Following on from our previous post about the emerging STOR scandal, it would be helpful for people to understand just some of what this means in monetary terms. To what extent are energy consumers and taxpayers being ripped off to make expensive diesel powered electricity generation worthwhile for ‘investors’ and big businesses to provide to the grid?
So lets put it into context, in the words of an energy company:
National Grid (2011b) sets out reserve tender outcomes and RWE npower has estimated that the price paid when stand-by generation capacity is called for by the short-term operating reserve market mechanism was £180-280/MWh in 2010. There is also a payment of around £7-10/MWh.
This is worth around £30,000-45,000/MW per annum to an owner of stand-by generation (RWE npower, personal communication).
That is roughly eight times the industrial tariff for power. As demand for operating reserve increases, shown in Figure 8, the price will rise and the incentive to participate will grow stronger.
Indeed, by 2015, National Grid (2011b) estimates that the utilisation payment will have risen to £544/MWh, and by 2020 the figure is £685/MWh, all in real terms in 2010/11 money. That is an increase of 96 per cent in ten years providing a strong incentive for new owners of generation to participate. Across the whole market, the total payments for being available and for generating could reach £945 million per annum by 2020, up from £205 million in 2010. That is an increase of 350 per cent in ten years.
There are profitable opportunities to be seized and they are open to existing generation assets which have already been paid for and sometimes even depreciated.
While the firms benefit, society does too. The mechanism allows the market to find the cheapest way to maintain an uninterrupted power supply whichever scenario the UK finds itself in. It will be to the benefit of all consumers if stand-by generation is put to its best possible use.
It is interesting to note that over on the Bishop Hill blog, Andrew Montford points to a conclusion that no fossil fuels are subsidised in the UK, in rebuttal to the imbecilic climate alarmist mouthpiece, Bob Ward. However, STOR clearly shows there is subsidy being made available for diesel powered electricity generation at peak times – albeit to back up virtually useless wind power.