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National Grid’s Future Energy Scenarios: Cui Bono?

July 20, 2017

By Paul Homewood

 

h/t Philip Bratby

 

John Constable has his own take on the National Grid’s Future Energy Scenarios published last week:

 

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National Grid’s recently published Future Energy Scenarios, 2017, is in essence an examination of its own prospects in a period of policy driven sectoral transformation. However turbulent the future appears to be for generators, and however costly for consumers, shareholders in National Grid can sleep easy at night. Things will be fine, for them at least.

The UK’s National Grid has been in the news rather often over the last few days. It’s current chief executive, Mr Pettigrew, has attracted adverse comment on his salary (£4.6m per year) and London moving allowance (£500,000), and it seems that National Grid may, in company with other utilities, have come under a thankfully unsuccessful cyber-attack on the day of the election.

All this is rather overshadowing the publication of this year’s Future Energy Scenarios, and what comment there has been tends to focus on predictions of system stress if electric vehicles are allowed to grow in an unmanaged fashion. That is in itself interesting, but the larger story of which it is a part, namely National Grid’s growing importance, indeed market power is more interesting still.

The Future Energy Scenarios document set is complex, large and beyond simple summary. It is an exercise in speculative imagination. But for whom, and to what end? National Grid’s own explanation is as follows:

As System Operator (SO), we are perfectly placed to be an impartial enabler, informer and facilitator. The SO publications that we produce every year are intended to be a catalyst for debate, decision making, and change as well as providing transparency to the wider industry. (FES, p. 3)

However, this cannot be taken quite at face value. National Grid, in spite of its name, is not an “impartial enabler”; it is a shareholder owned company with a regulated asset base and income stream. It is deeply interested party, and nothing in the Future Energy Scenarios, which is to my jaundiced eye rather obviously a company risk assessment, leads one to think it is anything else.

Indeed, it is only the part of the future system that appears to have a full-time job. Consider the predictions of peak load, which may rise to about 85 GW in 2050, up from about 60 GW at present, and those for the minimum load on the transmission network, which will fall to “very low” levels (presumably < 10 GW, compared to about 20 GW at present). The total generating fleet serving this oddly shaped market will rise from about 100 GW at present to about 180 GW in 2050.

Thus, even at peak load on the network, the UK would have a vast surplus, about 100 GW, of generation capacity. This capacity would have been very dearly bought, but would almost all of it be operating at low levels of utilisation. That is plainly a recipe for low productivity, and very high prices to consumers. Transmission assets would also be relatively under utilised, while National Grid itself would be extremely busy managing this extraordinary fleet and demand pattern to provide a reliable electricity supply.

Alongside this, and perhaps the most remarkable aspect of the FES, is the emphasis placed on the need created by climate change objectives to reduce the burning of natural gas for home heating and cooking. This is a major undertaking, and arguably more counter-economic even than the current proposal to transform the electricity supply. Roughly 80% of the UK’s 26 million households are connected to the natural gas grid, with a total of 22 million gas boilers (FES, p. 32–33). The FES proposes that in the “2 Degrees” scenario (the new name for the scenario formerly known as “Gone Green”), this number will have fallen to 7 million in 2050, with the balance and the additional 4 million homes expected in that year predominantly by supplied by Heat Pumps, mostly Air Source Heat Pumps (ASHPs). This is clearly a tall order, and National Grid acknowledges that it will require “Incentives to drive […] installation”, in other words it will require legislation and subsidies.

Thus, the electricity system envisaged for 2050 would be distorted by subsidies on both the production and the consumption sides. The 185 GW of low productivity generation capacity will be largely paid to exist, the funds being raised from higher electricity prices, while domestic consumers will be bribed to use electric heating systems, and almost certainly bribed with funds taken from their own electricity bills.

This is not an attractive future, except of course for National Grid, who will find its falling revenues from the gas network replaced and probably more than replaced with revenues from the electricity system. Indeed, there can be no doubt that one of the few messages emerging clearly from the FES document is that National Grid’s future is safe. The scenario analysis piles uncertainty upon uncertainty, and National Grid obviously does not know what is going to happen in 2030, much less 2050, but it does not need to know. As a company responsible for both the electricity and the gas systems, it has an inbuilt hedge, and whether it has to deliver climate policy, in close collaboration with government, or whether it is allowed to operate the networks in a more liberal environment, it will be able to prosper.

It is true, of course, that National Grid seems to be betting on the electricity side, having sold 61% of its gas distribution business, but it retains a strong interest across the field, and is very well placed, and judging from Future Energy Scenarios, National Grid is the only large interest likely to survive the dramatic changes underway. The FES authors themselves write:

The energy sector is becoming more diverse with a move away from a small number of large companies, to a wide range of smaller providers and innovators. (FES p. 4)

But that is somewhat misleading: National Grid itself which will not shrink, indeed it will have to grow both in terms of its asset base and its income stream to deal with the changed conditions on the system. The energy sector is not becoming more diverse in any simple sense; it is shifting from a state in which there were a small number, but a number of large companies to one where there will be a single regulated, policy delivering Super Giant, the System Operator, and many smaller and much less powerful companies. The Big Six will have been superseded by The Very Big ONE.

https://www.thegwpf.com/national-grids-future-energy-scenarios-cui-bono/

 

What I find particularly relevant are his comments about the excess capacity being built into the system:

“Indeed, it is only the part of the future system that appears to have a full-time job. Consider the predictions of peak load, which may rise to about 85 GW in 2050, up from about 60 GW at present, and those for the minimum load on the transmission network, which will fall to “very low” levels (presumably < 10 GW, compared to about 20 GW at present). The total generating fleet serving this oddly shaped market will rise from about 100 GW at present to about 180 GW in 2050.

Thus, even at peak load on the network, the UK would have a vast surplus, about 100 GW, of generation capacity. This capacity would have been very dearly bought, but would almost all of it be operating at low levels of utilisation. That is plainly a recipe for low productivity, and very high prices to consumers. Transmission assets would also be relatively under utilised, while National Grid itself would be extremely busy managing this extraordinary fleet and demand pattern to provide a reliable electricity supply.”

As I pointed in my analysis earlier, this surplus capacity is necessary because of the relatively low utilisation of wind and solar power.

But, of course, there will be times when both are running at close to full capacity, which leads to the question – what will happen to all of this surplus power?

The stock answer is battery storage. Not only would this be hugely expensive, but whether even a massive roll out of storage could cope with the amounts of electricity involved must be questionable.

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9 Comments
  1. Jack Broughton permalink
    July 20, 2017 10:37 am

    Likely that “Smart metering”, i.e. variable charge metering will be used to control the populace, a truly Tory energy policy. The excess capacity will be used to replace gas in the off-peak times: theoretically this could be fine in the winter, but leaves a big excess unused in the summer, so the unused asset cost is still high. We will all have to have big hot water tanks in our houses – further subsidy or penalty. OMG/LOL/****

  2. July 20, 2017 10:45 am

    National Grid’s profits are regulated to their amount of infrastructure spending. So the more the system is messed up, the more money National Grid has to spend to keep the lights on and the more profit they make. It is in their interest to encourage the Government to have the most lunatic policy possible.

    The amount of storage to cope with a summer Sunday afternoon when it is windy in Scotland and sunny in England would be unfeasibly high. There will have to be massive disconnects to prevent overloads.

    • martinbrumby permalink
      July 20, 2017 12:33 pm

      “It is in their interest to encourage the Government to have the most lunatic policy possible.”

      Well, Phillip, They are ‘in the pound seats’ with that one! In fact the most lunatic policies imaginable would be nearer the mark! Even the notorious “Zero Carbon Britain 2030” circle-jerk “strategy” of 2010 is beginning to look tame in comparison with what is being done – with zero serious debate in Westminster – today.

      My powers of imagination have been surpassed. I cannot see any prospect of this coming to an end short of a total collapse of the economy. So still some way to run, unfortunately.

  3. July 20, 2017 10:49 am

    What ever else it might be it is not free-market capitalism. Nobody in their right mind would freely deploy so much capital for a guaranteed loss. Cui Bono indeed! Mandated depletion of national wealth to accomplish nothing is proof that the gods would first make mad those they would destroy.

  4. Gerry, England permalink
    July 20, 2017 12:40 pm

    All good news for us National Grid shareholders. One of the best shares I have ever bought. Lovely dividends.

    These pie in sky dreams can only exist if there is money to pay for them. Great with a buoyant economy but where will the money come from in a recession? There is always Corbynomics – or just naked socialism in reality – borrow it all. But whoever wins the post Brexit election in 2019 will have so much to focus on beyond energy. Keeping people fed for starters.

  5. July 20, 2017 3:52 pm

    “…Thus, even at peak load on the network, the UK would have a vast surplus, about 100 GW, of generation capacity. This capacity would have been very dearly bought, but would almost all of it be operating at low levels of utilisation. That is plainly a recipe for low productivity, and very high prices to consumers….”

    The most telling comment by far!

    “…The primary objective of the energy sector is to supply cost-effective energy to the broader economy, allowing it to grow and increase the standard of living of its citizens…”:

    http://prismsuk.blogspot.co.uk/2017/02/wind-and-solar-power-drain-lifeblood.html

  6. Timothy permalink
    July 20, 2017 6:59 pm

    I’m reminded of the book “Nukee” in which a breeder reactor produced more electricity than the world could consume. Rich people could afford to turn off their lights, poor people had to suffer 24/7 lights. A gigantic, lighted, “welcome aliens” sign was erected in the desert.

  7. Shale Watcher permalink
    July 21, 2017 10:19 am

    I think the general public assume the NG controls the production of electricity and gas, they don’t – they are more like the plumbers of the system who arrange the flow and delivery but not the initial production which is left to the market overseen by the government ultimately. In a way the more complicated the production the more opportunities for money to be made by NG. Operating a complicated production system generally equals complicated delivery systems. NG only get concerned when delivery is threatened, these including very low demand periods around noon on a sunny, windy day when the combination of large inflexible renewables combined with inflexible nuclear output might threaten to overwhelm the voltage control system. The other threat of course is high demand with low supply. Whilst on this topic, the FES document is very much a long term vision – perhaps more interesting is the prospect for next winter with the loss of the Rough storage facility and the reliance on LNG imports to cover long periods of cold weather. They admit in their review of last Winter that they grossly overestimated the ability of the market to attract LNG cargos. They optimistically predict that this winter wil be different based on “market intelligence” and indeed the business media suggest there is a glut of LNG worldwide, however with huge users like China and S Korea responding to an understandable pollution agenda with increased gas imports one just hopes that this year’s “market intelligence” has a higher IQ than last.

  8. It doesn't add up... permalink
    July 22, 2017 4:57 pm

    The role of battery storage in a renewables dominated grid has nothing to do with storing any significant amount of energy. For example, Musk’s 100MW battery for the South Australian grid is only 129MWh of storage capacity. Its purpose is to try to help provide grid stability in the absence of sufficient inertia in conventional plant that would normally help smooth things over when large industrial motors start up, or there is a big “TV pickup” because a heavily watched programme ends – or indeed, when wind generation varies because of gusts and lulls in the wind. It will inject or absorb power on timescales of seconds to at most a few minutes, and extremely rarely it might be run down rather further to help meet a rush hour demand peak on a hot day for half an hour or so.

    Working out how renewables will fit into a grid in which they predominate will entail large scale curtailment of production. Turbine blades will be feathered, and solar panels tilted away or shaded from the sun. If these things can be done in a sufficiently controlled manner and fast enough, it may be possible to replicate some of the features of grid batteries. Since grid stability is essential if blackouts are to be avoided, there will be excuses to pay for this “service”, which is provided as a matter of course with conventional steam turbine driven generators.

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