Record green energy levels not an existential threat to UK utilities
By RP Siegel — The future is now, or at least it was on Sunday, June 11th in the UK. That’s because on that day, a combination of bright sunshine and blustery winds, along with nuclear generation, managed to provide a full 70% of the electricity being consumed that day. Even more significant, the energy mix produced the required kW-hours of energy while emitting less than 100 grams of CO2 for each one. That’s good enough to meet the ambitious target for the year 2030, whcih pretty well proves it can be done.
The UK has also seen other impressive milestones in the past few months, including a day where solar exceeded nuclear, and one day entirely without burning coal.
Of course, this signifies a big change, and big changes often have winners and losers. In Germany, for example, which took a bold leap into clean energy, there were serious financial impacts to traditional utility providers. Does a similar fate await utilities in the UK? After all, the UK has taken off the gloves, when it comes to renewables, with substantial investments in offshore wind as well as solar, and appears to be closing in on Germany in terms of generation capacity.
There is no doubt that the presence of solar and wind on the grid reduces prices and lowers demand. With variable pricing in place, we have seen moments when electricity prices have gone negative, meaning that power plants have actually had to pay people to use their electricity. This might be great for end users, but it can’t be good for the power plant operators. This has indeed been the German experience.
However, John Fedderson, CEO of Aurora Energy Research says that there are two reasons why this won’t happen in the UK.
The first is the existence of a “capacity market.” This was set up as part of the British government’s Electricity Market Reform package, designed to ensure a reliable supply of electricity as the market undergoes a transition. This is accomplished by making payments to providers to simply maintain reliable sources of capacity, above and beyond the payments made for the electricity itself. According to Fedderson this standby power subsidiary will provide some $478 million to power station owners for the coming winter.
The other is due to payments to fossil fuel plants for other services they provide to maintain system integrity, such as the ability to “blackstart,” which is the ability to restart the grid in the event of a shutdown.
This is an approach that other economies might consider. In the US, there are multiple disconnects between the various stakeholders. The Rocky Mountain Institute’s eLab has been convening a great many of them to find a way through this transition in a way that no one gets too badly hurt while we still end up with a much cleaner energy system. Founder Lena Hansen told me that the real challenge was “rooted in the lack of clear understanding of the value drivers and the cost drivers around the table... It sounds like a trivial thing, but if we can’t work out the pricing, then we can’t move forward."
The UK has a solution. It might not be perfect, but for now it seems to be working. Identifying where the value is being provided and paying for it seems to be the key. As renewables continue to increase their penetration, utilities, their investors, and their customers will continue to confront the same questions. Let's hope we can learn from another in finding answers.