complaints that diesel engines have unfair advantages in the CM due to how they are treated in the main energy market…
Small distribution connected generators are receiving increasing revenues from “embedded benefits” which include avoided transmission network charges. Some of this is justified because they offer system benefits such as avoided network reinforcement costs. However Ofgem has previously expressed concerns that these arrangements are not fully cost reflective; and hence “embedded benefits” may over reward distribution connected generators such as diesel reciprocating engines. Moreover, the proportion of generation connected at distribution level is increasing and so is the impact of flows from the distribution network on the transmission network.
All of this seems perfectly sensible. Even if embedded generators do not specifically exported to the grid, their capacity allows the grid to take electricity from other power plants. It also needs to be borne in mind that many of these embedded generators have contracts under the Capacity Market to supply power when required by the grid.
One way or another, consumers will end up paying for the cost of running the national grid. While it is not surprising that operators of diesel and other small embedded generators will squeal, these cost should be fairly apportioned across all suppliers of electricity.
As for Ed Davey’s warnings of blackouts, there is only one solution – keep coal plants operational until enough new CCGT capacity is ready, and put an end to all further subsidies to renewables, which are distorting the market and preventing the capacity we need from being built.