The Future of Power Generation in Great Britain

[Toltec]

Paddy_N_Murphy said:

Orsted Ordered their WTG's today for 1.4GW Hornsea 2 from SGRE :
https://www.offshorewind.biz/2018/02/14/siemens-ga...

They confirmed FID the day after the CFD Auction - they are going for rollout and pipeline of continuous construction there (costs to tumble to that too)

They have Hornsea 3 battle ready too at 2.4GW
https://www.offshorewind.biz/2018/02/12/orsted-str...

not mucking around there......

Hang on, back on Tuesday you said the Siemens D7 / SWT-7.0-154 had already been withdrawn in favour of the next model and they are installing with a fifth of the output? You have been at pains to point out that information from only a couple of years ago is out of date yet they are still installing kit from that era. Do they not plan for what they are told will be available by the time rollout starts rather than what is available at the time of planning?

[Ali G]

Ah - the old renewables GW again.

In SI units 1.4 = 0.5 GW (being generous) with an unpredictable amount of 0 GW.

[LongQ]

Paddy_N_Murphy said:

LongQ said:

Whilst it is not unheard of for the leadership of large organisations to make some poor decisions, sometimes fatally bad for the businesses after years of success, that is probably not the case here.

I would imagine they know exactly what they are planning to do according to how their industry, and those other businesses who are becoming interested in it, turn out over the coming years. But I might be wrong.

Then why push on with the glass half empty version with ‘probably’ and ‘might’ nature of your posts?

You seem bent on failiure

Failure as in what Paddy?

Failure to keep the cost of energy generation low enough to make it affordable, in a wider economic sense, to the majority of users?

Or failure to actually do anything about the main driver - supposedly CO2 levels and the urgency of reducing them - by having to overbuild potential capacity NOW to keep the developed world running on renewables in the future and doing producing vast additional quantities of the very thing the industry is so keen to suggest it is helping to eliminate.

All this while at the same time overseeing a transition to a "society" that would collapse in days if the plan fails?

Why are you so keen on the risk?

Have you not had any previous experience working with sound and successful businesses that have, for one reason or another, ended up obsessing about some objective and losing touch with reality? If not it will be interesting for you when you do.

In chess parlance Orsted and their preferred partners have made a gambit and no doubt have a plan to execute the play having taken into account all of the future moves they feel they can predict. It's one game. They can afford to draw one game or even lose it if they get it wrong. It's not a knockout tournament.

They no doubt feel that their risk planning and financial planning are as sound as they can be to convince regulators to give them the contract and therefore enhance their options to influence future decisions. That might be very important, strategically, with some heavyweight energy companies moving into the arena to see what they find to feed on. The personal objectives of the most senior management must also be considered.

During the past decade in a period when the rush to "green" has at times looked like a cross between a downhill cheese rolling contest and Shrovetide Football game whist at the same time, through one mechanism or another, the price to the mass consumer has doubled, exceeding the effects of inflation.

In the same period businesses and individuals have come to rely more and more on the constant availability of electricity supply and Government has mandated ever greater reliance on processes that rely entirely on the availability of a constant supply with minimal disruption. Only recently have we moved to the end game for the existing proven reliability model, fossil fuel based mainly, that has worked pretty well for much of the last century. Yet we seem to be rushing to change to something "new" for reasons that cannot be substantiated without question.

Carillion, and others, have developed modern business models in a similar manner. The outcome is not always good and someone has to pick up the pieces and pay the errors. In construction this just means delays to projects or abandonment and resulting waste. It is unlikely that any one failure could irrevocably crash the country within days.

In the past the same could be said of the electricity supply system. But the reliance on electricity supply for all things the keep the country running is now greater than ever it has been and heading towards 100% requirement levels. Get the supply wrong or make it unaffordable in the context of the wider economy and a rapid decline could occur much faster than any corrective actions, assuming they were affordable and even deliverable in the context of compromised energy supply, could be deployed. In a slightly different context for cause, think Venezuela. Or maybe Syria.

The Aurora report you recently linked to has a graph that suggests they see "cost" of electricity production (presumably reflected in CfD bids) settling at at just over £50 about now and slowly increasing to just under £60 15 years from now. Irrespective of whether that is 2017 or 2012 values it suggest that realisable overall cost savings are pretty much achieved and reflected in the recent bids. If so this is not a technology that is heading for ever cheaper supplies of its ultimate product and currently, but for the artificial market controls that politicians seem keen to introduce since they are usually tax based, the costs are significantly higher than estimates for traditional energy generation free of the fluctuating availability, would be.

Point 4 of this piece may be relevant.

https://ourfiniteworld.com/2017/11/28/a-video-game...

It discusses the health of a nation's economy by comparing GDP and a base level Oil price but oil is merely acting as a comparison value for any energy cost delivered as an oil equivalent. Forget the actual numeric value and consider the number as a comparative reference. A MW/hr in energy value is approximately .59 BOE.

So if $20 is the reference comparative oil price $11.8 would be the comparative electricity price. In today's values with oil at, say, $60/barrel to make the numbers simple, the MW/hr target to match that for the benefit of the economy would be $35.4. At the current exchange rate (better than nothing I guess) that's about £25. In recent times the wholesale price in the UK market has been double that. - but that is still below the lowest recent CfD bid price and there is little prospect it seem, according to the Aurora report, of prices reducing much further.

So one has to consider whether, as we trend towards forcing ever wider use of electricity as a requirement rather than an option for more and more aspects of people's lives, the forecast price of generation will adversely affect the wider economy's ability to grow the GDP. If is does, and recognising that the way humanity expects to do things is based on a Ponzi like approach to "growth" leading to "wealth", things may not progress as quickly as people might expect in terms of their personal "wealth" AND the standing of their chosen country on the international stage.

It might be a while before the results become clear for all to see. Possibly worse for the next generation to reach maturity than the current generation but I would not discount the ability of the politicians to make decisions that shorten the development period.

To wind up I will reiterate that the numbers above are relative numbers. Taking the original linked article as it stands I'm not entirely sure how the $20/Barrel should be converted but if we assume that recent prices are in the ballpark for the current world economy model and we take the recent wholesale price of UK electricity as a marker for the UK economy it's probably close enough to illustrate the relationship even if the figures are not accurate.

For now.at least.

Find another 50% price reduction and offshore wind might be getting somewhere viable.

Can that happen?

[Toltec]

Paddy_N_Murphy said:

Toltec said:

Hang on, back on Tuesday you said the Siemens D7 / SWT-7.0-154 had already been withdrawn in favour of the next model and they are installing with a fifth of the output? You have been at pains to point out that information from only a couple of years ago is out of date yet they are still installing kit from that era. Do they not plan for what they are told will be available by the time rollout starts rather than what is available at the time of planning?

Webpage said

"The project will deploy the SG 8.0-167 DD turbines with the 167-metre rotor.

I don't follow your point - genuinely.

As your were, I read it as 1.4MW WTGs as opposed to a 1.4GW installation as a whole, doh! Thanks for clearing that up.

[LongQ]

Paddy_N_Murphy said:

LongQ said:

Failure as in what Paddy?

Cutting to the chase : Bent on Dong / Orsted being wrong is what the last few posts of yours have indicated.

Not at all.

As I outlined in the last post, perhaps somewhat more explicitly than previously, I would guess for their purpose and given the nature of the agreement as I understand it, they may well be playing a blinder here.

Whether that means the political policy that defines the rules of engagement in which they are players will make good sense for the consumers of the end product (and anyone else who may be paying for it or affected by its performance indirectly) is a different matter.

At half the last successful lowest CfD bid price the cost to the consumer might just be able to make a case for itself.

At the last bid price full protected for intermittency and capital investment costs no higher than the best possible costs for continued FF generation without "Carbon" taxes and all the control systems and cash collectors, it might just be a new acceptable norm, but lower would be better in terms of the UK economy being competitive with the parts of the world following a different trail at the moment.

The point is that if you destroy the basis for the economy (in this case by politically enforcing an energy price that is too high to be affordable) you also destroy the basis on which the energy generation investment was made. The market - or at least the margin of the market that returns the profit after the costs are covered, disappears. We could debate if and how the vendors might be in a position to influence that possibility in order to eliminate it but that would mean having faith in the judgement of politicians to accept advice and act on it.

Let me turn your question around.

Apart from your job presumably providing you with a decent standard of living, a satisfying life and and something interesting to do, what is it that you personally, deep down, gives you the "cannot be questioned" attitude that you adopt about (in particular) offshore wind?

Is the technology and making something of it an end in itself?

Or it what you think will be the long term and wider benefits of "renewables" in general?

Or is it something else completely unrelated?

Your apparent expectation (extremely common in the renewables industry press releases too where one often notes that everything will be wonderful and even the worst challenges are more than likely going to be solved by some miraculous appearance of a solution from somewhere) is laudable as a way to avoid Ratner moments. But having in the past observed similar approaches applied to self belief from business owners and managers and then seen the results a little later when their successful businesses disappeared, I am somewhat disposed to looking past the public image proffered and wondering what is really going on behind the scenes.

It's been a while since I abandoned the rose tinted glasses that made everything look so new and vibrant. How about you?

[wc98]

i could be wrong paddy but i thought there was history with developers walking away. i can remember being involved in a marine planning consultation up here where the fred olsen development of the forth array was mentioned. i could very well be wrong and have no trouble with being corrected ,but i believe fred olsen did walk away from the forth array when the time came. http://www.wavec.org/client/files/Fred_Olsen_Drops...
if that is the case it is not unreasonable for long q to highlight the possibility it may happen again, imo.

[LongQ]

Paddy_N_Murphy said:

Fair point - but I believe a very different scenario to the one inferred by LongQ.


The Fred Olsen scenario AFAIK was from the days of the equivalent of oil pioneers 'back in the day' - they snapped up sites on speculation.

Once decided that the site north of the border were (still are and hence the lack of) absolute sods to develop / construct they choose not to build a wind farm on the lease.


LongQ however was suggesting that Orsted could as above get the lease, can get consent, get the supply chain invigorated - design, engineer a project to cost it out - ultimately win a CFD Auction (subsidy). Hell even after that make FID and close, starting to spend money in the supply chain (over and above the 8 figure number to get this far down the process) and then - or perhaps later than that even - shrug the shoulders and say hey ho, and walk. "because they decided not to" / doesn't work as a business model / just 'because'

Codswallop for the likes of Orsted rolling out stages one, two and making big noises about stage three commitments.

Paddy,

There a fairly simple little document related to the earlier CfD auction that outlines a not trivial amount of flexibility for changes in what is delivered compared to the original proposal. If one found the need to substantially change the investment even after the contract had been signed and certainly across 3 phases it would not be impossible to reduce the scale of the risk should it become apparent that it would be wise to do so.

For the 2017 round I have not yet found anything so accessible. There is a 518 page document of contract legalese that seems somewhat impenetrable so for now I will refer you to the link I posted to the Hughes, Aris and Constable paper. That seems to reflect the wording of the 2014 document I found.

I'm not overawed by large companies spending big numbers in advance of making a bid and landing a contract. It happens all the time in the wider energy business when investment in R&D or drilling wells in the O&G industry produces no-go results or other factors result in projects being abandoned. You can see very similar things in the software industry too.

Orsted will no doubt have seen the Oil Majors sailing into their world in the past few years. A few million here and there for a company like, for example, Shell - 20 times the turnover of Orsted - is petty cash. They have reach and influence globally. You would not, as an organisation or just as a member of its management, want to make if too easy for them to buy your market or, perhaps, your business.

Nor would you want to reduce your credibility in the market with prospective clients and delivery partners who might start to question their relationships with you.

So you want the business and locations. Worst case is that you don't make a lot of money or they cost a little if the forecast future numbers turn out to be a little different to your calculations. Some of that risk is offset (or increased depending on your POV), by being tied to 2012 values adjusted by the rate of inflation. Another variable to be considered. I would be extremely surprised if any supplier contracts related to a project of this nature did not have full proof escape clauses for the prime contractor. Or, indeed, in both directions.

But looking ahead it's a reasonable bet that for 15 years - the period of the guaranteed inflation protected price - you will probably be able to draw on wide political support of a "friendly" nature should you need it. On the other hand as a senior decision making director you might also expect to be able to escape before anything too horrendous happens if you have agree to something that turns out to be horribly wrong. That is just the way of big business in the 21st century it seems. Any big business. Don't tag a name to that comment on my behalf.

How long will it be before financial reporting might allow some assessment of whether the numbers were correctly estimated? 10years from now? 20 years - around the time the CfD is ending?

Only then will we know if the bid was truly viable and, in a wider sense, by then we might also know whether the entire policy has performed acceptably within the economy as a whole AND achieved the "mixed bag" of generation that you suggest you would wish to see.The challenge to that is whether it can be achieved, in investment terms, without huge support from overly expensive energy price "fixes".

And as for the CO2 comments - remind me again why the UK is undertaking this action on policy if it is NOT driven by the CO2 elimination project? (Or "Low Carbon" as the government documents prefer to use as a description.)

"
1.6.
CfDs are designed to give investors the confidence and certainty they need to invest in low carbon electricity generation, helping the UK
electricity sector to attract greater investment in low-carbon generation, and subsequently reducing the UK’s carbon emissions. CfDs work by stabilising the prices received by low carbon generation, reducing the risks they face, and ensuring that eligible technology receives a price for its power that supports investment.

CfDs also reduce costs to consumers by capping the price that consumers pay for low carbon electricity, requiring generators to pay money back to consumers when electricity prices are high."

https://www.gov.uk/government/uploads/system/uploa...Contract_for_DifferenceContract_and_Allocation_Overview_Final_28_August.pdf

This is the 2013 document so a little easier to read than anything I have found so far for later years.

This document has some interesting paragraphs that, put together, suggest the sort of "diverse energy mix" albeit at that time they were still including FF with CCS and Nuclear in the list of possible CfD bidders. However, whilst discussing that is probably very pertinent to this thread it is not going to help this particular exchange.

[turbobloke]

Paddy_N_Murphy said:

Eta I don’t actually care if you are now like the others, but stop fabrication of your imagination to suit it.

Yet another smear, whoda thunkit, but it would be interesting to know in this case how anyone can tell if imagination is fabricated.

Even good old John McEnroe has not said:

You did NOT imagine that, you can NOT be serious!

At least we can reflect on some on-topic good news from 2017 published a month ago in 2018 (no dodgy sell-by date escape).

https://www.theguardian.com/business/2018/jan/16/u...

[LongQ]

Paddy_N_Murphy said:

Thanks for again confirming your glass half empty view


Oh btw your
“Another variable to be considered. I would be extremely surprised if any supplier contracts related to a project of this nature did not have full proof escape clauses for the prime contractor. Or, indeed, in both directions”

Then you should be surprised
Are you privy to these contracts ? If not, on what grounds etc etc etc....

Eta
I don’t actually care if you are now like the others, but stop fabrication of your imagination to suit it.

Edited by Paddy_N_Murphy on Thursday 15th February 23:32

Well if they don't have solid two way contracts the business is riskier than one might imagine. Solid contracts are normal in most businesses when dealing with big numbers and significant risk. Is that not so in the renewables world?

Avoid any employers in the business who are doing any substantial deals with any American companies.

Now I'll let you fabricate for a while.

What would you see as the ideal mix of balanced generation?

How much do you think it would cost to create?

What would be the likely cost of the electricity produced?

Do you foresee the end of Gas usage at some point this century? If so approximately when?

[LoonyTunes]

Can I just interject to say that whatever the merits or otherwise of wind farms the one off the coast of Brighton beach is real eyesore and ruins what was a great view out to sea.

Thanks for listening.

[rolando]

LoonyTunes said:

Can I just interject to say that whatever the merits or otherwise of wind farms the one off the coast of Brighton beach is real eyesore and ruins what was a great view out to sea.

Thanks for listening.

It's a pleasure

[rolando]

Paddy_N_Murphy said:

Okaaaaay so the same as others on the thread.

When the post is challenged, trot out the same questions ad nauseam that you know are not answerable in finite terms, to therefore quash the discussion.

Not particularly helpful

Unanswerable by you, to be sure. We're still waiting for your answer to the request for a solution to the intermittency problem.
Never mind.

[LongQ]

Paddy_N_Murphy said:

Okaaaaay so the same as others on the thread.

When the post is challenged, trot out the same questions ad nauseam that you know are not answerable in finite terms, to therefore quash the discussion.

Not particularly helpful

There's no way to win with you is there Paddy?

Actually not win. Wrong word.

Make progress maybe?

Have a discussion?

You keep telling us you are always right about things by posting snippets from industry PR outfits and comments you have gleaned from meetings and seminars. But asked about your views on the Thread title - nothing of substance. Or did I miss that post? If I did, just cut and paste to give us a refresher to consider.

If the Offshore industry does not have some very watertight contracts in place one wonders why not.

Maybe it would be worth wading through the 518 pages of the CfD terms to see how that has been written.

[powerstroke]

If Corbyn wins the next GE, nationalises the utilities will he reopen the coal mines , build nuclear or will it be yet more wind subsidy and less electricity ???

[Toltec]

Why should supply of renewable electricity be tied to inflation, it should be getting cheaper shouldn't it? I thought the idea was it will be cheaper than any other form of generation? Granted installation and maintenance of the grid could become more expensive as they require lots of human input and wtgs will also need maintenance, however the 'fuel' is free so there can be no cost increases there and the wtgs are getting cheaper and more efficient.

I do want renewable energy to be a success and look forward to my bills reducing in the next five to ten years, ideally the cost of electrical energy should be falling towards the current cost of gas.

[robinessex]

Toltec said:

Why should supply of renewable electricity be tied to inflation, it should be getting cheaper shouldn't it? I thought the idea was it will be cheaper than any other form of generation? Granted installation and maintenance of the grid could become more expensive as they require lots of human input and wtgs will also need maintenance, however the 'fuel' is free so there can be no cost increases there and the wtgs are getting cheaper and more efficient.

I do want renewable energy to be a success and look forward to my bills reducing in the next five to ten years, ideally the cost of electrical energy should be falling towards the current cost of gas.

Are you serious ?

[Toltec]

robinessex said:

Toltec said:

Why should supply of renewable electricity be tied to inflation, it should be getting cheaper shouldn't it? I thought the idea was it will be cheaper than any other form of generation? Granted installation and maintenance of the grid could become more expensive as they require lots of human input and wtgs will also need maintenance, however the 'fuel' is free so there can be no cost increases there and the wtgs are getting cheaper and more efficient.

I do want renewable energy to be a success and look forward to my bills reducing in the next five to ten years, ideally the cost of electrical energy should be falling towards the current cost of gas.

Are you serious ?

Part of PnM's backing of renewables is that year on year it is becoming cheaper and apparently less so than even gas plants so logically given competition in the market prices should fall. If we have these massive interconnects* so we can get power internationally from places where it is still sunny and windy then it may make financial sense to source most of our power there if it is cheaper. It could be Africa's turn to become hyper rich supplying solar energy as the gulf states have with oil.

In reality I don't expect this to happen, but if it does then renewables are, at some measure, successful.

* They don't exist yet, but they will be a thing apparently. There is the new Norwegian one so once that can be scaled up by a factor of ten or twenty and replicated a few times with more onward links to places with spare power we are good.

[Jinx]

Paddy_N_Murphy said:

LongQ -

Offshore wind contracting: http://voiceofrenewables.com/wind/almost-100-contr...


Warm and Fuzzy feelings ;-)

Good news if you like jellyfish!

[Ali G]

A little more flesh on the bones of the North Sea Grid - obviously well out of date being from 2016 and given renewables speed of development - but may still be of interest for those with time to digest.

Never knew that Greenpeace were part of setting energy policy!

http://www.hubnet.org.uk/filebyid/790/NorthSeaGrid...

[LongQ]

Paddy_N_Murphy said:

LongQ -

Offshore wind contracting: http://voiceofrenewables.com/wind/almost-100-contr...


Warm and Fuzzy feelings ;-)

That PR piece has no content at all that refers to what I was writing about.

The map that accompanies the piece suggests that particular scheme is very nearly onshore. No wonder they want to put out a positive economic message.