New Energy Price Cap
By Paul Homewood
The new energy price cap is out, and as I predicted a few months ago, prices have fallen significantly, reflecting easing international gas prices:
https://www.ofgem.gov.uk/publications/customers-pay-less-energy-bills-summer
The new cap has two implications:
Offshore Wind
Whilst CfD strike prices for offshore wind were temporarily lower than wholesale market prices for a short time last year, they are once again considerably higher.
So far this month, the average strike price is £179.74/MWh, compare to a market price of £85.98/MWh. This equates to a full month subsidy of around £100 million.
According to the OFGEM chart above, the market price assumed for the cap is about £140/MWh – the exact figure is not provided as it is deemed proprietary! However their calculations are based on the 3-month historical average, and current wholesale prices have fallen since. According to Catalyst Energy, for instance, day-ahead power prices fell to £100/MWh at the end of April, and seem to have fallen further since.
Although year-ahead prices are in the order of £130/MWh, it would seem that the price cap will be cut again come August.
All of this means, of course, that offshore wind will remain much more expensive than gas power, which usually sets the market price.
Heat Pumps
The fall in both gas and power prices has also affected the relative running costs of heat pumps v gas boilers, in favour of the latter.
Based on a typical domestic gas consumption of 15000 KWh a year, a gas boiler would cost £1200 to run, Assuming boiler efficiency of 85% and heat pump coefficient of performance (COP) of 3.0, itself an optimistic assumption, the heat pump would cost £1275 to run, even before considering the extra cost of providing hot water.
NOT A LOT OF PEOPLE KNOW THAT 
And the gas boiler actually keeps you warm!
There are too many unthinking- and also lazy MPs in this World – I have met too many of them. They should spend just a couple of hours listening to say William Happer and Alex Epstein to understand how foolish they have been.
“…spend just a couple of hours listening…”
They might manage a couple of minutes. They have the IQs of snails and the attention spans of gnats. Apologies to these animals if I make them indignant by the comparison.
Mark Twain:
“Man has been compared to the jackass. This is most unfair – to the jackass.”
Now wholesale price has dropped back it exposes again how much other costs there are that aren’t influenced by gas price and are just going up and up especially balancing costs.
“even before considering the extra cost of providing hot water.”
That is in itself a surprisingly high figure as it will almost certainly require using a 3kW immersion heater at peak electricity rates.
A typical hot water cylinder holds 120 litres. A heat pump will likely only raise the water temperature to 35°. Stored hot water must be raised to a minimum of 60°C to ensure eradication of Legionella thus a ΔT of 25°C. Water has a specific heat of 4.182kJ/kg/°C.
Thus 120 x 4.182 x 25 ÷ 3.6 = approx 3.5kWh. Multiply by 365 days in a year gives an additional almost 1300kWh @£0.30 i.e. £390 per annum for just one tankful per day. Most family homes use much more than than one tank per day.
Bet they don’t put that in the heat pump sales brochure!
You need the space for a tank in the first place. Many houses will not have it.
Exactly and it gets worse when you discover that a copper cylinder, a hot water storage tank and all the associated pipework actually costs considerably more than a complete combi boiler.
One has to wonder if Ofgem’s use of p/therm on the gas chart vs £/MWh on the electricity chart will confuse Carbon Brief’s Dr Sim Evans again into not understanding that the charts showed wholesale electricity was 3x the cost of wholesale natural gas per kWh. 🤣🤣🤣
I wonder about that too !
A therm is about 29.31 kWh, so today’s price on the BBC business data page of 56.10 pence per therm is just 1.91 p/kWh. We are paying over five times that for domestic gas. The system is marking it up by 450%.
The ending of the UK taxpayer funded support means that the potential fall in the cap – subject to personal consumption of course – means that the actual reduction in household bills, all other things being equal, may well be wiped out or be very small at most again subject to personal consumption.
The killer for me is the price of LPG which apparently has fallen off a cliff compared to 1 year ago, and forward wholesale costs have also fallen significantly- where are they featured in “the price of energy”? ( as folks can tell, I am struggling to grasp the metrics of energy costs in the UK..)
Kerosene prices have also fallen in sympathy with falling oil prices and the falling dollar. They are much more responsive at the retail level than OFGEM regulated electricity and gas. But spare a thought for small businesses and other smaller consumers that don’t qualify for the regulated cap. They are being raped. A small shop with pay £1.50 a day in standing charge and 50p+/kWh at the moment for electricity, as retailers recoup what they aren’t allowed to charge households. Remember they are hurting from the much more biting levels of cap relative to wholesale prices from last year.
This would seem to be the time to store gas for next winter, as we used to do. Even better get fracking.
Does anyone know what is the latest state of play with the Rough storage field rehabilitation?
It’s not a magic solution, even when fully open it stores only about nine days’ supply. According to Wikipedia it is 20% open, so that gives us a couple of days perhaps.
“so that gives us a couple of days perhaps.”
Who are this “us” you speak of? How does it include you?
I’m a gas customer. My heating and hot water are mains gas. I’ve given the gas industry a lot of money over the years so it damn well should include me.
Rough reopened last year, albeit operating at a lower pressure which reduced its storage capacity.
For Natural Gas that’s ~9,350GWh of energy. Or 312x Britain’s total grid-electricity storage at Oct 2022
https://www.centrica.com/media-centre/news/2022/centrica-re-opens-rough-storage-facility/
Thanks, its hard to keep up to date with so many different issues. This is my main updating location.
JB
“This is my main updating location.”
If only BBC’s ‘Disinformation Correspondend’ and its so-called Reality Check team had that same sense!
Storage is taking place. Following lower demand brought on by high prices storage is fuller for the time of year than usual. We are seeing a bit of a short term gas glut. Watch for a build of floating LNG with vessels unable to discharge. Come winter it could be all change.
https://agsi.gie.eu/data-overview/graphs/eu
Set to all years. The UK is again acting as an offshore KNG terminal for Europe with supply mainly into Zeebrugge from Bacton.
Oct 2022:
Gas storage (days): ” Centrica said the UK has just nine days of gas storage when Germany has 89 days, France 103 days and the Netherlands 123 days.”
That really is very misleading for Centrica to say that. Firstly the UK has an exceptionally large gas transmission and distribution system which is in itself a large storage facility known as “Linepack”
Secondly we still do have our own gas supplies as well as direct pipeline access to Norway’s output. We can simply extract and pump more when we need to, something most other countries can’t hence they need to store more. Furthermore we also have extensive LNG facilities and each individual LNG tanker has over a day’s winter peak supply on board.
The real situation is far more complex than simplistic numbers. Over recent times the UK has been taking in LNG, decompressing it and running it through pipeline interconnectors to Europe so the latter clearly are not that much better equipped than we are.
Can a heat exchanger be fitted to the exhaust on a conventional gas system to save some of the heat that otherwise escapes?
Already happens. That’s why current combi boilers are over 90% efficient, compared with 70% for a 1970s model. The added complexity is why they don’t last as well. Recovering more heat is an exercise in diminishing returns.
” Micro combined heat and power ” looks interesting.
One of the major problems with micro CHP is actually getting enough engineers bothered to train up in installation and servicing. Baxi brought out a unit a while back with a 1kWe Stirling engine and the waste heat going into the heating system.
It never took off simply because nobody was prepared to go on the courses for so few installations.
That is what the “condensing” refers to in a heating system boiler. The products of combustion of methane in air run as CH4 + 2O2 = CO2 + 2H2O (+heat energy) with the H2O being vapour. By condensing the H2O to liquid in a second heat exchanger set in the radiator return water flow, the heat of vaporisation (2.25×106J/Kg) is mostly recovered and makes for very high efficiency.
It is worth noting that the condensing process generally occurs at around 55°C so if the return side water flow is too hot the condensing will not work correctly. Normally the boiler system would be initially set up to ensure the correct return flow temperature, however, if systems are run with several radiators deliberately switched off ( i.e. government nudging guidelines to save fuel etc) the temperature drop from flow to return may not be enough and the heat recovery will not work. To avoid this the government also advised turning down the flow temperature on the boiler to 60°C which actually meant the boiler (and pump) had to run for longer to adequately heat up the homes.
This advice was probably more expensive than just leaving the boiler alone and allowing it to work at its optimum efficiency!
Looks like the standing charge for electricity will be going up again. See what Shell says when they provide an update.
Domestic energy consumers need to form a legitimate buyers cartel. The supplier should always be in fear of the customer.
In a full page ad in the i newspaper (26 May) Fischer promoted their Air Source Heat Pump system and were a bit more realistic than many of the flyers going round.
They say you will need the complete system – air source heat pump, a dual hot water system with buffer tank and Fischer 40mm heatcare radiators.
They acknowledge there is not a ‘one size fits all solution’ and give some interesting details about the Government’s scheme to help the switch to heat pumps. The aim is to give out 30, 000 vouchers annually but between May and the end of 2022 only 9888 were given and go on to say
“So far annual air source heat pump installation is under 40,000. As it stands, the government’s target to install 600,000 a year by 2028 seems a long way off”
“Criticism of heat pumps and in particular their perceived lack of suitability for many UK homes may account for the poor uptake. Users who have installed heat pumps have also reported that their new system struggles to reach a warm and comfortable temperature, leaving them out of pocket and…out in the cold”