Skip to content

Gas-Fired Power Is Now Cheaper Than Offshore Wind Again

January 25, 2023

By Paul Homewood

.

image

https://timera-energy.com/european-gas-prices-drop-to-pre-war-lows/

.

There are increasingly strong signs that European gas prices are back to pre-war lows and may stop that way. [TTF is the European benchmark]. As Timera explain, part of the reason is demand destruction in Europe and Asia, with gas replaced by coal and slowing economic growth in China. Gradually as well LNG capacity is starting to expand.

Catalyst Digital Energy, the UK energy consultants, agree, with day ahead UK prices down to 178p/therm at the end of December.

Naturally this has an effect on consumer prices for gas, but there is also an effect on power prices too, and these are back down to £160/MWh on the wholesale market.

You will recall the many references a few months ago to the claim that gas power is now nine times as expensive as wind power. As was pointed out at the time, this was based on a very short spike in gas prices in August. For most of last year gas was much cheaper than that.

And now that market prices for gas are back to 2021 levels, gas-fired power is actually very competitive with wind power again. Let’s crunch a few numbers.

178p/therm equates to £60/MWh. With a fuel efficiency of 53%, this means that the fuel cost for every megawatt of electricity generated is £113.

BEIS levelised costs for CCGT work out at £85/MWh, but this includes a carbon cost of £32, which is not a cost at all, but a tax. So if we add CAPEX and operating costs to the above £113/MWh, we get a total cost of £126/MWh:

image

https://www.gov.uk/government/publications/beis-electricity-generation-costs-2020

.

The renewable lobby always want to compare against the CfD prices for offshore wind farms that have not been built. But this is utterly irrelevant, not least because there is no evidence that they will be able to actually fulfil those prices. No, it is the existing tranche of wind farms which we should be comparing.

And according to the Low Carbon Contracts Company database, the average strike price for offshore wind is currently £166/MWh. In any sane energy market, we would be buying up all of the gas generation before we took any offshore wind power. We don’t, of course, because the subsidy mechanism means that renewables get preferential access to the market first. ( As wind farms on the CfD scheme receive a guaranteed strike price, they can give away their electricity for free, in the knowledge that they will still receive their guaranteed income.)

Offshore wind farms subsidised by ROCs costs even more, They receive about £100/MWh in subsidy on top of the market price of the electricity they sell, meaning they currently earn well over £200/MWh.

The Low Carbon Contracts data confirms that power prices are falling back. In the first twelve days this month, the only data they so far have, the average market price earned by wind farms was £110/MWh. With an average strike price of £166/MWh this means that offshore wind generators are now being subsidised again vis the CfD scheme. There was of course a great deal of publicity a few months ago when, for a few short months, they returned money to consumers. I suspect we will nothing from the renewable lobby this time!

31 Comments leave one →
  1. Dave Ward permalink
    January 25, 2023 5:47 pm

    So can I expect my gas & electricity bills to fall back down to the sort of levels they were a couple of years ago?

    • Douglas Dragonfly permalink
      January 25, 2023 6:01 pm

      Ditto for our pubs and steel production in this country.
      Maybe train fairs too.
      Bout time we had some good news from this administration.

      • Douglas Dragonfly permalink
        January 25, 2023 6:42 pm

        * fares

    • Nigel Sherratt permalink
      January 25, 2023 6:04 pm

      I’ll have some of what you’re smoking DW!

      • Dave Ward permalink
        January 26, 2023 2:23 pm

        I should have included the Sarc tag…

    • Phoenix44 permalink
      January 25, 2023 8:47 pm

      Lots of locked in prices because all the experts assured us high gas prices were here to stay…

  2. deejaym permalink
    January 25, 2023 6:02 pm

    In reply to DW

    HAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHA

    *breathe*

    HAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHA

  3. Gamecock permalink
    January 25, 2023 6:41 pm

    “Wind power, when available, is cheaper . . . .”

    Fixed it.

    “Solar power, . . . wait . . . what time is it?”

    Let’s all pretend renewables are fit for purpose.

  4. Broadlands permalink
    January 25, 2023 6:56 pm

    What about the fuels needed for all the transportation taking place to install “green” energy? Solar and wind don’t install themselves. And no EVs are being used…yet.

  5. Micky R permalink
    January 25, 2023 7:02 pm

    ” And now that market prices for gas are back to 2021 levels, gas-fired power is actually very competitive with wind power again.”

    My limited understanding that the “market price” for wind power does not include for back-up or grid stabilisation.

    Relying on short term “market prices” to plan and manage a national energy system is bonkers.

    • Harry Passfield permalink
      January 25, 2023 7:19 pm

      And you would think that seemingly intelligent MPs would be able to grasp that simple fact, Micky. But no….

      • Chaswarnertoo permalink
        January 25, 2023 7:41 pm

        Intelligent MPs? Where?

  6. Stephen Hedges permalink
    January 25, 2023 7:32 pm

    Now that UK NG futures for Feb are trading @ £1.47/therm ( a slight backwardation for later months too) the situation will be even more advantageous for gas.

  7. Mark Hodgson permalink
    January 25, 2023 7:59 pm

    As for the lie that has been much-repeated, that wind farms are “9 x cheaper” than gas, I commented (even before gas prices fell back) at some length here:

    The Lies Have It

  8. Nicholas Lewis permalink
    January 25, 2023 8:26 pm

    Day ahead electricity down to a 15mth low at 142/MWh but still running at just under three times the 2010’s average so can’t see bills being lowered anytime soon if ever as it suits the climate evangelists to have high prices now to assuage the negativity around renewable costs that were building up.

  9. It doesn't add up... permalink
    January 25, 2023 8:36 pm

    I’ve not updated this since the turn of the year: it will get really interesting once the new indexation for CFDs comes in in April, boosting strike prices by ~10%. However, it is easy to see that there have been several months where market prices were lower than offshore wind CFDs in payment over the crisis period. They are the new normal.

    It’s worth noting coal economics too. With API2 coal CIF NWE at $175/tonne you could generate electricity in our decrepit remaining power stations for just over £60/MWh – half the cost of gas. Of course, green taxes and rules that require the plant be operated in the most inefficient manner possible, as warmed up reserve, mean that the actual costs are much higher. But we should be running coal as baseload now, just as we did after Fukushima when LNG imports became expensive.

    • Nicholas Lewis permalink
      January 25, 2023 11:24 pm

      They’d rather have power cuts than run more coal

    • Micky R permalink
      January 26, 2023 9:09 am

      ” With API2 coal CIF NWE at $175/tonne you could generate electricity in our decrepit remaining power stations for just over £60/MWh – half the cost of gas. Of course, green taxes and rules that require the plant be operated in the most inefficient manner possible, as warmed up reserve, mean that the actual costs are much higher. But we should be running coal as baseload now, just as we did after Fukushima when LNG imports became expensive.”

      Does this mean that modern advanced ultra super-critical coal-fired would currently be cheaper than £60/MWh ?

      • It doesn't add up... permalink
        January 26, 2023 9:37 am

        There is a large capital cost to defray for new plant. In practical operation the marginal cost of generation might be £40/MWh, but the amortisation of capital would make it more expensive. When I last saw numbers it was about £5bn/GW to build supercritical coal plant.

      • Ray Sanders permalink
        January 26, 2023 10:31 am

        “Does this mean that modern advanced ultra super-critical coal-fired would currently be cheaper than £60/MWh ?”
        That’s a rhetorical question isn’t it Micky?!
        The UK’s rather aged units struggle to make 30% conversion efficiency, whilst Germany’s newest plant (Datteln 4) manages 47% on electrical efficiency PLUS it runs a district heating system.
        If you accounted for all the useful energy it produces (both electrical and thermal) you would probably be under half the £60 per MWh.

      • Micky R permalink
        January 26, 2023 10:17 pm

        ” When I last saw numbers it was about £5bn/GW to build supercritical coal plant.”

        As always, the Chinese appear to be capable of building at a much lower cost, approx £0.5bn/GW
        https://www.reuters.com/business/energy/chinas-zhejiang-approves-new-11-bln-coal-fired-power-plant-2022-02-09/

  10. Harry Davidson permalink
    January 26, 2023 12:06 am

    Does the cost wind include the gas generator that has to be kept running at 5%, ready to step in when wind fails? Running at 5%, but using 20% of its full capacity fuel load I have read.

    • January 26, 2023 9:14 am

      In theory the BEIS assume full (85% I think) operation

    • Gamecock permalink
      January 26, 2023 10:45 am

      The plant will have 100% of fixed cost, whether run or not.

  11. John Hultquist permalink
    January 26, 2023 1:09 am

    I’m in Washington State using hydro-power.
    My 100% electric house has the following costs:
    Facility charge of $25.50 per month and $0.0982 $/kwh.
    This rate was set in late 2021 for the year 2022. There is no change for 2023.

    [For all the talk about smart meters — mine is read by a sensor in a small airplane flying over the area once a month. Other than that, it just keeps track of the usage.]

    • Ray Sanders permalink
      January 26, 2023 10:33 pm

      Think about those poor Norwegians. They have so much hydro that they can’t use it all up and export large amounts. As a major global oil and gas exporter as well they would clearly be completely insulated from energy price shocks.
      Unfortunately….
      “While one kilowatt-hour of electricity cost on average NOK 0.61 in February of 2021 (USD $0.06), it had jumped to NOK 5.43 in August of 2022 (USD $0.55). That’s an almost tenfold increase.”
      https://www.lifeinnorway.net/why-is-electricity-so-expensive-in-norway-right-now/
      There are some seriously dodgy things going on in Europe these days.

  12. thecliffclavenoffinance permalink
    January 26, 2023 11:18 am

    This article is on my daily list of the best climate science and energy articles I’ve read:

    https://honestclimatescience.blogspot.com/

  13. Chris permalink
    January 26, 2023 1:45 pm

    How many CCGT power stations are running in spin reserve when the wind farms are producing reasonable amounts of power? This is never discussed in the media or that it produces more emissions when idling than in power generation mode.

    • Dave Ward permalink
      January 26, 2023 5:43 pm

      There were times in the last week or two when all the gas, nuclear, coal and hydro stations combined made up barely 30% of UK demand. After coming close to loosing the the grid a couple of years back, I find it inconceivable that they didn’t have a good few “Spinning Reserve” stations online, but not showing on Gridwatch

  14. It doesn't add up... permalink
    January 26, 2023 5:28 pm

    To add to the problems the grid ran out of transmission capacity to feed demand in the South and in France.

    https://www.dailymail.co.uk/news/article-11679309/National-Grid-emergency-requests-Europe-help-avert-blackouts-south-east.html

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: