STOR scandal: Putting the scale of the theft from us into context

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.

Source: nPower

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.

3 Responses to “STOR scandal: Putting the scale of the theft from us into context”

  1. 1 Brian H 07/07/2013 at 5:27 pm

    “providing a strong incentive”. Yes, I would say so. Or more accurately, “ripping off the public exorbitantly, with full official encouragement”.

    It seems the government has gone so far down this road it doesn’t dare turn back, and doesn’t believe it can be called to account.

  2. 2 cosmic 08/07/2013 at 7:34 pm

    “It seems the government has gone so far down this road it doesn’t dare turn back, and doesn’t believe it can be called to account.”

    There’s that to it, but this wasn’t hatched by Cameron six months ago when he had an “Oh Shit!” moment.

    This has something of Sir Humphrey about it. Contingency planning and long in the works, from at least the time the CCA looked like becoming reality. Possibly, initially even smuggled in under the noses of politicians as a Civil Defence measure. No doubt this has been gone over by engineers, statisticians and accountants and pilot tested and it is likely to work in so far as there won’t be power cuts. All at huge expense and predicated on the Boiling Frog principle – people won’t notice steadily increasing prices, but they will notice power cuts.

    So yes, it’s an expensive fig leaf for a disastrous energy policy, but it is a fig leaf.

  3. 3 manicbeancounter 12/07/2013 at 8:29 pm

    Paradoxically, the biggest problem is if the equivalent cost per MWh came down through greater utilization of capacity. That is due to there being two rates – standby and utilization. One recent rate was £11 MWh for standby and £226
    MWh for operating. A 20MW capacity plant would receive £1.95m in revenue per year for operating just 5 hours, or £19500 per MWh. It the plant generates electricity for 300 hours per year, revenues rise to £3.2m, but cost per MWh drops to £530 per MWh. It the plant generates electricity for 1000 hours per year, revenues rise further to £6.2m, but cost per MWh drops to just £309 per MWh, or three times the rate before VAT on my last electricity bill.

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