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Topic Title: How and when will DECC's electricity capacity market fail?
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Created On: 30 January 2014 05:59 PM
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 30 January 2014 05:59 PM
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jarathoon

Posts: 1041
Joined: 05 September 2004

If I could spare the time to understand how the capacity market is supposed to work, I could probably tell you all how it will fail to work?

Does anyone have a clear idea how the capacity market is now supposed to work?

https://www.gov.uk/government/publications/electricity-market-reform-capacity-market-proposals

Lord Jenkin of Roding is claiming in the Telegraph that DECC still remain undecided on the detail of the Capacity market and how it will actually work in practice.

While politicians argue, the Big Six are harming the UK's energy future

"Without new competition, the result will be that power cuts will be more likely, and/or increased costs to consumers, or more probably both"

"The new Energy Act provides for "capacity payments" to be made in support of existing and new capacity, but the detail has still to be worked out for the first planned capacity auction later this year. As currently designed, the capacity mechanism is heavily weighted in favour of the "Big Six". "

Lord Jenkin of Roding appears to be asking for changes to the capacity market:

"If, as they claim, ministers really want to see independents and new entrants coming in to compete in the market, the proposed regulations and rules must be improved. Without this new competition, the result will be that power cuts will be more likely, and/or increased costs to consumers, or more probably both.

My discussions with the independent generators and their probable financiers have made it abundantly clear that this new investment will be unlikely without three major changes in the current design: a longer maximum contract length; a more realistic price cap; plus a penalty regime that is not completely prohibitive.

If these changes are not made, it will, in practice, be impossible for the companies to raise the finance for investment in new capacity."


As far as I am able to translate this it means - without more subsidies and less penalties the capacity market won't work from the supply side point of view.

I am not sure if consumers (and companies not claiming energy welfare payments) will get a chance to object to their local MP's if the subsidies need to be raised still further.

The bigger the subsidies, the higher the risk that future governments will abolish them at a later date, as unsustainable. All the investors know this and still they ask for more ("Feed me Seymour"). It's a bit like the run up to "Black Wednesday" on 16th September 1992 where the government had to keep on increasing interest rates to defend its failed ERM policy. Eventually government intervention becomes so large that policy failure becomes inevitable and desirable.



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James Arathoon
 02 February 2014 12:49 PM
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westonpa

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"Eventually government intervention becomes so large that policy failure becomes inevitable and desirable." This happens relatively often but it does not and will not make that much difference because there are no real sanctions; have you not noticed that for the most part it's your money they are messing about with and not theirs? If you want to really change anything James then you need to run for political office. Regards.
 03 February 2014 01:49 PM
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acsinuk

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James
This lack of clear direction from DECC is most worrying and my feeling is that no coal station should close until we are absolutely sure of where the replacement generation is coming from!
CliveS
 03 February 2014 08:33 PM
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westonpa

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Do not worry about it Clive, Mr Davy will still become Lord Davy, thanks to the very fine job he has done in turning DECC around and for providing clear direction. The next generation will be like the aircraft carrier saga; 'hey guys/gals put on a jumper for the next 10 years and then we will have those new Nuclear power stations built.

Regards.
 06 February 2014 01:04 AM
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jarathoon

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Originally posted by: acsinuk

James

This lack of clear direction from DECC is most worrying and my feeling is that no coal station should close until we are absolutely sure of where the replacement generation is coming from!

CliveS


It is going to take 5 to 10 years to roll out well organised home insulation programme. to help mitigate the effect of energy price increases over the next two decades.

I think most of our coal stations will have to keep going for another 10 to 20 years to keep electricity prices increases to the minimum necessary during this difficult period of technological change. We can either build new coal stations with gas flue desulphurisation etc with a 60 year life (no ccs) or we keep the existing coal fleet going for another 10 - 20 years (and as a country paying the pollution fines to the EU) and use the time wisely to engineer a proper cost-effective replacement.

Fracking if possible (and politically acceptable to local communities) may take 10 years to get going. If we build too many gas fired power stations before then, the price of gas for home heating could sky rocket for no good reason than bad governance.

Off-shore wind is going to take at least another 10 years to become cost effective.

CCS as currently envisaged is a complete red-herring and waste of time and money. Government policy depends on this technology being delivered to work. CCS won't work reliably and cost effectively, and DECC policy can't work.

The New Third generation nuclear programme is grossly uncompetitive and is likely to fail in much the same manner as the new nuclear build programme in Margaret Thatchers time as PM.

In terms of Generation IV developments - I have yet to find one person in a government funded position - to help people like me get through the regulatory and institutional road blocks currently stopping developments in this direction. Its an utter disgrace.

Why not think through a proper energy strategy instead of letting the government think that energy bill payers are a source of unlimited funds to underwrite 30 to 40 years of crony-capitalism?

Tim Yeo has been deselected. It is significant first step. It helps puts down a marker to say enough is enough.

The next person to go has to be Lord Chris Smith the Chair of the Environment Agency. The Environment Agency is not a branch of the Arts Council, with all the budget to be spent on ever more documentation, ever more bureaucracy and increasingly unproductive literary criticism. Like a heat engine some useful work must come out of it as well as all the hot air.

Why does this country allow science and engineering philistines to be appointed to lead DECC and the Environment Agency, when the establishment would never dream of allowing someone with a vocational engineering qualification to take charge of the Arts Council?

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James Arathoon
 06 February 2014 01:46 PM
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westonpa

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Originally posted by: jarathoon
Why does this country allow science and engineering philistines to be appointed to lead DECC and the Environment Agency, when the establishment would never dream of allowing someone with a vocational engineering qualification to take charge of the Arts Council?

You do not need to be qualified James you just need to be elected or else standing close to the person who does the appointing.

Regards.
 06 February 2014 02:53 PM
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jarathoon

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Eric Pickles, the Communities Secretary, is now the leading the Governments response to the floods. At least Eric Pickles gives the impression that he knows one end of a screwdriver from the other and doesn't have 9 other more important paid jobs to do like Chris Smith that would keep him from visiting the Southwest and Wales.

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James Arathoon
 06 February 2014 06:53 PM
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westonpa

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You are so easily pacified james, would you rather not have a well qualified and experienced environmental engineer in charge of this agency?

Let's look at the HSE http://www.hse.gov.uk/aboutus/...hies/board/hackitt.htm Now Judith does seem to have quite a reasonable background for her role. Contrast that with Lord Smith who I believed graduated in English.

Regards.
 06 February 2014 07:19 PM
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jarathoon

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Lord Smith is apparently going to Somerset tomorrow; presumably to explain his secret policy of returning the Somerset Levels back to the romanticly poetic mythical marsh landscape that helped save King Alfred from the Vikings in the ninth cetury A.D.

Unfortunately he didn't bother to explain to the local people what the Environment Agency was trying to do. Now he has his chance.



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James Arathoon
 07 February 2014 11:36 AM
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westonpa

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Personally I do not see how he can be held to blame, he was appointed to his position in the full knowledge he was not qualified by a person who is also not qualified.

Regards.
 10 March 2014 01:30 PM
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jarathoon

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The Financial Times is running a blog today stating that the government is planning a strategic electricity generating reserve to be operated by National Grid, as an alternative to the Capacity Market.

http://blogs.ft.com/nick-butle...e-the-green-goddesses
[paywalled]

"To keep the lights on something has to provide back up power, and soon. But who will invest in capacity which might only be used 10 or 20 per cent of the time? After much agonising and hundreds of notes an answer has emerged from Whitehall. The Government will invest. Under the energy legislation this is close to impossible and so in a lovely sleight of hand worthy of Yes Minister the investment will be labelled as a matter of national security. The details are not yet all fully agreed but the current plan is for up to a dozen stations which are currently mothballed to be re-commissioned. These will be gas fired but some argue for including coal as well. They will be controlled by National Grid to avoid any suggestion that the Government is enriching the energy companies. The remit is to create a strategic electricity reserve for use if we ever get close to a brown out."

This would imply that the answer to my question

"How and when will DECC's electricity capacity market fail?"

is that the capacity market will never fail, because it will remain undefined, having been aborted, prior to full term subsidy model gestation.



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James Arathoon
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