Conservative party backbenchers have cast doubt on whether the energy regulator is capable of setting a fair energy price cap for standard energy tariffs over the coming winter. Through new legislation expected by the summer Ofgem will be tasked with capping the standard variable tariffs used by 11 million homes across the UK by calculating the costs faced by energy suppliers, while making room for competition. Conservative MP John Penrose described price caps in a pre-legislative debate as “dangerous things, fiendishly difficult to get right” which could “drive suppliers away if the price is set too low” or “gouge customers if it is set too high”. “They simply won’t get it right across a large proportion of the market,” he said.
Telegraph 6th March 2018 read more »
A price cap for domestic gas and electricity customers will “correct an intolerable situation” in which consumers have paid £1.4 billion more than they would in a competitive market, the Business Secretary has said. Greg Clark’s pledge coincided with a warning from the Tory backbenches that the price cap could make things “worse rather than better”. Labour also pressed ministers to ensure the price cap is in place before this winter and to bring forward “radical proposals” for wider reform.
Energy Voice 7th March 2018 read more »
How much does energy cost? LCOEs -Levelised Costs of Energy – are widely used as a comparative measure. They give an estimate for the cost of energy generation from specific plants, but do this by averaging out the investment and running costs over the plant’s lifetime and comparing that with the value of the electricity generated. However, the costs and earnings can and do vary over time and are hard to predict. LCOEs also omit any associated grid balancing/backup costs. So they have big shortcomings. Can we do better? Certainly there are many weaknesses in the LCOE approach. Finance costs will depend on interest rates and inflation both of which can change over time, sometimes dramatically. So may fuel and labour costs. Energy output may also vary for many reasons and in the case of renewables will vary with the weather. In that case, use is usually made of ‘capacity factors’ to reflect average likely delivered outputs, but in reality these variations are dealt with by balancing capacity and services, the cost of which, arguably, should be added to the cost of generation. However, doing this is not simple. Studies by Imperial College London have suggested that in order to capture the full costs and benefits of variable renewables, we have to look at total system costs, including the cost of full grid balancing/backup, not just the individual component LCOE of generation and of individual backup plants. Robert Gross from Imperial has pointed out that ‘demand response, flexible generation, storage and interconnection offer benefits to the system as a whole and building them as if they need to be dedicated to each specific variable renewable installation will result in over-investment. System costs should be charged to generators as cost-effectively as possible, but on the proviso that they are assessed at a system wide level rather than on an assumption that variable renewable installations need to self-balance’.
Environmental Research Blog 3rd March 2018 read more »