danieldwilliam: (nice)
I have been surprised by energy things over the last week.

Firstly, I'm surprised that OPEC appears to be getting its act together to control supply and therefore increase prices.


I'd largely decided that either (or both) the Saudi's had lost control of the price setting process within OPEC or they were trying something that would take a few more years to either work or not.

The agreed cuts in production are relatively small, and come at a time of fallling demand for oil. Oil, despite increasing sharply in price today is still around the $50 a barrel level. Less than half the $110 barrel recent peak. We've also yet to see if the dirty work of allocating the cuts in production amongst members will happen.

I don't think this changes my general assumption that oil and gas will remain significantly lower than recent highs for at least a few years because OPEC are unable or unwilling to drive up the price significantly. But that assumption is now on the watch list.

Secondly, I've been surprised by how quickly solar generated electricity costs are falling. Record low prices in the Middle East of $23 per MWH or £18 (compared to £50 $65 in the UK at the moment or £100 $130 for Hinkley Point C.



At $23 per MWH solar electricity is cheaper than the gas you would burn in CCGT to generate the same volume of electricity. Which leaves a lot of value left over to build complementary infrastructure like High Voltage DC transmission cables, or storage. It also makes places like the Middle East pretty attractive for high energy intense industries.

This doesn't appear to be a trend only in the Middle East. Latin America (also close to the equator) has seen sharply falling solar prices.

I'm not sure what's driving this. My guess is that solar generation balance of plant costs are falling but I'm not sure why.

My current assumption for solar electricity is that I expected the costs to fall by 1-2% year on year for a decade or two leading to cost parity with other grid sources in good locations over the decade 2020-2030. Looks like I might have to keep an eye on this assumption too. I think there is a virtuous circle operating in solar generation where learning curve effects and economies of scale make marginal production cheaper as total production increases so it could be that solar generation is about to fall more steeply in price than I anticipated.

Thirdly, I'm surprised to discover I might be making a small personal investment in some solar panels of my own so I need to go an remind myself how the Feed-In Tarrifs work.

My assumption had been that as I lived in a ground floor flat in Victorian tenament building in Edinburgh my own personal experience of renewable generation would be limited. Again, one to watch.

So, it's been a surprising week in energy.
danieldwilliam: (machievelli)

I doubt that Hinckley Point C will ever generate a megawatthour of electricity.

I'm not saying that it definately won't happen but my money is on it not happening.

It's a risky project. Building nuclear power stations is difficult and fraught with technical and political risk. They are vast, difficult and very regulated construction projects with plenty of scope for things to go wrong. They are also subject to risk of legal challenge or outright civil disobedience actions from opponents.

It's expensive in interesting ways. At a budgeted £18bn for construction it puts a lot of money at risk for EDF and any of the investors. Which include both the French and Chinese state. They should be looking at the project execution risk and worrying whether £18bn will buy them a working power station. My view is that they won't get a working power station for £18bn and might not be able to get a working power station at any money.

It's also expensive in terms of the price for any electricity produced. £92.50 / MWH in the 2012 market was expensive. That strike price is index linked and estimated to be £120 / MWH. You can buy onshore wind today for about £60 / MWH. The price of that is falling. As is the cost of solar PV.

Now there is some value in having a diversified energy supply. What would we do if we discovered that all our new wind turbines had a latent defect or that solar PV caused cancer? I'm not sure it's worth paying double the going rate for electricity.

So, it's a difficult project that represents a financial risk to its investors and a bad deal for consumers.

And it won't be finished for ten years, probably longer.

By which time technology and the economics that go with that technology will have moved on. Solar PV will be cheaper, wind will be cheaper, I'd expect storage to be cheaper. All available in small increments. The oil price looks like it won't get much above the value implied by the long term cost of US fracking - so about $80 a barrel. In 2012 oil was above $100 a barrel.

if you can't build the project unless you can sell the power at £92.50 plus then I don't see how you can build the project.

This was true in 2012. I mean that had the plant gone ahead when first planned we would be looking at a one third complete power station that had started as expensive and was now out of the money but we'd have been committed to it. We now have four more years of information about the likely trajectory of energy prices. By the time the UK government conducts its review we'll have another year, perhaps two of information.

If my major premise about energy prices (that over the coming decades they are capped by the cost of fraking and then the cost of solar PV) is correct then Hinckley Point will look like a worse idea with every quarter that passes.

danieldwilliam: (machievelli)
I was recently asked (and flattered to be asked) for my thoughts on energy by someone who was engaged in a post-grad in energy studies. This is what I sent them.

Read more... )

That's my energy starter for ten.


danieldwilliam: (Default)

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